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Hi Mike,
Can you help me with the following question?
Frog acquired 100% of the ordinary share capital of Toad on 1 October 20×7.
On 31 December 20×7 retained earnings of Toad and Frog were as follows:
Retained earnings at 1 January 20×7 Frog 500,000 Toad 100,000
Retained profit for the year ended 31 December 20×7 Frog 150,000 Toad 60,000
Total: 650,000 160,000The profits of toad have accrued evenly throughout 20×7
What figure for retained earnings should be included in the consolidated financial statements of the Frog Group at 31 December 20×7?
A- 150,000
B- 175,000
C- 665,000
D- 810,000I am not sure why you do 60/12 X 9 for the pre-acquisition retained earnings?
Thanks
Also, on a separate note, why does a increase in allowance for receivables decrease receivables and therefore working capital?
Stop asking Mike when he is not the tutor for F3!
Since Toad was acquired on 1 October (which is 9 months through the year), 9 months of the earnings during the year to 31 December were pre-acquisition and only 3 months of the earnings were post-acquisition. Since there are 12 months in a year, 9/12 of the earnings for the year were pre-acquisition.
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