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Hi Sir,
I am not sure how to present this question to you, so I figured it would probably be best just to refer you to the question on the Open Tuition Mock Exam. It concerns retained earnings for the Consolidated Statement question in secton B.
I am confused about why my answer regarding “what is retained earnings” is incorrect.
Retained Earnings: Add both company’s retained earnings (189 + 72). Take away pre-acq earnings of 12.
There is also unrealised profit of 10 (45,000 sold to subsidiary, which includes a mark-up of 50%. Therefore, profit is 15,000 as cost is 30,000. 2/3 is still held in inventory, so 10,000 unrealised profit).
All in all, 189 + 72 – 12 – 10 = 239.
Do you know what else I would be missing?
Kind regards,
Yazan.Your mistake is that we should only bring in the holding company’s share of the post-acquisition retained earnings.
So the answer is 189 – 10 + 90%(72 – 12)
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