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Hi,
I am trying to find the Retained Earnings for the Acquisition date of the sub.
P acquired 60% of sub with share exchange of 2 for 3 shares acquired
P’s share price at acquisition was £6/share
Mid year acquisition 6/12
Given profit for the year is £3000 of sub.
The question gives the £6500 as the retained earnings for the reporting date.
And the solution is showing the acquisition date amount is £5000.
How do you work out the £5000?
If retained earnings at the year end were $6,500 and we are told that the retained earnings for this year were $3,000, then the retained earnings brought forward from the end of last year must be $6,500 – $3,000 = $3,500
And half of this year’s profits up to date of acquisition is 6/12 * $3,000 = $1,500
Add that to the retained earnings figure brought forward and there’s your $5,000
OK?
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