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Regarding the step acquisition of Caller indirectly because T acquires Park, why don’t we recognize the gain on the equity investment in C on the date of consolidation. i.e. 1.Jun.2012, i.e. at that date the value of the investment of T in C was 280 and one year ago 1.Jun.2011 the original investment was 260 so this gain of $20 why don’t we recognize it in W3: consolidated reserves/retained earnings because the rules states that for a step acquisition we have to revalue the investment at date control is got and then take any gains/losses to retained earnings so why isn’t it done in the answer to this question?
Above is the link to the question just in case you need to view it as I’m referring to note 1 and note 2 in the question. Thanks!
Here’s an extract from the question:
“The fair value of the 14% holding of Trailer in Caller was $280 million at 31 May 2012 and $310 million at 31 May 2013” The original cost was $260m
Trailer has accounted for a $50m gain – another extract from the question: “Caller 310” from the Trailer statement of financial position
So Trailer has already, at the year end, recognised a $50m increase in the value of its 14% holding in Caller (Debit Investment $50m, Credit Retained Earnings $50m)
Now here’s an extract from the answer (working 4 Retained Earnings):
“Reversal of gain on revaluation of investment (30)”
That therefore leaves just $20m recognised through Retained Earnings and I believe that that answers your question
🙂
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