Retained earnings (pre/post)workings mini q 10.2 & 10.3

When 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?