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ACCA · Question 45 · Preparing simple consolidated financial statements
Scenario: TechNova PLC acquired 80% of CyberNetix Ltd on 1 Jan 20X5 for $500,000 cash. At acquisition, CyberNetix's retained earnings were $200,000 and share capital was $100,000. NCI fair value at acquisition was $120,000. During 20X5, TechNova sold goods to CyberNetix for $80,000 (25% mark-up on cost). Half remained in inventory at year-end (31 Dec 20X5). CyberNetix's 20X5 profit was $150,000.
What is TechNova's share of CyberNetix's post-acquisition retained earnings to be included in Consolidated Retained Earnings? (Enter numbers only)
Scenario: TechNova PLC acquired 80% of CyberNetix Ltd on 1 Jan 20X5 for $500,000 cash. At acquisition, CyberNetix's retained earnings were $200,000 and share capital was $100,000. NCI fair value at acquisition was $120,000. During 20X5, TechNova sold goods to CyberNetix for $80,000 (25% mark-up on cost). Half remained in inventory at year-end (31 Dec 20X5). CyberNetix's 20X5 profit was $150,000.
What is TechNova's share of CyberNetix's post-acquisition retained earnings to be included in Consolidated Retained Earnings? (Enter numbers only)
How to approach this question
Multiply the subsidiary's post-acquisition profit by the parent's ownership percentage.
Full Answer
TechNova's share = 80% * $150,000 = $120,000. (Note: The PUP is deducted from the parent's own retained earnings, not from its share of the sub's earnings, because the parent was the seller).
Common mistakes
Deducting the PUP from this figure.
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