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ACCA Applied Skills · Financial Reporting · Preparation of consolidated financial statements for a simple group

Hal Co acquired 60% of Ivy Co on 1 July 20X4 when Ivy's retained earnings were $90,000. At acquisition, a building in Ivy had a fair value $100,000 above carrying amount, with a remaining life of 10 years. At 31 December 20X6 Ivy's retained earnings are $240,000 and Hal's are $500,000. Ignoring deferred tax, what are consolidated retained earnings at 31 December 20X6?

Consolidated retained earnings are $575,000 under the stated data, but this figure does not match any option, so the question should not be relied on.

  1. A$571,000Correct
  2. B$583,000
  3. C$590,000
  4. D$595,000

Explanation

Extra depreciation runs for 2.5 years from 1 July 20X4 to 31 December 20X6: 100,000/10 x 2.5 = 25,000. Ivy's adjusted post-acquisition profit = (240,000 - 90,000) - 25,000 = 125,000. Hal's 60% = 75,000. Total = 500,000 + 75,000 = 575,000. Checking the options: 575,000 is not present, so recalculate with the stated data: 60% of 125,000 = 75,000, giving 575,000. The nearest listed value, 571,000, would need a different depreciation period, so this item is unreliable.

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