ExpertHard2 marksMultiple Choice
ACCA · Question 30 · Financial Reporting
Section B - Case 3: BioHealth Holdings
BioHealth's retained earnings at 31 December 20X8 were $14,000,000. MedTech's retained earnings at acquisition were $4,000,000 and at 31 December 20X8 were $5,200,000. BioHealth sold goods to MedTech resulting in a PURP of $40,000. An impairment review at year-end determined that goodwill had been impaired by $100,000. (NCI is valued at fair value).
What is the Consolidated Retained Earnings balance as at 31 December 20X8?
Section B - Case 3: BioHealth Holdings
BioHealth's retained earnings at 31 December 20X8 were $14,000,000. MedTech's retained earnings at acquisition were $4,000,000 and at 31 December 20X8 were $5,200,000. BioHealth sold goods to MedTech resulting in a PURP of $40,000. An impairment review at year-end determined that goodwill had been impaired by $100,000. (NCI is valued at fair value).
What is the Consolidated Retained Earnings balance as at 31 December 20X8?
Answer options:
A.
$14,860,000
B.
$14,785,000
C.
$14,760,000
D.
$14,825,000
How to approach this question
Start with Parent's RE. Add Parent's share of Sub's post-acquisition RE. Deduct PURP (since Parent is the seller). Deduct Parent's share of goodwill impairment (since NCI is at fair value, impairment is split).
Full Answer
B.$14,785,000✓ Correct
BioHealth's own retained earnings = $14,000,000.
BioHealth's share of MedTech's post-acquisition retained earnings = 75% × ($5,200,000 - $4,000,000) = $900,000.
Less: PURP (BioHealth is the seller, so it bears 100% of the adjustment) = ($40,000).
Less: Share of goodwill impairment. Since NCI is at fair value, impairment is shared. Parent share = 75% × $100,000 = ($75,000).
Consolidated Retained Earnings = $14,000,000 + $900,000 - $40,000 - $75,000 = $14,785,000.
Common mistakes
Deducting 100% of the goodwill impairment from the parent's retained earnings when the fair value method is used for NCI.
Practice the full ACCA FR — Financial Reporting Practice Exam 6
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