Question 1

Section B - Case 1: Group Consolidations

**Scenario: Nebula Aerospace**
On 1 January 20X5, Nebula Aerospace acquired 80% of the equity share capital of Comet Components. The purchase consideration was $500,000 cash. At the date of acquisition, Comet's share capital was $100,000 and its retained earnings were $250,000. The fair value of the non-controlling interest (NCI) at acquisition was $110,000. 
During the year ended 31 December 20X5, Comet made a profit of $80,000. Nebula sold goods to Comet for $50,000 at a 25% mark-up on cost. Half of these goods remain in Comet's inventory at year-end. Comet owes Nebula $20,000 at year-end.

What are Comet's total retained earnings at the year-end (31 December 20X5) before any consolidation adjustments? (Enter the number only)

Accepted Answer

Add the profit for the year to the retained earnings at the start of the year (acquisition date).

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Using only the profit for the year or only the acquisition retained earnings.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 5

More questions from this exam