# Calculating post acquisition profit with a mid year acquisition

Post-Acquisition Profits Calculation

## Step-by-Step Guide

1. Determine the Date of Acquisition: Identify the exact date when the parent company acquired the subsidiary. This is crucial as it determines the period for which the subsidiary's profits will be included in the consolidated financial statements.
2. Calculate the Subsidiary’s Total Profit for the Year: Obtain the total profit of the subsidiary for the entire financial year from the income statement.
3. Time Apportion the Profit: Since the subsidiary was acquired partway through the year, you need to apportion the profit based on the period of ownership. For example, if the subsidiary was acquired on 1st July and the financial year ends on 31st December, the parent company would include six months of the subsidiary’s profit.
`Post-acquisition profit = Total annual profit × (Number of months post-acquisition / 12)`

## Example Calculation

Assume the following:

• The subsidiary was acquired on 1st July.
• The financial year ends on 31st December.
• The subsidiary’s total profit for the year is \$24,000.

Calculation:

• Number of months post-acquisition: 6 (from July to December)
• Post-acquisition profit:
`Post-acquisition profit = 24,000 × (6 / 12) = 24,000 × 0.5 = 12,000`

## Adjustments in Consolidated Financial Statements

1. Include Post-Acquisition Profits: The calculated post-acquisition profit (\$12,000 in the example) will be included in the consolidated retained earnings.
2. Non-Controlling Interest (NCI): If there is a non-controlling interest, the post-acquisition profit will be split between the parent and the NCI based on their respective ownership percentages.

## Key Points to Remember

• Fair Value Adjustments: Ensure any fair value adjustments at the date of acquisition are considered, as these affect the net assets and subsequent profit calculations.
• Intra-Group Transactions: Eliminate any intra-group transactions to avoid double counting profits or losses within the group.
• Impairment of Goodwill: If there is any impairment of goodwill, it should be accounted for in the consolidated financial statements.

## Common Errors to Avoid

• Forgetting to Time Apportion: Always time apportion the subsidiary’s profit based on the acquisition date.
• Incorrectly Including Full Year’s Profit: Only include the profit for the period post-acquisition, not the entire year’s profit.
• Ignoring Fair Value Adjustments: Ensure all fair value adjustments are made at the acquisition date and reflected in the net assets.