Illustration: Computation of retained profits acquisition
Assume that H Ltd.. Acquired 80% of S Ltd.. On 1st April, 2003. The retained profits of the subsidiary company b/d amounted to £ 120,000 and the c/d amounted to £150,000.
REQ. Compute the retained profits on date of acquisition and the amount to be transferred to the cost of control if the financial year end is 31/12/03Retained profits for the year: Bal c/d – Bal b/d =150,000 – 120,000 =30,000Pre-acquisition profits: 1st Jan 03 – 31st March 03 = ¼ X30,000 = 7500Retained profits on acquisition = bal b/d + pre-acquisition = 120,000 + 7500 = £127,000
To cost of control = 80% x 127,000 = £102,000