ACCA Applied Knowledge · Financial Accounting · Subsidiaries
Hamble Co acquired 80% of Sorn Co on 1 January when Sorn's retained earnings were $50,000. At the reporting date, Sorn's retained earnings are $130,000. Hamble's own retained earnings are $300,000. Ignoring goodwill impairment, what are the consolidated retained earnings?
Consolidated retained earnings are $364,000. The parent's reserves of $300,000 are added to its 80% share of the subsidiary's post-acquisition profit, which is 80% of $80,000, or $64,000. Only the group's share is included; the rest belongs to the non-controlling interest.
- A$364,000Correct
- B$380,000
- C$344,000
- D$430,000
Explanation
Post-acquisition profit of Sorn = 130,000 - 50,000 = 80,000. Hamble's share at 80% = 64,000. Consolidated retained earnings = 300,000 + 64,000 = 364,000. The $380,000 option wrongly adds the full 100% of post-acquisition profit rather than the group share.
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