Invested amount as Retained Earnings?

lmb
lmb Registered Posts: 2 New contributor 🐸
in Financial Statements for Limited Companies
So frustrated, hope someone can help!

Parent Co. invests £1.3m. In the Subsidiary Co. it shows Share Capital £100k and Retained Earnings £1.2m.

I thought the £1.3m invested in the subs. co. would be recorded in the Share Capital?

I don't understand why it is in Retained Earnings? It was invested on 1/1/x1 and the date of the accounts is 1/1/x1

Comments

  • PeterC
    PeterC Registered, Tutor Posts: 249 Dedicated contributor 🦉
    Did the acquired business have net assets of £1.3m (share capital of £100k + retained earnings of £1.2m) before the acquisition?
    That might explain why Parent Co. paid £1.3m to buy it (from the existing shareholders)
    The accounts of the acquired company would not be affected by the change of ownership

  • lmb
    lmb Registered Posts: 2 New contributor 🐸
    Yes it did, thank you. I thought it would have been recorded as £1.3m in the Share Capital of the acquired co. but realise the investment cancels the share capital and the pre-acquisition reserves (the retained earnings)

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