[kerwin]

What I would like to clear up is that I notice sometimes questions involving consolidation may ask, “what is the total consolidated retain earning” For example, the Parent’s R/E is $100,000 and the Sub made $50,000 in post-acquisition profits, what is the total consolidated R/E. Some answers states that the consolidated R/E includes only hte Parent. And another question would state Parent plus Sub’s R/E. Does this have to do with the method that is used, such as Purchase or acquisition method? What is the difference in terms of reporting consolidated R/E subsequent to the date of acquisition because on acquisition date they should be the same.

[jimboace88]

Companies consolidate their financials when the parent (purchaser) has control over the subsidiary (usually evidenced by ownership of >50% of the sub's common stock). If this is the case, all that should emerge in the consolidated financial statements under the stockholder's equity section is the parent company's equity. As part of your eliminating journal entries when the companies consolidate, you eliminate the subsidiary's equity section.

I could be wrong, but I don't think there is a case where consolidated financial statements would be parent equity + sub equity. That kind of defeats the purpose of a consolidated financial statement…

Hope that helps!

FAR 07/27/11 - 87
AUD 10/01/11 - 85
BEC 11/15/11 - 87
REG 01/03/12 - 92

[kerwin]

Do not get me wrong, but I did not say P+ S equity. What I am making specific refernce to is the Retained Earnings (R/E) which is also a component of equity. I am a Jamaican who is normally accustomed to IFRS and when consolidating under IFRS, after the date of acquisition the Parent(P) accrues its share of earnings from the Sub (S) similar to what is done in the equity method of accounting. For example, on Jan 1, 2010 P bought 80% of S and during the year S made $100,000 net income and P had R/E on Jan 1, 2010 of $500,000 and also made net income of $150,000.

The group's R/E would be $500,000 + $150,000 + (80%*$100,000). So consolidated R/E at Dec 31, 2010 would be $730,000. Or if S was acquired half-way through the period the income subsequent to acquisition would be apportioned in likewise manner.

[anonymous]

Hey Kerwin,

Check out p 3 here https://www.ocf.berkeley.edu/~cchang/pdf%20docs/ch005.pdf. There are three slides on consolidated retained earnings that I believe answer your question. Good luck!

REG -- October 3!!
FAR -- Pass
BEC -- Pass
AUD -- Pass

[Author]

Replies