Pre and post acquisition reserves

In this lesson

1. 0:00 Pre and post acquisition reserves explained
2. 1:51 Worked example: Brown acquires Red Co
3. 3:39 Net assets summary and fair value adjustments
4. 5:38 Goodwill calculation and impairment treatment
5. 6:32 Noncontrolling interest and group retained earnings
6. 7:56 Consolidated statement of financial position

About this lesson

This video covers the distinction between pre-acquisition reserves (which form part of goodwill) and post-acquisition reserves (which are split between group and non-controlling interests), plus how to handle fair value adjustments and their ongoing depreciation or amortisation impact. Through a comprehensive worked example, you'll see how to apply these principles to prepare a consolidated statement of financial position, including handling impairments and internally generated intangibles. When a subsidiary joins the group mid-year, you need to split its profits and reserves into two parts. Pre-acquisition profits are treated as part of the subsidiary's net assets at acquisition and therefore included in the goodwill calculation. Post-acquisition profits belong to the group and must be apportioned between parent shareholders and non-controlling interests based on ownership percentage. The same principle applies to all reserves—revaluation surpluses, fair value adjustments, and any other movements are split pre and post acquisition. The worked example demonstrates the full consolidation process: calculating net assets at both acquisition and reporting dates, accounting for fair value adjustments (including the additional depreciation or amortisation they trigger over time), computing goodwill after impairment, determining non-controlling interest, and calculating group retained earnings. By the end, you'll understand how each component feeds into the final consolidated statement of financial position and why careful apportionment of post-acquisition movements is essential for accurate group accounts.

Duration: 9m