Parent plc owns 75% of Sub Ltd, acquired when Sub's retained earnings were £100,000. Parent's retained earnings are £300,000 and Sub's are £180,000 at the year end. What are consolidated retained earnings, ignoring goodwill impairment and unrealised profits?
Answer and explanation
Correct answer: A. £360,000
- Step 1: Only the group's share of post-acquisition retained earnings is added.
- Step 2: Post-acquisition increase = £180,000 − £100,000 = £80,000; the parent's 75% = £60,000.
- Step 3: Consolidated retained earnings = £300,000 + £60,000 = £360,000.
Answer
£360,000.
Why not the others: £480,000: This includes all of the subsidiary's retained earnings, including pre-acquisition and the NCI share. £435,000: This includes the parent's share of the subsidiary's pre-acquisition retained earnings. £380,000: This includes 100% of the post-acquisition profits instead of 75%.
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