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Hi Mike,
I do not understand how the solution for q10.2 Pyotr & suzanna has RE 4months at 4.5m
shouldn’t it be 4/12* 82.5m = 27.5m insted.
also Ret earning for Q10.3 i do not understand. (Patricija & sergejus)
shouldn’t the RE b/f be 6.5m * 6/12 = 3.25m instead of 3.5m in the answer section
I may be wrong in both but would be really helpful if you can guide me here.
thanks for your time
kind regards
MWhen we are faced with a mid-year acquisition, it could help you to draw a time line – that is until the exercise comes more naturally to you
Let me make up some figures to illustrate the area of your confusion
Profit for the year $9,000, Retained Earnings at the year end $72,000, acquisition date 30 April, year end 31 December
So the acquisition is one third of the way into the year.
What is the pre-acquisition figure?
Given the information above, only $9,000 out of that $72,000 relates to the split year. The other $63,000 was already in retained earnings at 1 January this year, and then we added $9,000 this year to arrive at $72,000 as at the year end
So now concentrate on that $63,000 that already existed as at 1 January this year … and we acquired control 4 months later
That means that the WHOLE of that $63,000 is pre-acquisition and there’s a further 4/12 of the $9,000 also pre-acquisition = a total of $66,000 pre-acquisition profits
You could look at it from the perspective of the year end …
… we bought 8 months ago and 8/12 of this year’s profits are only $6,000
Therefore the rest ($72,000 – $6,000 = $66,000) must be pre-acquisition
Is that better?
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