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

Parent plc acquired 80% of Sub Co on 1 January 20X3 when Sub's retained earnings were $200,000. At 31 December 20X5 the retained earnings of Parent and Sub are $900,000 and $350,000 respectively. There are no fair value adjustments or impairments. What is the consolidated retained earnings at 31 December 20X5?

Consolidated retained earnings are $1,020,000. The parent's retained earnings of $900,000 are added to its 80% share of the subsidiary's post-acquisition profit of $150,000 ($120,000). The non-controlling interest's 20% share is excluded.

  1. A$1,020,000Correct
  2. B$1,050,000
  3. C$1,120,000
  4. D$1,250,000

Explanation

Sub's post-acquisition profit is 350,000 - 200,000 = 150,000. Group share is 80% x 150,000 = 120,000. Consolidated retained earnings = 900,000 + 120,000 = 1,020,000. Using 100% of the post-acquisition profit would give 1,050,000, which ignores the non-controlling interest.

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