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i always seem to mess up getting the right figures for the pre and post acquisition retained earnings.
Say It’s a four months acquisition period and the profit for the year is 4500, retained earnings are 3900.What I do is to calculate 8 months out of the profit for the year in order to get the pre acquisition (3900*8/12). And calculate 4 months out of the profit for the year to get the post(3900*4/12).
In this case pre = 4500 + 2600 = 7100
Post = 4500 + 1300 = 5800
Evidently my answers are both wrong. Please explain what I’m doing wrong.Never mind my first question. I’ve realised what I’ve been doing wrong. I should deduct the post acquisition profit for the year from the sfp figure of retained earnings to get the pre, then show all the retained earning as at the end of the year as the post aquisition. Right?
Now, what do I do in case of the profit for the year were a negative figure?You’re still not right if I have understood you correctly
Say profit for the year is $3,900 and retained earnings at the end of the year are $5,000 and acquisition date is 4 months into this year (so 8 months is post acquisition)
Deduct $3,900 from $5,000 leaves $1,100 brought forward from last year.
Time apportion this year’s $3,900 so $1,300 is pre and $2,600 is post
Add the $1,300 to the $1,100 pre-acq brought forward gives $2,400 pre-acquisition and $2,600 post acquisition
Is that better?
What to do with losses?
The same as you do with profits except they’re in brackets
Thank you, that makes a lot more sense.
However, when doing the net assets list.. Do I bring in all year’s retained earnings (even if it’s a mid year aquisition or say 8/12 as in your example) or do I only put the post aquisition retained earnings at the CSFP date column?Mayada, the “net assets list” is not my favourite way of tackling the problem.
Which “net assets list” are you referring to – the one as at the date of acquisition or the one as at the year end?
If it’s the one at acquisition date, then only the brought forward + the 4 months ($2,400 from above)
If it’s the one at the year end, then it’s the retained earnings as at the year end ($5,000 from above)
I still much prefer my approach as illustrated extensively in the video lectures 😉
Thanks!! I suppose I dont have any further questions in regard to consolidations now.. Hopefully.
I would use any other method but unfortunately this is the only method I know. I haven’t watched the open tuition lecture videos since last night was the first time I use open tuition for help.
Will definitely check them out.
Thanks again 🙂
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