Preparing simple consolidated financial statements — ACCA Practice Question 32

How to approach this question

Remember that the group only earns profits *after* the acquisition date. Pre-acquisition profits are what the parent paid for, so they go into the goodwill calculation.

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B.They are included in the calculation of goodwill but excluded from consolidated retained earnings✓ Correct

Pre-acquisition retained earnings represent the wealth of the subsidiary before the parent took control. The parent pays for these as part of the purchase consideration. Therefore, they are used in the goodwill calculation (as part of net assets at acquisition) and are NOT included in the consolidated retained earnings.

Common mistakes

Adding pre-acquisition profits to consolidated retained earnings.

Section A

When preparing a consolidated statement of financial position, how are the pre-acquisition retained earnings of a subsidiary treated?

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Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 1

More questions from this exam

Section A When preparing a consolidated statement of financial position, how are the pre-acquisition retained earnings of a subsidiary treated?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 1

More questions from this exam

Section A

When preparing a consolidated statement of financial position, how are the pre-acquisition retained earnings of a subsidiary treated?