- This topic has 7 replies, 2 voices, and was last updated 6 years ago by
.
- Posts
Dear
Is there any case that the pre-acquisition R/E is excess the R/E at the reporting date ? If it is , how do we solve it ? Based on the lecture , we always take the amount of R/E at the reporting date minus the pre-acquisition RE . so if we do the same way , that will give us a negative result ? Many Thanks & RegardsIt is unlikely that will happen in the exam, but if it does then you do it in the same way and it will be negative and will therefore be subtracted from the retained earnings of the parent instead of being added.
Thanks for your quick reply to my question ,
So assume :
P’s Retained earnings is 10000$ . S ‘s R/E (at reporting date ) s 5000 $ and the pre-acquisition R/E of S is 6000$ .
so the workings will be : 10.000-( 5000-6000) =4000 ? is it correct ?And I have one more question ( Hopefully my question doesn’t sound too silly ) … why does P ( or S) needs to sell goods to each other ? especially P , when P acquired 100% the share capital of S . why don’t they just Dr withdraw / Cr goods ?
Yes, it is correct.
P and S do not have to sell to each other, but they are two separate companies in law and may well sell to each other. Just because one company owns part (or all) of the other company does not stop them being separate companies.
There is no ‘consolidated company’ – we are simply required to produce consolidated accounts in addition to the separate account for each of the companies in order to show better information.
Excuse me , can you pls explain this one
P acquired 75% of the ordinary share capital of S on 1 January 2009 when S had retained losses of 112.000$ and S ‘s R/E at the reporting date is 1204 .
1- Can you pls explain lil bit about “retained losses ” . honestly , this is the first time I’ve heard this .2- The working for post acquisition R/E of S is 75% ( 1204+112)
Can you pls explain why do we need to add it together ( instead of minus ) ? As the value of 112 is already there when P acquires S ( I mean … That’s not P’s problem ) . Many ThanksA retained loss is simply a negative retained profit.
If the retained earnings at the date of acquisition were -112,000, and the retained earnings are now +1204,000, the the earnings since acquisition must have been 112,000 + 1204,000. (The earnings cleared the loss and then grew to 1204,000)
Oh thank you for your answer ,
And .. I have another question about calculating NCI of Example 7 – Chapter 23 and part B -Mock exam ( The question starts with Alice bought 90% the equity share capital ) .In the example 7 , you remove the unrealised profit when calculate NCI
but In the mock exam , why don’t we remove it ?I keep re watching the lecture , but I can’t find it ( about when we need to remove PURP and when we don’t )
Thank you so muchWe always remove the PURP, but we remove it from the retained earnings of whichever of the companies originally sold the goods to the other company.
So if it was sold by the subsidiary to the parent then it affects the earnings of the subsidiary, and therefore affects the NCI.
If it was sold by the parent to the subsidiary then it affects the earnings of the parent and so does not affect the NCI.
- You must be logged in to reply to this topic.