Sub Ltd made a profit of £120,000 for the year ended 31 December. Parent plc acquired control of it on 1 October. Profits arise evenly through the year. How much of Sub Ltd's profit for the year is included in the consolidated statement of profit or loss, before considering non-controlling interest?
Answer and explanation
Correct answer: D. £30,000
- Step 1: Income and expenses of a subsidiary are consolidated only from the date control is gained.
- Step 2: 1 October to 31 December is 3 months.
- Step 3: £120,000 × 3/12 = £30,000.
Answer
£30,000.
Why not the others: £120,000: This includes the full year though control was held for only three months. £90,000: This includes the nine months before acquisition instead of the three months after. £60,000: This assumes six months of ownership, but control was held for only three.
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