Retained earnings of the subsidiary on or before the date of acquisition are to be treated as capital profits and those that are earned by it after the date of acquisition are treated as revenue profits.
While constructing a consolidated balance sheet at a date after acquisition, there is a need to divide all the profits into pre-acquisition profits and post-acquisition profits. While post-acquisition profits are shown in the consolidated balance sheet, pre-acquisition profits are eliminated by taking them into account in the computation of cost of control or capital reserve.
If there are any losses in the subsidiary on the date of acquisition, these must be taken into account in the calculation of the equity held in the subsidiary. This  is done by deducting such losses from the par value of shares held the effect of it is to increase the goodwill or decrease the capital reserve, as the case may be.