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Hey there.
A little lost on the below!
Q)
EF, in addition to its other holdings, acquired a 30% stake in the 100,000 $1 ordinary shares of SR on 1 January 20X1 for $50,000. At acquisition, SR’s retained earnings were $22,000. During the year ended 31 December 20X4, SR sold goods to EF for $10,000 at a margin of 20%. As at 31 December 20X4, a quarter of these goods had been sold on to third parties. The retained earnings of the EF Group (excluding SR) and SR at 31 December 20X4 were $390,000 and $90,000 respectively. The investment in SR was impaired by $2,920 by 31 December 20X4.
Calculate the consolidated retained earnings of EF Group (incorporating SR) at 31 December 20X4. The consolidated retained earnings of EF Group (incorporating SR) at 31 December 20X4 are:
A little confused.. since we do not consolidate for Associates right?
cheers!
Hi,
You’re correct in that we don’t consolidate an associate but we still need to make PUP adjustments to remove the influence that we had over the sale between the associate and the group. The key is that we then only adjust for our share of the PUP.
With regards to answering the question the consolidated retained earnings of the group will incorporate 100% of P’s retained earnings plus P’s% of A’s post-acquisition retained earnings (adjusting for any PUP adjustment) less any impairment in the associate.
Have a go at it now and see how you get on and then get back to me with where you’re still stuck.
Thanks
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