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On 1 January 20X5, Prunier acquired 80% of Sheringham’s two million $1 ordinary shares. At this date, Sheringham had retained earnings of $4 million and a revaluation surplus of $2 million. Prunier had retained earnings of $10 million and a revaluation surplus of $5 million.
The fair value of Sheringham’s net assets at acquisition were equal to their carrying amounts with the exception of Sheringham’s property which had a fair value of $800,000 in excess of its carrying amount and a remaining life of 20 years.
At 31 December 20X5, Prunier and Sheringham both revalued their assets. Prunier’s assets increased by a further $2 million while Sheringham’s increased by $500,000. At this date, Prunier’s retained earnings were $11 million and Sheringham’s were $3.5 million.
356 What will the consolidated retained earnings be at 31 December 20X5?
A $11,432,000
B $10,560,000
C 11368000
D. 10568000Sir , in this qs. What is the treatment for reval surplus of Sheringham? And what will be the ans?
Hi,
The revaluation surplus is a reserve and all reserves are calculated by taking 100% of the parent plus P’s% of S’s post-acquisition movement in the reserves.
We treat both the revaluation reserve and retained earnings separately, so for this question where it is asking for the group reserves you can ignore everything to do with the revaluation reserve. Just focus on the retained earnings figures.
Thanks
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