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

Which statement about the treatment of a subsidiary's pre-acquisition reserves in the consolidated statement of financial position is correct?

Pre-acquisition reserves are excluded from consolidated retained earnings because they are part of the net assets acquired at the acquisition date and are therefore captured in the goodwill calculation. Only post-acquisition profits attributable to the group are included.

  1. AThey are excluded from consolidated retained earnings because they are included in the calculation of goodwillCorrect
  2. BThey are included in consolidated retained earnings at the parent's percentage holding
  3. CThey are included in full in consolidated retained earnings
  4. DThey are transferred to the non-controlling interest in full

Explanation

Pre-acquisition reserves form part of the net assets acquired at the acquisition date and so are reflected in the goodwill calculation. Only post-acquisition profits attributable to the group are added to consolidated retained earnings. The non-controlling interest receives its share of net assets, not a full transfer of pre-acquisition reserves.

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