quick question regards financial reporting

markg86

When doing consolidations could anyone explain to me why you
DEDUCT: PRE-ACQUISITION PROFITS AND
ADD: PRE-ACQUISITION LOSSES

heres my solution

WORKING 2 – GROUP SHARE OF MAINE EARNINGS:

GROUP SHARE OF MAINE EARNINGS
RETAINED EARNINGS OF SUBSIDIARY 73,000
[DEDUCT: PRE-ACQUISITION PROFITS]
ADD: PRE-ACQUISITION LOSSES
PUBLISHED PROFITS (50,000)
INVENTORIES ADJUSTMENT 38,000
RECEIVABLES ADJUSTMENT 22,000


POST-ACQUISITION EARNINGS 83,000
INVENTORIES ADJUSTMENT (4,000)
79,000

80% THEREOF 63,200


In the question the inventories were overvalued by 38k and a further 22k of bad debt provision is required.

Appreciate any responses, Thanks a lot.

thefa

The Group is only entitled to a share of the post-acquisition profits. That share is the % ownership of the subsidiary.

You take the retained earnings at the year end and you;
DEDUCT: PRE-ACQUISITION PROFITS
or
ADD: PRE-ACQUISITION LOSSES (because they have come from this negative figure pre-acquisition to a positive retained earning)

You can't have both a final profit and a final loss figure for pre-acquisition so that answer looks like a layout.


GROUP SHARE OF MAINE EARNINGS
RETAINED EARNINGS OF SUBSIDIARY 73,000
[DEDUCT: PRE-ACQUISITION PROFITS]
ADD: PRE-ACQUISITION LOSSES
PUBLISHED PROFITS (50,000)



Implies the company had 50k pre-acquisition profit/retained earnings before acquisition.