Consolidated Retained Earnings

Consolidated retained earnings is a component of shareholders equity on a consolidated balance sheet which represents the accumulated earnings that accrue to the parent. It equals the parent’s retained earnings purely from its own operations plus parent’s share in the subsidiary's net income since acquisition.

Unlike the consolidated net income which is primarily the sum of total net income of the parent and the subsidiary, consolidated retained earnings includes only such part of the subsidiary’s post-acquisition retained earnings which accrues to the parent. The subsidiary's retained earnings since acquisition that belongs to the non-controlling interest is included in another component of the consolidated shareholders equity called the non-controlling interest in subsidiary.


Consolidated retained earnings is calculated by adding two figures: the first is the parent’s individual retained earnings and the second is the parent’s share in the subsidiary’s post-acquisition retained earnings. The parent’s individual retained earnings must be adjusted for any accumulated income that is recognized in the parent's individual financial statements using cost method or equity method.

The following formula can be used to work out consolidated retained earnings:

$$ \text{Consolidated Retained Earnings}=\text{P}\ -\ \text{I}\ +\ \text{S}\times \text{h} $$

Where P stands for the parent’s individual retained earnings as at the reporting date and S stands for the subsidiary’s individual accumulated income since acquisition. I is the income recognized in the books of the parent company on account of income from subsidiary using the cost/equity method since acquisition. It is subtracted so as not to double-count the parent's share in subsidiary income. h is the parent’s holding in the subsidiary.


Company P has opening retained earnings of $100 million including $20 million accumulated since it acquired 80% stake in Company S two years back. Company S’s earnings over the last two years (i.e. since acquisition) amount to $10 million during which period no dividends are declared by Company S.

Company P accounts for the investment in subsidiary using the equity method. Work out the consolidated retained earnings for the group.

The following schedule shows the calculation of consolidate retained earnings in the above situation:

Consolidated retained earnings Calculation USD in million
Parent's retained earnings P 100
Less: equity method income from subsidiary I -8
Adjusted parent's retained earnings 92
Parent's share in subsidiary's accumulated earnings since acquisition (S × h) 8
Consolidated retained earnings =P-1+S×h 100

An amount of $8 million is subtracted from parent’s retained earnings. It represents the income recognized by the parent in its individual financial statements on account of income from subsidiary. It is subtracted to arrive parent’s retained earnings from purely own sources.

The consolidated retained earnings equals parent’s individual retained earnings whenever a fully adjusted equity method is used. It makes sense because consolidated retained earnings represents retained earnings that belong to the parent. Earnings associated with the minority interest are included in the non-controlling interest.

by Obaidullah Jan, ACA, CFA and last modified on is a free educational website; of students, by students, and for students. You are welcome to learn a range of topics from accounting, economics, finance and more. We hope you like the work that has been done, and if you have any suggestions, your feedback is highly valuable. Let's connect!

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