CIMA Exam CIMAPRA19-F02-1 Topic 1 Question 99 Discussion

Actual exam question for CIMA's CIMAPRA19-F02-1 exam

Question #: 99
Topic #: 1

LM acquired 80% of the equity shares of ST when ST's retained earnings were $50 million. The fair value of the net assets of ST included a contingent liability with a fair value of $100 million at the date of acquisition and a fair value of $40 million at 31 December 20X6. No other fair value adjustments were required at the date of acquisition.

LM and ST had retained earnings of $200 million and $80 million respectively at 31 December 20X6.

The consolidated retained earnings of LM at 31 December 20X6 were:

A$164 million

B$176 million

C$272 million

D$284 million

Show Suggested Answer

Suggested Answer: C

by Margart at Sep 14, 2024, 11:18 PM

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Jesusita

2 months ago

This question is making my head spin. I think I'll just go with B) $176 million and cross my fingers. At least it's a nice, round number, right?

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Adolph

2 months ago

Wait, did they really just expect us to remember the formula for calculating consolidated retained earnings? I'm going to randomly guess C) $272 million and hope for the best.

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Matthew

2 months ago

I'm not sure about this one. The question mentions something about a contingent liability, which is making me second-guess myself. But I'll stick with A) $164 million for now.

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Kara

1 months ago

Yeah, let's go with A) $164 million then.

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Ernie

1 months ago

I agree, the contingent liability shouldn't affect the consolidated retained earnings.

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Cecily

1 months ago

I think the answer is A) $164 million.

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3 months ago

I think the answer is B) $176 million. The question states that LM acquired 80% of ST, so LM's share of ST's retained earnings would be 80% of $50 million, which is $40 million. LM's own retained earnings were $200 million, so the total consolidated retained earnings would be $200 million + $40 million = $240 million.

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Suzan

3 months ago

Yes, that makes sense. LM's share of ST's retained earnings plus their own would give the total consolidated retained earnings.

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Jamie

3 months ago

I think the answer is B) $176 million.

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Ailene

3 months ago

I think the answer is A) $164 million.

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