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Will the cancellation of intergroup loans affect consolidated retained earnings?
On 1 July 20X7, Spider Co acquired 60% of the equity share capital of Fly Co and on that date made a $10 million loan to Fly Co at a rate of 8% per annum.
What will be the effect on group retained earnings at the year-end date of 31 December 20X7 when this intragroup transaction is cancelled?
The answer is ‘ Group retained earnings will be reduced by $160,000″, My question is why does the offsetting transaction of intergroup loans still affect group retained earnings?
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