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Hi,
JUNE 13 P2 Question 1. Note.1
The FV of the 14% holding was $280 in 2012 and $310 in 2013.
My question is, why does this gain have to be reversed on consolidation?
I understand that in the SOFP, $310 is already included so if I were to credit retained earnings that would just be double counting.
But why can’t I just leave the gain in retained earnings?
Why do I have to reverse it?
Thank you.
I believe before the conso account is recorded, the individual account will be recorded as well..That before the control is obtained, Trailer’s own account will record 30m gain, so when recording the conso account again, it will be another 30m recording, that is why you need reverse it ..Look at the 31 May 2013 Balance sheet, it is already recorded 310m
Still i hope the tutor Mike/or the red guy tutor(I dont know him, i have been aaway for a while) to give more solid clarification
hey thanks for replying.
my question is, if the $30m gain has already been recorded in the individual account then why do I have to remove/reverse it on consolidation?
why can’t I just leave it in retained earnings?
is there a rule that I am missing?
let’s start from the begining
dr investment $280
cr cash $280then the $30m gain happened AND WAS RECORDED in the financial statements.
dr investment $30
cr P/L $30now, on consolidation,
dr cost of control $280
dr P/L $30
cr investment $310Is this the explanation you are talking about? because this is the only explanation I can come up with.
thank you =)
Hi,
It all revolves around the fact that Caller is a sub-subsidiary and is consolidated in the Trailer group accounts.
On consolidation we add across all the assets and liabilities of the sub and also remove the cost of the investment. As the value of the investment has increased by $30m we also need to remove that from the group accounts too.
It is fine to leave the gain in the individual accounts of Trailer as that is the correct accounting treatment but the treatment in the group accounts follows the single entity concept and substance.
Thanks
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