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 31/12/03

Retained profits for the year:   Bal c/d – Bal b/d
                                          =150,000 – 120,000
                                          =30,000

Pre-acquisition profits: 1st Jan 03 – 31st March 03   = ¼ X30,000 = 7500

Retained profits on acquisition   =  bal b/d  + pre-acquisition
                                                   =  120,000 + 7500
                                                   =   £127,000

  To cost of control
                 = 80% x 127,000
                 = £102,000