Question

Company A acquired 140,000 shares in Company B for 400,000$ on 1 January 20x0 when company...

Company A acquired 140,000 shares in Company B for 400,000$ on 1 January 20x0 when company B retained earnings were 62,000$ and the fair valuation of its non-current assets $80,000 more than the book value. Based on fair value Company B should have written off additional depreciation of 6,000$ per year.

Company A $ Company B $
Assets 490,000 350,000
Investment in Company B 400,000
890,000 350,000
Shares of 1$ each 680,000 200,000
Retained earnings 210,000 150,000
890,000 350,000

Identify the amount that the retained earnings will be reported at the Consolidated statement of Financial positions as at 31 December 20x3?

A) 267,400$

B) 254,800$

C) 271,600$

D) none of these

Business   Accounting   
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Homework Answers

Answer #1

Company B retained earning before acquistion = $62,000

Company B retained earning Dec 31 20x3 = $150,000

Increase in retained earning = $150,000 - $62,000 = $88,000

Less Additional depreciation = $6000

Net Increase = $88,000 - $6000 = $82,000

Company A's share of net increase = $82,000 * 70% = $57,400

Company A's retained earning before adjustment of increase in earnings from investment = $210,000

Thus, Company A's retained earning after adjustment of increase in earnings from investment = $210,000 + $57400 = $267,400

Thus the answer would be

A) $267,400

Feel free to ask for any clarification, if required. Kindly provide feedback by thumbs up. It would be highly appreciated. Thank You.

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