ACCA Applied Knowledge · Financial Accounting · Subsidiaries
Pike Co owns 75% of Dace Co, acquired when Dace's retained earnings were $40,000. At the reporting date Dace's retained earnings are $120,000. Pike's retained earnings are $250,000. Goodwill of $30,000 arose on acquisition and has been impaired by $12,000 in total. The group measures non-controlling interest at the proportion of net assets, so the impairment is borne wholly by the parent. What are the consolidated retained earnings?
Consolidated retained earnings are $298,000. Pike's $250,000 is increased by its 75% share of Dace's post-acquisition profit of $80,000, which is $60,000, then reduced by the full $12,000 goodwill impairment because the non-controlling interest is measured at proportionate net assets and bears none of it.
- A$298,000Correct
- B$310,000
- C$301,000
- D$292,000
Explanation
Post-acquisition profit of Dace = 120,000 - 40,000 = 80,000; Pike's 75% share = 60,000. Consolidated retained earnings = 250,000 + 60,000 - 12,000 impairment = 298,000. The $310,000 option omits the impairment.
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