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Dear Mike,
In working out the pre-acquisition Retained Earnings for the subsidiary (Danute), the profit from the Dispoal of TNCA (to parent) was taken away from the profits for the year of Danute.Which of the following explains this treatment?
Abnormal v. Trading profits (‘abnormal’ referring to profits not from trading activities).
Date sale took place.
Unrealised v. Realised profitsAgain, the fair value of Inventory was treated as part of pre-acquisition Retained Earnings. I understand that fair values would always form part of the net assets acquired of the subsidiary. But I am struggling to understand why this time the fair value adjustment for inventory is not only part of the net assets, it is also part of the pre-acquisition retained earnings of the subsidiary.
Kind regards.
#1 the $36,000 was a non-trading profit, a one-off and clearly therefore not logically capable of being time apportioned. It is given in the question that the profit was achieved in the post-acquisition period
#2 if that fair value for the inventory had been correctly valued as at date of acquisition then the cost of sales in the pre acquisition period would have been decreased and that’s why the adjustment appears in working W3 as well as a fair value adjustment in working W2
Ok, on both?
Hello,
can you please explain how was calculated pre acquisition RE of Danute (86.000) in W3?Thanks a lot!
Evgeniia64 brought forward and 22 for this year (as shown in working W2 on page 170)
Please disregard my question. I already found out how it was calculated.
Thanks
Evgeniia
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