Question

Consolidated SoFP question, help please?

Hello everyone, I’m wondering if somebody could please help me figure out some logic that’s not very clear to me in the Kaplan FA Study Text?

So if a parent obtains control over a subsidiary several years ago, should the subsidiary’s retained earnings at the acquisition date be deducted from the subsidiary’s current retained earnings every financial reporting year after the year of acquisition?

I was under the impression that you only deduct the retained earnings (at acquisition) in the year the subsidiary was acquired and not in subsequent years after?

If someone could please help, that would be amazing. Thank you!

Answer 1

That depends on question,
If question says that subsidiary acquired on 2017 and were asked to prepare consolidated FS for 2021 (it is implied that none of adjustment entries made for retained earnings or inter stock movement or inter company transactions - for 2017 to 2021 if question silent about it so for which we need to pass entries) that's why we deduct retained earnings of acquisition year from the current years retained earnings.

but in reality every company has to make entries regards to acquisition in the year of acquisition takes place.

I guess that helps,
Incase of any further query on this explanation, fell free to approach me at : moulieedibilli74@gamil.com

Thanks and stay safe.

Comments

Thank you so much for your reply Sangam :)

That makes a lot of sense now. That was exactly the kind of questions I was getting in the exam kit. I’ll assume that no previous adjustment entries were made like you said. I wish the study text was a bit clearer there but hey ho.

Thank you again!