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ACCA Applied Skills · Financial Reporting · The concepts and principles of groups and consolidated financial statements

Parent Co acquired 70% of Sub Co on 1 April when Sub Co's retained earnings were $120,000. Share capital is $100,000 throughout. At 31 March the following year Sub Co's retained earnings are $200,000 and Parent Co's are $500,000. Goodwill is $30,000 and has been impaired by $10,000 in total, all of which is charged to the parent because NCI is measured at the proportionate share of net assets. What are consolidated retained earnings?

Consolidated retained earnings are $546,000. Parent's $500,000 is increased by its 70% share of Sub Co's post-acquisition profit of $80,000, which is $56,000, and reduced by the $10,000 goodwill impairment borne entirely by the parent.

  1. A$546,000Correct
  2. B$556,000
  3. C$536,000
  4. D$560,000

Explanation

Post-acquisition profit of Sub Co = 200,000 - 120,000 = 80,000; Parent share 70% = 56,000. Consolidated retained earnings = 500,000 + 56,000 - 10,000 impairment = 546,000. Omitting impairment gives 556,000. Using the full 80,000 gives 570,000 less 10,000 = 560,000, which ignores NCI.

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