Time Ltd acquired 90% of Out Ltd for $252,000 cash on 1 July 2018.At that date the equity of Out included the following:

Share Capital$200 000

Retained Earnings80 000

280 000

On 30 June 2020, Out Ltd provided the following information:

Profit after tax$40 000

Retained earnings (1/7/19)100 000

Dividend paid10 000

Explanation:

At the time of Acquisition:

90% of Net Assets Value = 280000*0.90 = 252000

Since the 90% stake was purchased at the same consideration, we can conclude that Out Ltd. does not have any goodwill i.e. the Shares was acquired at book value per share.

As on 1st July, 2020:

Retained Earning = 100000

Therefore Retained Earning as on 1st July, 2019 = Retained Earning as on 1/7/2020 - Profit After Tax + Dividend Paid

= 100000 - 40000 + 10000

= 70000

So for the Financial Year 2018-2019 i.e period 1/7/2018 to 30/6/2019, the company had a net loss of = Retained Earning as on 1/7/2018 - Retained Earning as on 30/6/2019 = 80000 - 70000 = 10000

Therefore just after the acquisition, Out Ltd. has suffered a loss of 10000 for FY 2018-2019 & a Profit of 40000 for FY 2019-2010.

Since Time Limited has acquired 90% shares of Out Ltd. i.e. more than 50%, Out Ltd. will be considered as the subsidiary of Time Ltd.

As on 1/7/2020, Minority Interest in the Consolidated Books of Time Ltd will be = Minority Share Capital + Minority Share in Earnings = 10% of 200000 + 10% of 100000 = 20000 + 10000 = 30000.

Investment in the books of Time Limited will stand at 252000.

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