ACCA Applied Knowledge · Financial Accounting · Subsidiaries
Alpha acquired 80% of Beta on 1 January 20X4 when Beta's retained earnings were $50,000. At 31 December 20X6 Alpha's retained earnings are $300,000 and Beta's are $110,000. There are no other adjustments. What is the consolidated retained earnings at 31 December 20X6?
Consolidated retained earnings are $348,000. Only the parent's share of the subsidiary's post-acquisition profit is added to the parent's own reserves. Beta's post-acquisition profit is $60,000, and 80% of it is $48,000, which is added to Alpha's $300,000.
- A$348,000Correct
- B$300,000
- C$358,000
- D$410,000
Explanation
Post-acquisition profit of Beta = 110,000 - 50,000 = 60,000. Group share at 80% = 48,000. Consolidated retained earnings = 300,000 + 48,000 = 348,000. Using 100% of the post-acquisition profit would give 360,000, and using the full closing balance share would wrongly include pre-acquisition profit.
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