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(i) On October 20X7, P acquired 60% of the equity share capital of S for $9,600,000. The profit for the year ended 30 September 20X8 for P and S are $7,238,000 and $4,100,000 respectively. The statement of financial position as at 30 September 20X7 shows S’s share capital and retained earnings as $4,000,000 and $6,500,000 respectively. Calculate and please explain the consolidated retained earnings to be presented in the balance sheet.
(ii) “Other than where indicated, statement of profit and loss items are deemed to accrue evenly on a time basis.” What exactly does this mean?
(iii) “Jupiter is a sole proprietor whose accounting records are incomplete. All the sales are cash sales and during the year $50,000 was banked, including $5,000 from the sale of a business car.” So I debited the cash account with $50,000 but found out it was wrong which was shocking because I thought we should debit the cash account if we put money in the bank.
All the questions are not related.
1. The consolidated retained earnings are all those of P, together with P’s share of the post-acquisition profits of S. You have not said what date in October P acquired the shares in S, but the profit of S during the year to 30 September 20X8 was 6,500,000 – 4,100,000 = 2,400,000. If the acquisition was on 1 October 20X7, then these are the post-acquisition profits.
2. It means an equal amount each month.
3. You debit the cash account with cash received. When cash is paid into the bank, you credit the cash account (because it is leaving cash) and debit the bank account (because it increased the balance in the bank).
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