FS - Question

eek

Can anyone please help me with the following question on practice assessment 3 question 1.3

Austell acquired 90% of Glover for £4200,000 at which share capital was £2200,000 premium £800,000 and RE £170,000

During year sold goods for £200,000 at cost of £120,000. Half were still in inventory but no intercompany balances were outstanding at end of year.

Austell Glover
Capital 2600 2200
Premium 1600 800
RE 2400 230

What is the consolidated RE figure?

Answer should be 2414 but cant get there.

crispy

Hello,

RE Parent...........................2,400
RE Subsid at Y/e .....230
RE Subsid at Acq ...(170)
Group Share (90%)....60...........54
Less: PURP (80*1/2)...............(40)
Consol RE...........................2,414

eek

Thanks Crispy

Can you just explain why Inventories and net realisable profit comes into retained earning figures - I have always used impairments in RE so have never come across one with inventories in before.

crispy

Hello,

Yes, would will need to strip out any unrealised profit from the position of the group. Just have a practice with a few of these type questions and it shouldn't be a problem. The journal for PURP would be,

Dr Consol. Retained Earnings
Cr Inventories

eek

thanks very much for your help - next week is the dreaded last exam of level 4!! FS