Question：ABC Co acquired an 80% interest in DEF Co at 31 December 20X1 when the retained earnings of DEF were $40 million (credit). Three years later the retained earnings of DEF Co were $20 million (debit).
Which of the following options best describes the impact of the above reserves movement upon the ABC Co accounts and the consolidated accounts for the ABC group at 31 December 20X7? (Check any that apply.)
A. ABC Co should not consolidate DEF as it is no longer a going concern.
B. Any remaining unimpaired goodwill should be written off.
C. The consolidated accounts will include the post-acquisition losses of DEF.
D. The investment in DEF in the accounts of ABC should be written down in view of the extent of the losses in DEF.
The correct answers are: The investment in DEF in the accounts of ABC should be written down in view of the extent of the losses in DEF;
Unimpaired goodwill should be written off;
The consolidated accounts will include the post-acquisition losses of DEF.
These show the proper accounting treatment. The subsidiary can only be excluded if the parent is unable to exercise control over it.