ch19 SM Leo 10e

Solutions Manual
to accompany
Company Accounting 10e

prepared by
Ken Leo
John Hoggett
John Sweeting
Jeffrey Knapp
Sue McGowan
© John Wiley & Sons Australia, Ltd 2015

Solutions manual to accompany Company Accounting 10e
Chapter 19 – Consolidation: wholly owned

subsidiaries
REVIEW QUESTIONS
1. Explain the purpose of the pre-acquisition entries in the preparation of consolidated

financial statements.
The purpose of the pre-acquisition entry is to:

- prevent double counting of the assets of the economic entity
- prevent double counting of the equity of the economic entity
- recognise any gain on bargain purchase
A simple example such as that below could be used to illustrate these points:
A Ltd has acquired all the issued shares of B Ltd. The balance sheets of both companies
immediately after acquisition are as follows:
Share capital $200 Share capital $100

Reserves 100 Reserves 50
300 150
Shares in B Ltd 150 --

Cash 150 Cash 150
300 150
The balance of the “Shares in B Ltd” account can be changed to introduce goodwill/ gain on
bargain purchase amounts.
2. When there is a dividend payable by the subsidiary at acquisition date, under what
conditions should the existence of this dividend be taken into consideration in preparing the
pre-acquisition entries?
Discuss:
- the difference between ex div and cum div acquisitions
- the effects on the acquisition journal entry in the records of the parent under each
circumstance.
Assume for example that A Ltd acquires all the issued shares of B Ltd for $500 000 when at
acquisition date B Ltd has recorded a dividend payable of $10,000.
- the effects on the acquisition analysis
- the differences in the pre-acquisition entries at acquisition date if the acquisition is cum div
versus ex div. [ the cum div entry will need to eliminate the dividend receivable raised by the
parent and the dividend payable raised by the subsidiary]
© John Wiley and Sons Australia, Ltd 2015 19.1

Chapter 19: Consolidation: wholly owned subsidiaries
3. Is it necessary to distinguish pre-acquisition dividends from post-acquisition dividends?
Discuss:
- the definition of acquisition date
- the meaning of pre-acquisition and post-acquisition equity
- according to para 38A of AASB 127 an entity shall recognise a dividend from a
subsidiary in profit or loss ie as revenue – regardless of whether it is paid from pre- or
post-acquisition equity
4. If the subsidiary has recorded goodwill in its records at acquisition date, how does this affect
the preparation of the pre-acquisition entries?
Discuss:
- the difference between internally generated and acquired goodwill, and how the goodwill can
be internally generated to the subsidiary but acquired by the parent
- the effects on the worksheet in relation to the goodwill eg if the subsidiary has recorded
goodwill of $50 and the parent acquires all the shares in a subsidiary for $4,050 when the
equity of the subsidiary is $3 950
Parent Subsidiary Dr Cr Group

Goodwill 0 50 100 150
In calculating the net fair value of the identifiable assets and liabilities acquired, there must be an
adjustment for the unidentifiable asset, goodwill, to calculate the goodwill acquired by the group.
The goodwill acquired, but not recorded, is recognised in the business combination valuation
entries. The pre-acquisition entries will eliminate the BCVR as pre-acquisition equity.
On consolidation, the adjustment columns in the worksheet contain the adjustment necessary so
that the group goodwill is shown in the consolidated balance sheet. This amount is the total of the
goodwill recognised by the subsidiary at acquisition date and the goodwill recognised on
consolidation. This equals the total goodwill acquired by the parent in its acquisition of the
subsidiary.
5. Explain how the existence of an excess affects the pre-acquisition entries, both in the year of
acquisition and in subsequent years.
Explain the meaning of and accounting for an excess as per AASB 3
Year of acquisition:
Excess is shown in the pre-acquisition entry as a gain.
Subsequent years:
The excess is subsumed into the opening balance of retained earnings. It reduces the balance
recorded by the subsidiary as the parent paid less for the subsidiary than the fair value of the
identifiable assets and liabilities of the subsidiary.

6. At the date the parent acquires a controlling interest in a subsidiary, if the carrying amounts
of the subsidiary’s assets are not equal to fair value, explain why adjustments to these assets
are required in the preparation of the consolidated financial statements.
AASB 3, paragraph 18, requires that identifiable assets and liabilities of the subsidiary be shown
at fair value. The standard-setters believe that the fair value of the assets and liabilities provides
the most relevant information to users.
Even though the standard refers to an allocation of the cost of a business combination, the
standard does not require the identifiable assets and liabilities acquired to be recorded at cost.
The only asset acquired that is not measured at fair value is goodwill.
The fair value approach is emphasised by the required accounting for any bargain purchase on
combination. It is not accounted for as a reduction in the fair values of the identifiable assets and
liabilities acquired such that these items are recorded at cost. Instead, the fair values are
unchanged and the excess is recognised as a gain.
7. How does AASB 3 Business Combinations affect the acquisition analysis?
The formation of a parent–subsidiary relationship by the parent obtaining control over the subsidiary
is a business combination. The parent, being the controlling entity is an acquirer, with the subsidiary
being the acquiree. The acquisition analysis is then totally based on AASB 3. The acquisition analysis
reflects the application of the acquisition method:
Step 1: Identify the acquirer – in this case, it is the parent.
Step 2: Determine the acquisition date
Step 3: Recognise and measure the identifiable assets acquired and the liabilities assumed at fair
value. The differences between the carrying amounts and fair values of the identifiable
assets, liabilities and contingent liabilities of the subsidiary are recognised via business
combination valuation reserves. The effect is to recognise the assets and liabilities of the
subsidiary at fair value.
Step 4: Recognise and measure goodwill or a gain from a bargain purchase. The goodwill is
recognised in the BCVR entries while the gain is recognised in the pre-acquisition entries.
8. What is the purpose of the business combination valuation entries?
The purpose of these entries is to make consolidation adjustments so that in the consolidate balance
sheet the identifiable assets, liabilities and contingent liabilities of the subsidiary are reported at fair
value. This is to fulfil step 3 of the acquisition method required to account for business combinations
by AASB 3.
9. Using an example, explain how the business combination valuation entries affect the pre-
acquisition entries.
Assume at acquisition date, the subsidiary has land recorded at a carrying amount of $10 000 and
having a fair value of $15 000. The tax rate is 30%.
At acquisition date, the BCVR entries will recognise an increment to land of $5 000, a deferred tax
liability of $1 500 and a BCVR of $3 500. This BCVR is pre-acquisition equity. Hence in the pre-
acquisition entry, if prepared at acquisition date, there would be a debit adjustment to BCVR to
eliminate the balance of pre-acquisition equity.

In subsequent periods, if the land is sold, in the BCVR entries, on sale of the land, there would be a
credit adjustment to “Transfer from BCVR”, as the reserve is transferred to retained earnings. In
preparing the pre-acquisition entries in the year of sale, the initial entry carried forward from the
previous period will still include the BCVR relating to land. A further entry is then required debiting
the “Transfer from BCVR” account – hence eliminating pre-acquisition equity – and crediting the
BCVR account as this account no longer exists.
10. Why are some adjustment entries in the previous period’s consolidation worksheet also
made in the current period’s worksheet?
The consolidation worksheet is just a worksheet. The consolidation worksheet entries do not affect the
underlying financial statements or the accounts of the parent or the subsidiary. Hence, if last year’s
profits required to be adjusted on consolidation, then potentially retained earnings needs to be
adjusted in the current period.
Similarly, a BCVR entry to recognise the land on hand at acquisition at fair value is made in the
consolidation worksheet for each year that the land remains in the subsidiary. The entry does not
change from year to year. Again the reason is that the adjustment to the carrying amount of the land is
only made in a worksheet and not in the actual records of the subsidiary itself.

CASE STUDIES
Case Study 1 Handling research outlays
Lynx Ltd has just acquired all the issued shares of Indus Ltd. The accounting staff at
Lynx Ltd has been analysing the assets and liabilities acquired in Indus Ltd. As a result
of this analysis, it was found that Indus Ltd had been expensing its research outlays in
accordance with AASB 138 Intangible Assets. Over the past 3 years, the company has
expensed a total of $20 000, including $8000 immediately before the acquisition date.
One of the reasons that Lynx Ltd acquired control of Indus Ltd was its promising
research findings in an area that could benefit the products being produced by Lynx
Ltd.
There is disagreement among the accounting staff as to how to account for the
research abilities of Indus Ltd. Some of the staff argue that, since it is research, the
correct accounting is to expense it, and so it has no effect on accounting for the group.
Other members of the accounting staff believe that it should be recognised on
consolidation, but are unsure of the accounting entries to use, and are concerned about
the future effects of recognition of an asset, particularly as no tax advantage remains in
relation to the asset.
Required
Advise the group accountant of Lynx Ltd on what accounting is most appropriate for
these circumstances.
Accounting for research and development in the subsidiary itself is governed by AASB 138
Intangible Assets. Research outlays are expensed under AASB 138 para 54.
Recognition of intangibles acquired in a business combination is discussed in paras 33-41 of AASB
138. Para 13 of AASB 3 recognises that some intangible assets not recognised by an acquiree may be
recognisable by the acquirer.
In a business combination the intangible asset is measured at its fair value, using the hierarchy in
AASB 138.
In order to recognise an intangible asset, it must meet the definition of an asset.
In preparing the consolidated financial statements, Lynx Ltd will recognise the in-process research
asset in its business combination valuation entries, for example:
In-Process Research Dr x
Deferred Tax Liability Cr x
Business Combination Valuation Reserve Cr x
The tax-effect, in this case a liability relating to the expected tax to be paid on the earnings from the
research asset, is recognised.
In future periods, the in-process research will be subject to the amortisation procedures in AASB 138,
resulting in further BCVR entries such as:
Amortisation Expense Dr x
Accumulated Amortisation Cr x
Deferred Tax Liability Dr x

Income Tax Expense Cr x
When the In-Process research is fully amortised, the BCVR will be transferred to retained earnings,
and no future consolidation adjustments will be necessary.

Case Study 2 Unrecorded liability

Scorpio Ltd has finally concluded its negotiations to take over Norma Ltd, and has secured
ownership of all the shares of Norma Ltd. One of the areas of discussion during the negotiation
process was the current court case that Norma Ltd was involved in. The company was being
sued by some former employees who were retrenched, but are now claiming damages for unfair
dismissal. The company did not believe that it owed these employees anything. However,
realising that industrial relations was an uncertain area, particularly given the country’s
current confusing industrial relations laws, it had raised a note to the accounts issued before the
takeover by Scorpio Ltd reporting the existence of the court case as a contingent liability. No
monetary amount was disclosed, but the company’s lawyers had placed a $56 700 amount on
the probable payout to settle the case.
The accounting staff of Scorpio Ltd is unsure of the effect of this contingent liability on the
accounting for the consolidated group after the takeover. Some argue that it is not a liability of
the group and so should not be recognised on consolidation, but are willing to accept some form
of note disclosure. A further concern being raised is the effects on the accounts, depending on
whether Norma Ltd wins or loses the case. If Norma Ltd wins the court case, it will not have
to pay out any damages and could get reimbursement of its court costs, estimated to be around
$40 000.
Required
Give the group accountant your opinion on the accounting at acquisition date for consolidation
purposes, as well as any subsequent effects when the entity either wins or loses the case.
Under para 27 of AASB 137 Provisions, Contingent Liabilities and Contingent Assets, an entity’s
contingent liabilities are not recognised in the accounts of the entity but are reported by way of note to
the accounts.
Under AASB 3 para 36, an acquirer must recognise at the acquisition date the acquiree’s identifiable
assets and liabilities that satisfy the recognition criteria at their fair values at that date.
Para 23 of AASB 3 state that the requirements of AASB 137 do not apply in determining which
contingent liabilities to recognise as of acquisition date. However, the liability recognised must be a
present obligation – not a possible obligation. Also, contrary to AASB 137, the acquirer recognises
contingent liability even if it not probable that an outflow of resources will be required. The fair value
measurement takes into account the probability of outflows occurring.
Scorpio Ltd must then recognise the liability in its consolidated financial statements at fair value. This
is done using the BCVR entries, assuming a fair value of $40 000:
Business Combination Valuation Reserve Dr 28 000

Deferred Tax Asset Dr 12 000
Provision for Damages Cr 40 000
If Norma Ltd wins the court case and no damages have to be paid, the consolidation worksheet entry
changes to:
Transfer from BCVR Dr 28 000

Income Tax Expense Dr 12 000
Gain from Court Case Cr 40 000
If Norma Ltd loses the court case and pays damages of an amount less than $40 000, say $30 000,
then the worksheet entry is:


Gain from Court Case Cr 10 000
Damages Expense Cr 30 000
If Norma Ltd loses the court case and pays damages of an amount equal to or greater than $40 000,
say $50 000, then the worksheet entry is:

Damages Expense Cr 40 000
In relation to the court costs, assume that Norma Ltd has at the date of acquisition already incurred
court costs of, say, $10 000 and expects to win the case and get these costs reimbursed.
Under AASB 137, Norma Ltd does not itself recognise a contingent asset in its records. Further under
AASB 3, contingent assets are not recognised by the acquirer as a part of step 3 of the acquisition
method. They therefore do not affect the consolidation process. If the $10 000 were received by
Norma Ltd in a later period upon winning the court case, it would be recognised as a gain by both
Norma Ltd and the group.

Case Study 3 Accounting for assets and liabilities
Mensa Ltd has acquired all the shares of Cancer Ltd. The accountant for Mensa Ltd,
having studied the requirements of AASB 3 Business Combinations, realises that all the
identifiable assets and liabilities of Cancer Ltd must be recognised in the consolidated
financial statements at fair value. Although he is happy about the valuation of these
items, he is unsure of a number of other matters associated with accounting for these
assets and liabilities. He has approached you and asked for your advice.
Required
Write a report for the accountant at Mensa Ltd advising on the following issues:
1. Should the adjustments to fair value be made in the consolidation worksheet or in
the accounts of Cancer Ltd?
2. What equity accounts should be used when revaluing the assets, and should
different equity accounts such as income (similar to recognition of an excess) be
used in relation to recognition of liabilities?
3. Do these equity accounts remain in existence indefinitely, since they do not seem to
be related to the equity accounts recognised by Cancer Ltd itself?
1. From the point of view of AASB 3 and AASB 127, there is no specification on where the
adjustments are made. However if the assets of the subsidiary are adjusted to fair value in the
accounts of the subsidiary itself then this amounts to adoption of the revaluation model by the
subsidiary and all the regulations in AASB 116 and AASB 138 apply. In particular, the assets
must be continuously adjusted to reflect current fair values. If, on the other hand, the adjustments
are made in the consolidation worksheet, this is a recognition on consolidation of the cost of the
assets to the group entity rather than an adoption of the revaluation model. Hence the recognition
of the subsidiary’s assets at fair value is to measure cost to the acquirer. There is then no need to
make subsequent adjustments to the assets when the fair values change. Because of the costs
associated with using the revaluation model, it is expected that most entities will make the
adjustments in the consolidation worksheet rather than in the accounts of the subsidiary itself.
2. The accounting standards do not specify the name of the equity account raised on valuation of the
assets and liabilities of the subsidiary. Hence, an asset revaluation reserve account could be used
for the assets. Leo et al uses a BCVR because adjustments are made to both assets and liabilities
and the BCVR is then a generic account for all adjustments arising as a result of the business
combination.
It is not appropriate to use income for liabilities as the recognition of equity for both assets and
liabilities does not affect current period profit or loss. There is no gain by the acquirer on
recognition of assets or liabilities not recognised by the subsidiary.
3. The BCVR remains in existence while the underlying assets and liabilities remain unsold,
unconsumed or unsettled. With asset revaluation reserves under the revaluation model there is no
requirement that it ever be transferred to retained earnings, although this is normal practice and is
allowed under AASB 116. Similarly, the BCV reserves could remain indefinitely. However, the
extra benefits/expenses resulting from using the assets or settling the liabilities will flow into the
subsidiary’s retained earnings account. Hence the group recognises the net benefits in the BCVR
while the subsidiary recognises them in retained earnings. This situation requires an adjustment in
the consolidation worksheet every year while such a difference in equity classification occurs. If
on consolidation as the assets are used up or sold and the liabilities settled the BCVR is
transferred to retained earnings, no subsequent consolidation adjustment is required.

Case Study 4 Goodwill
When Hydra Ltd acquired the shares of Draco Ltd, one of the assets in the statement of
financial position of Draco Ltd was $15 000 goodwill, which had been recognised by
Draco Ltd upon its acquisition of a business from Valhalla Ltd. Having prepared the
acquisition analysis as part of the process of preparing the consolidated financial
statements for Hydra Ltd, the group accountant, Asmund Asmundson, has asked for
your opinion.
Required
Provide advice on the following issues:
1. How does the recording of goodwill by the subsidiary affect the accounting for the
group’s goodwill?
2. If, in subsequent years, goodwill is impaired, for example by $10 000, should the
impairment loss be recognised in the records of Hydra Ltd or as a consolidation
adjustment?
1. The goodwill recorded by the subsidiary affects the adjustment to goodwill on consolidation.
If the acquisition analysis results in the calculation of a group goodwill of, say, $20 000, then as
the subsidiary has already recorded $15 000, a debit adjustment of $5 000 is required in the
consolidation worksheet.
If the acquisition analysis results in the calculation of a group goodwill of, say, $12 000, then as
the subsidiary has already recorded $15 000, a credit adjustment of $3 000 is required in the
consolidation worksheet.
If the acquisition analysis determines an excess of, say, $2 000, then the whole $15 000 goodwill
is eliminated on consolidation.
Any accumulated impairment losses recorded by the subsidiary at acquisition date must be
adjusted for in the consolidation worksheet.
2. The determination of the impairment loss would be based on the subsidiary as a CGU with the
consolidated numbers representing the carrying amounts of the CGU. In writing off goodwill as
the result of an impairment loss, the goodwill written off could be either that recognised by the
subsidiary or that recognised on consolidation.
If the goodwill on consolidation is written off this is done via the pre-acquisition entries. If the
subsidiary writes off its recorded goodwill, no adjustment is required on consolidation for the
impairment write-down.
If the consolidated goodwill was $20 000, then if an impairment loss of $10 000 occurred, an
amount of at least $5 000 would have to be written off in the subsidiary’s accounts.

Case Study 5 Bargain purchase
The accountant for Carina Ltd, Ms Finn, has sought your advice on an accounting issue
that has been puzzling her. When preparing the acquisition analysis relating to Carina
Ltd’s acquisition of Lyra Ltd, she calculated that there was a gain on bargain purchase
of $10 000. Being unsure of how to account for this, she was informed by accounting
acquaintances that this should be recognised as income. However, she reasoned that this
would have an effect on the consolidated profit in the first year after acquisition date.
For example, if Lyra Ltd reported a profit of $50 000, then consolidated profit would be
$60 000. She is unsure of whether this profit is all post-acquisition profit or a mixture of
pre-acquisition profit and post-acquisition profit.
Required
Compile a detailed report on the nature of an excess, how it should be accounted for
and the effects of its recognition on subsequent consolidated financial statements.
1. The gain arises as a result of a bargain purchase.

2. AASB 3 requires that, on calculation of a gain on bargain purchase, the acquirer reassess the
identification and measurement of the identifiable assets and liabilities. After this reassessment,
any remaining excess is recognised as current period income.
3. The gain on bargain purchase is all post-acquisition as it is in excess of the pre-acquisition
equity equal to the net fair value of the identifiable assets and liabilities of the subsidiary. In
subsequent periods, it is included in retained earnings (opening balance) – it reduces the
adjustment to the opening balance of retained earnings.
Example:
Assume at acquisition date the recorded retained earnings was $10 000 and a gain on bargain
purchase of $1 000 arose. In the first period subsequent to acquisition date, the subsidiary
recorded a profit of $5 000.
In the first period subsequent to acquisition the group would recognise a zero balance in
retained earnings and a profit of $6 000, being the recorded $5 000 plus the $1 000 gain on
bargain purchase [all post-acquisition].
In the following period, the subsidiary would report an opening balance of $15 000 and the
pre-acquisition entry would show a debit adjustment to retained earnings (opening balance) of
$9 000, thus showing a post-acquisition balance of $6 000.

PRACTICE QUESTIONS
Question 19.1 Pre-acquisition entries at acquisition date and one year

later, no fair value/carrying amount differences at
acquisition date
On 1 July 2016, Max Ltd acquired all the issued shares of Rodney Ltd for $200 000. The
financial statements of Rodney Ltd showed the equity of Rodney Ltd at that date to be:
Share capital — 20 000 $5 shares $100 000

General reserve 40 000
Retained earnings 60 000
All the assets and liabilities of Rodney Ltd were recorded at amounts equal to their fair values
at that date.
During the year ending 30 June 2017, Rodney Ltd undertook the following actions.
• On 10 September 2016, paid a dividend of $20 000 from the profits earned prior to 1 July
2016.
• On 28 June 2017, declared a dividend of $20 000 to be paid on 15 August 2017.
• On 1 January 2017, transferred $15 000 from the general reserve existing at 1 July 2016 to
retained earnings.
Required
A. Prepare the pre-acquisition entries at 1 July 2016.
B. Prepare the pre-acquisition entries at 30 June 2017.
Acquisition analysis:
At 1 July 2016:
Net fair value of identifiable assets
and liabilities acquired = $100 000 + $40 000 + $60 000 (equity)
= $200 000
Consideration transferred = $200 000
Goodwill = $0
A. Pre-acquisition entries at 1 July 2016:
Retained earnings (1/7/16) Dr 60 000

Share capital Dr 100 000
General reserve Dr 40 000
Shares in Rodney Ltd Cr 200 000
B. Pre-acquisition entries at 30 June 2017

Shares in Rodney Ltd Cr 200 000

General reserve Cr 15 000
Note that neither of the dividend transactions have any effect on the pre-acquisition entries regardless
of whether the dividends are paid/declared from pre- or post-acquisition equity.

Question 19.2 Consolidation worksheet entries at acquisition date and

one year later, no fair value/carrying amount differences
at acquisition date
On 1 July 2016, Jackson Ltd acquired all the issued shares (cum div.) of Laurie Ltd for $240
000. At that date the financial statements of Laurie Ltd showed the following information:
Share capital $100 000

Dividend payable 20 000
All the assets and liabilities of Jackson Ltd were recorded at amounts equal to their fair values
at that date.
The dividend payable reported at 1 July 2016 by Laurie Ltd was paid on 15 August 2016.
Laurie Ltd paid a $25 000 dividend on 2 February 2017.
Required
A. Prepare the consolidation worksheet entries at 1 July 2016.
B. Prepare the consolidation worksheet entries at 30 June 2017.
C. What differences would occur in the entries in A and B above if the shares were bought on
an ex div. basis?
At 1 July 2016:
= $220 000
Consideration transferred = $240 000 - $20 000 (dividend receivable)
= $220 000
Goodwill = $0
A: Worksheet entries at 1 July 2016

Shares in Laurie Ltd Cr 220 000
Dividend payable Dr 20 000

Dividend receivable Cr 20 000
B: Worksheet entries at 30 June 2017

C: Differences if shares issued on an ex div basis

At 1 July 2016:

= $220 000
Goodwill = $20 000
The worksheet entries at 1 July 2016 and 30 June 2017 are the same:
1. Business combination valuation entries
Goodwill Dr 20 000
Business combination valuation reserve Cr 20 000
2. Pre-acquisition entries

Question 19.3 Worksheet entries at acquisition date and at subsequent

year end, no fair value/carrying amount differences at
acquisition date, existing goodwill at acquisition date
On 1 January 2017, Graham Ltd acquired all the issued shares (cum div.) of Leslie Ltd for
$263 000. At that date the equity of Leslie Ltd was recorded at:

Reserves 40 000
On 1 January 2017, the records of Leslie Ltd also showed that the company had recorded the
asset goodwill at cost of $5000. Further Leslie Ltd had a dividend payable liability of $10 000,
the dividend to be paid in March 2017. All other assets and liabilities were carried at amounts
equal to their fair values.
Required
A. Prepare the consolidation worksheet entries on 1 January 2017, immediately after
combination.
C. Prepare the consolidation worksheet entries at 1 January 2017 assuming the consideration
transferred was $259 000.
A: Consolidation worksheet entries at 1 January 2017

At 1 January 2017:

and liabilities of Leslie Ltd = ($150 000 + $40 000 + $60 000) (equity)
- $5 000 (goodwill)
= $245 000
= $253 000
Goodwill acquired = $253 000 – 245 000
= $8 000
Non-recorded goodwill = $8 000 - $5 000
= $3 000
Business combination valuation entries
Goodwill Dr 3 000
Pre-acquisition entries

Business combination valuation reserve Dr 3 000
Shares in Leslie Ltd Cr 253 000


B: Consolidation worksheet entries at 30 June 2017
The entries are the same as in A. above except that the dividend payable/receivable entry will no
longer be required as the dividend has been paid by Leslie Ltd.
C. Worksheet entries assuming the recorded goodwill is
At 1 January 2017:

and liabilities of Leslie Ltd = ($150 000 + $40 000 + $60 000) (equity)
- $5 000 (goodwill)
= $245 000
= $249 000
Goodwill acquired = $249 000 – 245 000
= $4 000
Over statement of goodwill = $4 000 - $5 000
= $(1 000)

Goodwill Cr 1 000


Note: this situation would occur where the parent pays less than the full fair value of the subsidiary. If
the real goodwill of the subsidiary was only $4000 then there should be an impairment adjustment of
$1000 to goodwill in the subsidiary prior to preparing the consolidation entries. In this case the
following adjustment entry would be required:
Accumulated impairment losses – goodwill Dr 1000

Goodwill Cr 1000
The pre-acquisition entry would be:
Impairment loss – goodwill Cr 1 000

Goodwill is then shown in the CFS at $4000 and no impairment loss is shown.

Question 19.4 Worksheet entries at acquisition date and in subsequent

year, no fair value/carrying amount differences at
acquisition date, bargain purchase
On 1 July 2016, John Ltd acquired all the issued shares of Robert Ltd for $153 000. At this date
the equity of Robert Ltd was recorded as follows:

All the identifiable assets and liabilities were recorded at amounts equal to their fair values.
Required
A. Prepare the consolidation worksheet entries at 1 July 2016 and 1 July 2017 assuming John
Ltd paid $153 000 for the shares in Robert Ltd.
B. Prepare the consolidation worksheet entries at 1 July 2016 and 1 July 2017 assuming John
Ltd paid $148 000 for the shares in Robert Ltd.
C. Prepare the consolidation worksheet entries at 1 July 2016 assuming John Ltd paid $145 000
for the shares in Robert Ltd and at that date Robert Ltd had recorded goodwill of $4000.
A: Consideration of $153 000
At 1 July 2016:
and liabilities of Robert Ltd = ($80 000 + $30 000 + $40 000) (equity)
= $150 000
Goodwill acquired = $153 000 – $150 000
= $3 000
Worksheet entries at 1 July 2016:
Goodwill Dr 3 000

Shares in Robert Ltd Cr 153 000
Worksheet entries at 1 July 2017
The entries are the same as those above.

B: Consideration of $148 000
At 1 July 2016:
= $150 000
Gain on bargain purchase = $148 000 – $150 000
= $2 000

Gain on bargain purchase Cr 2 000

C: Consideration of $145 000 and recorded goodwill of $4000
At 1 July 2016:
- $4 000 (goodwill)
= $146 000
Gain on bargain purchase = $145 000 – $146 000
= $1 000
1. Business combination valuation reserve entries

Goodwill Cr 4 000


Question 19.5 Preparation of worksheet subsequent to acquisition, no

fair value/carrying amount differences at acquisition date
On 1 July 2015, Adam Ltd acquired all the issued shares (ex div.) of Luke Ltd. At this date the
financial statements of Luke Ltd showed the following balances in its accounts:

Goodwill 10 000
At 1 July 2015, all the identifiable assets and liabilities of Luke Ltd were recorded at amounts
equal to their fair values.
The financial statements of Adam Ltd and Luke Ltd at 30 June 2016 contained the following
information:
Required
Prepare the consolidated financial statements at 30 June 2016.
Acquisition analysis
At 1 July 2015:


and liabilities of Luke Ltd = ($150 000 + $40 000 + $80 000) (equity)
- $10 000 (goodwill)
= $260 000
= $272 000
Goodwill acquired = $272 000 – $260 000
= $12 000
Unrecorded goodwill = $12 000 - $10 000
= $2 000
The consolidation worksheet entries at 30 June 2016 are:
Goodwill Dr 2 000

Shares in Luke Ltd Cr 272 000
Transfer from general reserve Dr 10 000

The consolidation worksheet at 30 June 2016 is:

Adam Luke Adjustments Group
Ltd Ltd Dr Cr
Profit for the period 35 000 25 000 60 000
Retained earnings 90 000 80 000 2 80 000 90 000
(1/7/15)
Transfer from general 0 10 000 2 10 000 0
reserve
Retained earnings 125 000 115 000 150 000
(30/6/16)
Share capital 700 000 150 000 2 150 000 700 000
General reserve 92 000 30 000 2 40 000 10 000 2 92 000
Business combination 0 0 2 2 000 2 000 1 0
valuation reserve
Provisions 30 000 20 000 50 000
Payables 15 000 25 000 40 000
Loans 50 000 110 000 160 000
1 012 000 450 000 1 192 000
Plant 600 000 820 000 1 420 000
Accum. Depreciation (295 000) (650 000) (945 000)
Fixtures 300 000 120 000 420 000
Accum depreciation (180 000) (80 000) (260 000)
Land 200 000 140 000 340 000
Brands 50 000 30 000 80 000
Shares in Luke Ltd 272 000 0 272 000 2 0

Inventory 45 000 40 000 85 000

Cash 5 000 7 000 12 000
Receivables 15 000 13 000 28 000
Goodwill 0 10 000 1 2 000 12 000
1 012 000 450 000 284 000 284 000 1 192 000
ADAM LTD
Consolidated Statement of Profit or Loss and Other Comprehensive Income
for financial year ended 30 June 2016
Profit for the period $60 000

Other comprehensive income _____0
Comprehensive income $60 000
ADAM LTD
Consolidated Statement of Financial Position
as at 30 June 2016
Current assets:
Cash $12 000
Receivables 28 000
Inventories 85 000
Total current assets 125 000
Non-current assets:
Plant 1 420 000
Accumulated depreciation (945 000)
Fixtures 420 000
Land 340 000
Brands 80 000
Goodwill 12 000
Total non-current assets 1 067 000
Total assets $1 192 000
Equity
Share capital 700 000
Total equity 942 000
Current liabilities:
Provisions 50 000
Payables 40 000
Total current liabilities 90 000
Non-current liabilities: Loans 160 000
Total liabilities 250 000
Total equity and liabilities $1 192 000

Question 19.6 Business combination valuation entries, pre-acquisition

entries
On 1 July 2016, Mutt Ltd acquired all the issued shares of Jeff Ltd for $174 800. At this date the
equity of Jeff Ltd consisted of share capital of $80 000 and retained earnings of $68 800. All the
identifiable assets and liabilities of Jeff Ltd were recorded at amounts equal to fair value except
for:
Carrying amount Fair value

Patent $60 000 $72 000
Plant (net of $40 000 depreciation) 40 000 48 000
Inventory 21 600 28 000
The patent was considered to have an indefinite life. It was calculated that the plant had a
further life of 10 years, and was depreciated on a straight-line basis. All the inventory was sold
by 30 June 2017. In June 2017, Jeff Ltd conducted an impairment test on the patent, as it was
considered to have an indefinite life, and the goodwill. As a result, the goodwill was considered
to be impaired by $1200.
In May 2017, Jeff Ltd transferred $20 000 from the retained earnings on hand at 1 July 2016
to a general reserve. The tax rate is 30%.
Required
Prepare the consolidation worksheet adjustments entries at 1 July 2016 and 30 June 2017.
At 1 July 2016:

and liabilities of Jeff Ltd = ($80 000 + $68 800) (equity)
+$6 400 (1 – 30%) (inventory)
+ $12 000 (1 – 30%) (patent)
+ $8 000 (1 – 30%) (plant)
= $167 280
Goodwill = $7 520
Inventory Dr 6 400
Deferred tax liability Cr 1 920
Patent Dr 12 000
*Accumulated depreciation - equipment Dr 40 000

Equipment Cr 32 000
*refer to end of solution for an alternative to this journal entry

Goodwill Dr 7 520

Shares in Jeff Ltd Cr 174 800
Worksheet entries at 30 June 2017

The entries at 1 July 2013 are affected by:
- the sale of the inventory
- the depreciation of the plant
- the impairment of the goodwill
Cost of sales Dr 6 400

Income tax expense Cr 1 920
Transfer from business combination
valuation reserve Cr 4 480
Patent Dr 12 000
Accumulated depreciation - equipment Dr 40 000

Equipment Cr 32 000
Depreciation expense Dr 800

Accumulated depreciation Cr 800
(10% x $8 000)
Deferred tax liability Dr 240

Income tax expense Cr 240
(30% x $1 000)
Goodwill Dr 7 520
Impairment loss – goodwill Dr 1 200

Accum. impairment losses – goodwill Cr 1 200
The pre-acquisition entries are affected by:
- transfer from business combination valuation reserve

Shares in Jeff Ltd Cr 174 800


Transfer to general reserve Cr 12 000
Transfer from business comb. valuation reserve Dr 4 480

*Alternative BCVR entry for Equipment

Accumulated depreciation - equipment Dr 40 000
Equipment Cr 40 000
Equipment Dr 8 000
The above BCVR entry demonstrates the 2 steps for the recognition of a change in fair value on
consolidation.
1. Write back all of the accumulated depreciation for the asset at date of aqusition.
2. Recognise the increase/decrease to the asset’s fair value with the tax effect.
NB: From these 2 journal entries it is easier to see that the depreciation adjustments then
required at the end of each year for consolidation purposes are based on the $8 000 increase
to fair value. That is, the additional amount of the asset that needs to be depreciated.
In this question….$8,000 / 10years = $800 per year.

Question 19.7 Business combination valuation entries and pre-

acquisition entries at acquisition date, previously held
shares
In 2012, Stan Ltd acquired 40% of the issued shares for $72 000. This acquisition did not give
Stan Ltd control of Lee Ltd as the ownership of Lee Ltd was held by a small number of
shareholders as Lee Ltd was developed as a family company in 2001. On 1 July 2016, Stan Ltd
approached these family members following a death in the family and persuaded them to sell
the remainder of the shares in Lee Ltd to Stan Ltd for $137 700 on a cum div. basis.
Information about the two companies at 1 July 2016 included the following.
• Stan Ltd recorded its original investment in Lee Ltd at fair value, with changes in fair value
being recognised in profit or loss. At 1 July 2016, the asset was recorded at $91 800.
• The equity of Lee Ltd at 1 July 2016 consisted of $144 000 capital and $36 000 retained
earnings.
• Included in the assets and liabilities recorded by Lee Ltd at 1 July 2016 were goodwill of
$5400 (net of accumulated impairment losses of $3600) and dividend payable of $4500.
• On the acquisition date all the identifiable assets and liabilities of Lee Ltd were recorded at
carrying amounts equal to their fair values except for inventory for which the fair value of
$39 600 was $3600 greater than its carrying amount, and equipment for which the fair value
of $94 500 was greater than the carrying amount, this being cost of $108 000 less
accumulated depreciation of $18 000.
• Besides determining the fair values of the recorded assets and liabilities of Lee Ltd, Stan Ltd
discovered that Lee Ltd had two assets that had not been recorded by Lee Ltd. These were
internally generated patents that had a fair value of $45 000 and in-process research and
development for which Lee Ltd had expensed $90 000, but which Stan Ltd valued at $18 000.
Further in the financial statements of Lee Ltd at 30 June 2016 Lee Ltd had reported the
existence of a contingent liability relating to guarantees for loans. Stan Ltd determined that
this liability had a fair value of $9000.
• The tax rate is 30%.
Required
Prepare the consolidation worksheet entries for consolidated financial statements prepared by
Stan Ltd at 1 July 2016.
Acquisition analysis: 1 July 2016

and liabilities of Lee Ltd = $144 000 + $36 000
+ $3 600 (1– 30%) (BCVR – inventory)
+ $4 500 (1 – 30%) (BCVR – plant)
- $5 400 (goodwill)
+ $45 000 (1 – 30%) (BCVR - patents)
+ $18 000 (1 – 30%) (BCVR – research)
- $9 000 (1 – 30%) (BCVR – liability)
= $218 070
= $133 200
Previously held equity interest = $91 800 (fair value)
Goodwill acquired = ($133 200 + $91 800) - $218 070
= $6 930
Unrecorded goodwill = $6 930 - $5 400
= $1 530
Business combination valuation entries at 1 July 2016

Inventory Dr 3 600
Accumulated depreciation Dr 18 000

Plant Cr 13 500
Patents Dr 45 000
In-process research Dr 18 000


Deferred tax asset Dr 2 700
Guarantee payable Cr 9 000
Accumulated impairment losses – goodwill Dr 3 600

Goodwill Cr 3 600
Goodwill Dr 1 530
Pre-acquisition entries at 1 July 2016

Shares in Lee Ltd Cr 225 000



entries subsequent to acquisition
Robert Ltd acquired all the issued shares (cum div.) of Matt Ltd on 1 July 2015. At this date the
financial position of Matt Ltd was as follows:
The assets of Matt Ltd did not include a patent that was valued by Robert Ltd at $10 000. Its
useful life was considered to be 5 years, with benefits being received equally over that period.
The plant was considered to have a further 10-year life and is depreciated on a straight-line
basis. All the inventory was sold by 30 June 2016. The goodwill on hand at 1 July 2015 was
written off as the result of an impairment test conducted in June 2017. The dividend on hand at
1 July 2015 was paid in August 2015.
In exchange for the shares in Matt Ltd, Robert Ltd gave the following consideration:
• 50 000 shares in Robert Ltd, each share having a fair value of $2.00 per share.
• Cash of $40 000.
• Artworks having a fair value of $60 000.
Robert Ltd incurred legal and accounting costs of $5000 and share issue costs of $4000.
In January 2019, Matt Ltd paid a bonus dividend of $40 000, being one share for every three
shares held, the dividend being paid from retained earnings on hand at 1 July 2015.
The tax rate is 30%.
Required
Prepare the consolidation worksheet entries for consolidated financial statements prepared by
Robert Ltd at 30 June 2020.
At 1 July 2015:
and liabilities of Matt Ltd = ($120 000 + $23 200 + $44 000) (equity)
- $4 800 (goodwill)
+ $2 000 (1 – 30%) (plant)
+ $4 000 (1 – 30%) (inventory)
+ $10 000 (1 -30%) (patents)
= $193 600
Consideration transferred = (50 000 x $2) + $40 000 + $60 000
- $8 000 (dividend receivable)
= $192 000

Gain on bargain purchase = $1 600

Goodwill adjustment = ($4 800)
1. Business combination valuation entries at 30 June 2020
Amortisation expense - patents Dr 2 000

(1/5 x $10 000 p.a.)
Accumulated depreciation - plant Dr 25 600

Plant Cr 23 600
Deferred tax liability Cr 600
Depreciation expense - plant Dr 200

Retained earnings (1/7/19) Dr 800
Accumulated depreciation – plant Cr 1 000
(1/10 x $2000 p.a.)

Retained earnings (1/7/19) Cr 240
At 1 July 2015:

Shares in Matt Ltd Cr 192 000

At 30 June 2020
This entry is affected by:
- payment of dividend on hand at acquisition date - $8 000
- payment of bonus dividend of $40 000 in 2019 – prior period
- in relation to the BCVR: the inventory was sold in a prior period 2015-6, the goodwill was
impaired in 2017, a prior period, while in the current period, the trademark was written off.
Retained earnings (1/7/19)* Dr 400


Business combination valuation reserve ** Dr 8 400
Shares in Matt Ltd Cr 192 000
* $44 000 - $1 600 gain on bargain purchase - $40 000 bonus dividend
+ $2 800 (transfer of BCVR – inventory) - $4 800 (transfer of BCVR on
goodwill)
** $1 200 (plant) + $7 000 (patents)

valuation reserve Dr 7 000


entries for multiple years
Barry Ltd acquired all the issued shares of Colin Ltd on 1 January 2016 for $72 000. At this
date the equity of Colin Ltd consisted of:
Share capital $ 50 000

All the identifiable assets and liabilities of Colin Ltd were recorded at amounts equal to their
fair values except for:

Plant (cost $70 000) $50 000 $52 000
Inventory 12 000 16 000
Of the inventory on hand at 1 January 2016, 90% was sold by 30 June 2016. The remainder was
all sold by 30 June 2017. The plant was considered to have a further 2-year life with benefits to
be received equally in each of those years. The tax rate is 30%.
Required
Prepare the consolidated worksheet entries for the consolidated financial statements prepared
by Barry Ltd at 30 June 2016, 30 June 2017, and 30 June 2018.
Acquisition analysis at 1 January 2016:

Fair value of identifiable assets
and liabilities of Colin Ltd = $50 000 + $12 500 + $5 000
+ $4 000 (1 – 30%) (BCVR – inventory)
+ $2 000 (1 – 30%) BCVR – plant)
= $71 700
Goodwill = $300
1. Worksheet entries at 30 June 2016


Plant Cr 18 000

(1/2 x $1 000 p.a.)

(30% x $500)



This entry relates to the 90% of the inventory that has been sold by 30 June 2016.
Inventory Dr 400
Business combination valuation reserve Cr 280
This entry relates to the 10% of the inventory still on hand at 30 June 2016.
Goodwill Dr 300
Business combination valuation entry Cr 300

Reserves Dr 12 500
Shares in Colin Ltd Cr 72 000
Transfer from business combination val’n reserve Dr 2 520



Plant Cr 18 000
Depreciation expense Dr 1 000

Accumulated depreciation Cr 1 500

(30% x amounts in above depreciation entry)
Cost of sales Dr 400

valuation reserve Cr 280
Goodwill Dr 300
Business combination valuation entry Cr 300

Reserves Dr 12 500

Transfer from business combination val’n reserve Dr 280



Goodwill Dr 1 300
Business combination valuation entry Cr 1 300
Retained earnings (1/7/17) * Dr 7 800

Reserves Dr 12 500
* 5 000 + $4 000(1 -30%)
Transfer from business combination val’n reserve Dr 1 400


Question 19.10 Consolidation worksheet, previously held investment in

subsidiary
On 1 August 2012, Erik Ltd acquired 10% of the shares in Finn Ltd for $8000. Erik Ltd used
the fair value method to measure this investment with movements in fair value being recognised
in profit or loss. At 1 July 2014, the fair value of this investment was $15 400. The original
investment in Finn Ltd was due to the fact that Finn Ltd was undertaking research into
particular microbiological elements that could influence the profitability of Erik Ltd. With the
continuing success of this research, Erik Ltd decided to acquire the remaining shares (cum div.)
in Finn Ltd.
On 1 July 2014, Erik Ltd made an offer to buy the remaining shares in Finn Ltd for $151 000
cash. This offer was accepted by the shareholders of Finn Ltd. On 1 July 2014, immediately
after the business combination, the statement of financial position of Finn Ltd was as follows:
On analysing the financial statements of Finn Ltd, Erik Ltd determined that all the assets and
liabilities recorded by Finn Ltd were shown at amounts equal to their fair values except for:

Plant and equipment (cost $46 000) $35 000 $43 000
Inventory 42 000 46 000
The plant and equipment is expected to have a further 4-year life and is depreciated on a
straight-line basis. The inventory was all sold by 30 June 2015.
Finn Ltd had expensed all the outlays on research and development. Erik Ltd placed a fair
value of $12 000 on this asset. Finn Ltd also had reported a contingent liability at 30 June 2014
in relation to claims by customers for damaged goods. Erik Ltd placed a fair value of $3000 on
these claims. The research and development is amortised evenly over a 10-year period. The
claims by customers were settled in May 2015 for $2800.
The company tax rate is 30%.

Required
A. Prepare the consolidated financial statements of Erik Ltd at 1 July 2014, immediately after
the business combination.
At 1 July 2014:

and liabilities of Finn Ltd = ($90 000 + $12 000 + $36 000) (equity)
+ $4 000 (1 – 30%) (inventory)
+ $8 000 (1 – 30%) (plant)
+ $12 000 (1 – 30%) (R&D)
- $3 000 (1 – 30% (claims)
= $152 700
= $138 400
Previously acquired equity interest = $15 400
Goodwill = ($138 400 + $15 400) - $152 700
= $1 100
A. WORKSHEET ENTRIES AT 1 JULY 2014

Plant Cr 3 000
Inventory Dr 4 000
Deferred research and development Dr 12 000


Deferred tax asset Dr 900
Provision for customer claims Cr 3 000
Goodwill Dr 1 100

Shares in Finn Ltd Cr 153 800


Erik Finn Adjustments Group

Ltd Ltd Dr Cr
Cash 11 000 20 600 31 600
Receivables 25 200 20 000 12 600 2 32 600
Other assets 10 000 8 000 1 12 000 32 000
1 900
1 1 100
Inventory 55 000 42 000 1 4 000 101 000
Shares in Finn Ltd 153 800 0 153 800 2 0
Plant 210 000 107 000 3 000 1 314 000
Accum depreciation (85 000) (22 000) 1 11 000 (96 000)
380 000 175 600 415 200
Dividend payable 25 000 12 600 2 12 600 25 000

Other liabilities 75 000 25 000 3 000 1 110 200
2 400 1
1 200 1
3 600 1
Share capital 130 000 90 000 90 000 130 000
Retained earnings 93 500 36 000 36 000 93 500
General reserve 56 500 12 000 12 000 56 500
Business combination - - 1 2 100 5 600 1 0
valuation reserve 2 15 800 2 800 1
8 400 1
1 100 1
380 000 175 600 197 500 197 500 415 200
FINN LTD
as at 1 July 2014
Current assets:
Cash and equivalents $31 600
Receivables 32 600
Inventories 101 000
Total current assets 165 200
Non-current assets:
Plant and equipment 314 000
218 000
Other assets 32 000
Total non-current assets 250 000
Total assets $415 200
Equity
Share capital 130 000
Total equity 280 000
Current liabilities:
Other liabilities 110 200

Total equity and liabilities $415 200
B. WORKSHEET ENTRIES AT 30 JUNE 2015

Plant Cr 3 000

(1/4 x $8 000)


Deferred research and development Dr 12 000

Amortisation expense Dr 1 200

Accumulated amortisation Cr 1 200

Transfer from business combination valuation

reserve Dr 2 100
Income tax expense Dr 900
Damages expense Cr 2 800
Gain on claims settlement Cr 200

Goodwill Dr 1 800
Shares in Finn Ltd Cr 153 800

valuation reserve Dr 700

Question 19.11 Consolidation worksheet

Ethan Ltd acquired all the issued shares (ex div.) of Darren Ltd on 1 July 2014 for $110 000. At
this date Darren Ltd recorded a dividend payable of $10 000 and equity of:

Asset revaluation surplus 18 000
All the identifiable assets and liabilities of Darren Ltd were recorded at amounts equal to their
fair values at acquisition date except for:

Inventory $ 14 000 $ 16 000
Machinery (cost $100 000) 92 500 94 000
The machinery was considered to have a further 5-year life. Of the inventory, 90% was sold by
30 June 2015. The remainder was sold by 30 June 2016.
Both Darren Ltd and Ethan Ltd use the valuation method to measure the land. At 1 July 2014,
the balance of Ethan Ltd’s asset revaluation surplus was $13 500.
In May 2015, Darren Ltd transferred $3600 from the retained earnings at 1 July 2014 to a
general reserve.
The tax rate is 30%.
The following information was provided by the two companies at 30 June 2015.
Required
Prepare the consolidated financial statements of Ethan Ltd at 30 June 2015.

Acquisition analysis
At 1 June 2014:

and liabilities of Darren Ltd = ($54 000 + $36 000 + $18 000) (equity)
+ $1 500 (1 – 30%) (plant)
+ $2 000 (1 – 30%) (inventory)
= $110 450
Gain on bargain purchase = $450
A. THE WORKSHEET ENTRIES AT 1 JULY 2014 ARE:

Plant & machinery Cr 6 000

(1/5 x $1 500)

(30% x $300)

Transfer from business combination Cr
valuation reserve 1 260
Inventory Dr 200
At 1 July 2014:
Retained earnings (1/714) Dr 36 000

Asset revaluation surplus Dr 18 000
Gain on bargain purchase Cr 450
Shares in Darren Ltd Cr 110 000
The entry at 30 June 2015 is affected by:

- sale of inventory

- transfer to general reserve of $3 600

Asset revaluation surplus Dr 18 000
Gain on bargain purchase Cr 450
Shares in Darren Ltd Cr 110 000


Ethan Darren Adjustments Group

Ltd Ltd Dr Cr
Profit before tax 120 000 12 500 1 300 450 2 130 850
1 1 800
Income tax expense 56 000 4 200 90 1 59 570
540 1
Profit 64 000 8 300 71 280
(1/7/14)
Transfer from BCVR - - 2 1 260 1 260 1 0
144 000 44 300 151 280
Transfer to general 0 3 000 3 000 2 0
reserve
(30/6/15)
Share capital 360 000 54 000 2 54 000 360 000
BCVR - - 2 2 450 1 050 1 0
140 1
1 260 2
General reserve 10 000 3 000 2 3 000 10 000
514 000 98 300 521 280
Asset revaluation 13 500 18 000 2 18 000 13 500
surplus (1/7/14)
Gains 5 000 2 000 7 000
Asset revaluation 18 500 20 000 20 500
surplus (30/6/15)
532 500 118 300 541 780
Liabilities 42 500 13 000 1 90 450 1 55 920
60 1
575 000 131 300 597 700
Land 160 000 20 000 180 000

Plant & machinery 360 000 125 600 6 000 1 479 600
Accum depreciation (110 000) (33 000) 1 7 500 300 1 (135 800)

Inventory 55 000 18 700 1 200 73 900

Shares in Darren 110 000 - 110 000 2 0
575 000 131 300 124 600 124 600 597 700
ETHAN LTD
Profit before income tax $130 850

Income tax expense 59 570
Other comprehensive income
Gains on revaluation of assets 7 000
Comprehensive income $78 280
ETHAN LTD
Consolidated Statement of Changes in Equity
for financial period ending 30 June 2015
Comprehensive income for the period $78 280
Retained earnings at 1 July 2014 $80 000

Profit for the period 71 280
Retained earnings at 30 June 2015 $151 280
Share capital at 1 July2014 $360 000

Share capital at 30 June 2015 $360 000
Asset revaluation surplus at 1 July 2014 $13 500

Increments 7 000
Asset revaluation surplus at 30 June 2015 $20 500
General reserve at 1 July 2014 $10 000

General reserve at 30 June 2015 $10 000
ETHAN LTD
as at 30 June 2015
Current Assets
Inventories $73 900
Non-current Assets
Property, plant and equipment:
Land 180 000
Plant & machinery $479 600
Accumulated depreciation (135 800) 343 800
Total Non-current Assets 523 800
Total Assets $597 700

Equity
Total Equity 541 780
Liabilities 55 920
Total Equity and Liabilities $597 700

Question 19.12 Consolidation worksheet, previously held investment in

subsidiary
On 1 July 2015, Jason Ltd held shares in Bruce Ltd measured at $18 600. Jason Ltd uses the
fair value method to measure these shares with movements in fair value being recognised in
profit or loss. Jason Ltd had acquired these shares 2 years earlier for $12 300. The shares had a
fair value at 1 July 2015 of $20 000.
On 1 July 2015, Jason Ltd acquired the remaining 80% of the shares (cum div.) in Bruce Ltd.
The consideration for these shares consisted of 30 000 shares in Jason Ltd valued at $2.00 per
share plus a brand that was carried in the records of Jason Ltd at $20 000 (net of accumulated
amortisation of $3000) but was valued at $24 800.
On 1 July 2015 the equity of Bruce Ltd consisted of:

At this date, Bruce Ltd had recorded a dividend payable of $6000, which was paid on 15
August 2015. Bruce Ltd had also recorded goodwill of $5000, net of accumulated impairment
losses of $7000. Bruce Ltd had an unrecorded asset relating to internally generated trademarks
that had a fair value of $8000. These had a future expected useful life of 8 years. All identifiable
assets and liabilities of Bruce Ltd were recorded at amounts equal to fair value except for the
following:

Plant (cost $90 000) $74 000 $80 000
Inventory 18 000 23 000
The plant was expected to have a further 6-year life. In relation to the inventory held at 1 July
2015, 90% was sold by 30 June 2016 and the rest before 30 June 2017. The tax rate is 30%.
In June 2016, Bruce Ltd transferred $2000 from retained earnings on hand at 1 July 2015 to
general reserve, and a further $3000 in June 2017.

Required
A. Prepare the journal entries in Jason Ltd at 1 July 2015 in relation to the business
combination with Bruce Ltd and for the receipt of the dividend in August 2015
B. Prepare the consolidation worksheet at 30 June 2017 for the preparation of the consolidated
financial statements of Jason Ltd.
A. ENTRIES IN JASON LTD
1 July 2015
Accumulated amortisation - brand Dr 3 000
Brand Cr 3 000
(Writing down to carrying amount)
Brand Dr 4 800
Gain Cr 4 800
(Revaluation prior to sale)
Shares in Bruce Ltd Dr 80 000

Dividend receivable Dr 4 800
Brand Cr 24 800
Share capital Cr 60 000
(Acquisition of additional shares in Bruce Ltd)

Shares in Bruce Ltd Dr 1 400

Gain Cr 1 400
(Revaluation of investment in Bruce Ltd from
$18 600 to $20 000)
15 August 2015
Cash Dr 6 000
B. CONSOLIDATION OF BRUCE LTD AT 30 JUNE 2017
At 1 July 2015:
and liabilities of Dorado Ltd = ($50 000 + $32 000) (equity)
+ $6 000 (1 – 30%) (plant)
+ $5 000 (1 – 30%) (inventory)
+ $8 000 (1 – 30%) ( trademarks)
- $5 000 (goodwill)
= $90 300
Previously held equity interest = $20 000
Goodwill = ($80 000 + $20 000) - $90 300
= $9 700
Goodwill recorded = $5 000
Unrecorded goodwill = $4 700
Consolidation worksheet entries at 30 June 2017
Accumulated depreciation – plant Dr 16 000

Plant Cr 10 000

(1/6 x $6000 p.a. for 2 years)

Cost of sales Dr 500

valuation reserve Cr 350
Trademark Dr 8 000

Amortisation expense Dr 1 000

(1/8 x $8000 p.a. for 2 years)

Accumulated impairment losses Dr 7 000

Goodwill [7 000 – 4 700] Cr 2 300

Business combination valuation reserve ** Dr 14 850
Shares in Bruce Ltd Cr 100 000
* 32 000 + (90% x $3 500 BCVR inventory) - $2000 transfer to general reserve
** $4 200 + $350 + $ 5600 + $4 700
Transfer from business combination valuation reserve Dr 350

(10% x $3 500 BCVR inventory)


QUESTION 19.12 (cont’d)
Jason Bruce Adjustments Group

Ltd Ltd Dr Cr
Profit before tax 60 000 55 000 1 1 000 300 1 113 100
1 500 300 1
1 1 000
Income tax expense 22 000 18 000 150 1 39 850
Profit 38 000 37 000 73 250
Retained earnings 44 000 38 000 1 1 000 300 1 47 450
(1/7/16) 1 1 000 300 1
2 33 150
Transfer from BCVR 0 0 2 350 350 1 0
82 000 75 000 120 700
Transfer to general 24 000 5 000 3 000 2 26 000
reserve
(30/6/17)
General reserve 42 000 7 000 2 2 000 44 000
2 3 000
BCVR 0 0 2 14 850 4 200 1 0
5 600 1
4 700 1
350 2
Share capital 150 000 50 000 2 50 000 150 000
Provisions 55 000 12 000 67 000
Deferred tax liability 0 0 1 600 1 800 1 3 000
1 600 2 400 1
Payables 35 000 8 000 43 000
340 000 147 000 401 700
Cash 25 000 14 000 39 000

Accounts receivable 50 000 25 000 75 000
Inventory 40 000 37 000 77 000
Shares in Bruce Ltd 100 000 0 100 000 2 0
Plant 210 000 90 000 10 000 1 290 000
Accumulated (85 000) (24 000) 1 16 000 2 000 1 (95 000)
depreciation
Trademark 0 0 1 8 000 8 000
Accum. amortisation 0 0 2 000 1 (2 000)
Goodwill 0 12 000 2 300 1 9 700
Accumulated 0 (7 000) 1 7 000 0
impairment losses
340 000 147 000 140 050 140 050 401 700

Question 19.13 Consolidation worksheet, consolidated financial

statements
Griffin Ltd is a major Australian company operating in the manufacture of women’s clothing.
One of its major competitors was Frank Ltd whose business was established by a French family
over 30 years ago. It had won numerous awards for its designs and has established a number of
brands that have been successful, especially with the teenage market.
In order to expand its business as well as to reduce the number of players in the market, on
1 July 2013 Griffin Ltd acquired all the issued shares (cum div.) of Frank Ltd for $330 000. At
this date the equity of Frank Ltd was as follows:

All the identifiable assets and liabilities of Frank Ltd were recorded at amounts equal to their
fair values except for the following:

Plant (cost $220 000) $180 000 $186 000
Land 190 000 210 000
Inventory 20 000 28 000
The plant’s expected remaining useful life was 5 years with benefits being expected evenly over
that period. The plant was sold on 1 January 2016 for $87 000. The land was sold in February
2015 for $250 000. Of the inventory, 90% was sold by 30 June 2014 and the rest by 30 June
2015.
At 1 July 2013, Frank Ltd had recorded a dividend payable of $10 000 that was paid in
September 2013. Frank Ltd also had some unrecorded assets, in particular the brands relating
to the successful clothing sold in the teenage market. Griffin Ltd valued these brands at $12 000
and assessed them to have an indefinite life. In its financial statements at 30 June 2013, Frank
Ltd raised a contingent liability relating to a guarantee it had made to one of its related
companies. Griffin Ltd assessed the fair value of the guarantee payable at $10 000. In August
2015, Frank Ltd was required to pay $2500 in relation to the guarantee.
All transfers to the general reserve made by Frank Ltd have been from retained earnings
earned prior to 1 July 2013. The tax rate is 30%.
The financial information provided by the two companies at 30 June 2016 is as follows:

Required
Prepare the consolidated financial statements of Griffin Ltd at 30 June 2016.

At 1 July 2013:
and liabilities of Frank Ltd = $200 000 + $20 000 + $50 000 (equity)
+ $8 000 (1 – 30%) (inventory)
+ $20 000 (1 – 30%) (land)
+ $6 000 (1 – 30%) (plant)
- $10 000 (1 – 30%) (guarantee liability)
+ $12 000 (1 – 30%) (brands)
= $295 200
Consideration transferred = $330 000 - $10 000 (divs. receivable)
= $320 000
Goodwill = $24 800
1. Business combination valuation entries at 30 June 2016

Gain on sale of plant Dr 3 000
(Final adjustment for Plant & Depn to date of sale)
Brands Dr 12 000

Income tax expense Dr 3 000
Gain on guarantee Cr 7 500
Guarantee expense Cr 2 500
Goodwill Dr 24 800

At 1/7/2013:

Shares in Frank Ltd Cr 320 000
At 30 June 2016:
This entries are affected by:

- sale of land in February 2015 – prior period
- sale of inventory by 30 June 2015 – prior period
- sale of plant in January in current period
- settlement of guaranteed loan in current period
- transfer to general reserve of $15 000 in current period.
- transfer to general reserve of $13 000 in prior period

Shares in Perseus Ltd Cr 320 000
* $50 000 + $14 000 (BCVR land) + $5 600 (BCVR inventory) - $13 000 gen reserve

(Settlement of loan)

(Sale of plant)



Griffin Frank Adjustments Group
Ltd Ltd Dr Cr
Revenues 190 000 110 000 7 500 1 307 500
Expenses 80 000 76 000 1 600 2 500 1 154 100
110 000 34 000 153 400
Gains on sale of non- 5 000 4 000 1 3 000 6 000
current assets
Profit before tax 115 000 38 000 159 400
Tax expense 40 000 6 000 1 3 000 1 080 1 47 920
Profit 75 000 32 000 111 480
(1/7/15) 2 56 600
Transfer from BCVR 0 0 1 7 000 4 200 1 0
2 4 200 7 000 2
155 000 120 000 221 200
Dividend paid 34 000 0 34 000
T’fer to gen reserve 0 15 000 15 000 2 0
34 000 15 000 34 000
Ret earn. (30/6/16) 121 000 105 000 187 200
Share capital 280 000 200 000 2 200 000 280 000
General reserve 20 000 48 000 2 33 000 20 000
2 15 000
Business comb. 0 0 2 30 400 8 400 1 0
valuation reserve 2 7 000 24 800 1
4 200 2
421 000 353 000 487 200
Asset reval surplus 12 000 0 12 000
(1/7/15)
Increment 12 000 0 12 000
Asset reval surplus 24 000 0 24 000
(30/6/16)
445 000 353 000 511 200
Provisions 15 000 12 000 27 000
Payables 40 000 8 000 48 000
Defer. tax liability 0 0 3 600 1 3 600
500 000 373 000 589 800
Shares in Frank Ltd 320 000 0 320 000 2 0
Cash 12 000 30 000 42 000
Accounts receivable 28 000 12 000 40 000
Inventory 30 000 51 000 81 000
Plant 230 000 320 000 550 000
Goodwill 0 0 1 24 800 24 800
Brands 0 0 1 12 000 12 000
500 000 373 000 398 280 398 280 589 800

GRIFFIN LTD

for year ended 30 June 2016
Revenues $307 500

Expenses 154 100
153 400
Gains on sale of non-current assets 6 000
Profit before income tax 159 400
Other comprehensive income:
Gains on revaluation of assets 12 000
GRIFFIN LTD
for year ended 30 June 2016
Retained earnings balance at 1 July 2015 $109 720

Dividend paid (34 000)
Retained earnings balance at 30 June 2016 $187 200
Share capital balance at 1 July 2015 $280 000

Share capital balance at 30 June 2016 $280 000
General reserve balance at 1 July 2015 $20 000

General reserve balance at 30 June 2016 $20 000
Asset revaluation surplus at 1 July 2015 $12 000

Gains 12 000
Asset revaluation surplus at 30 June 2016 $24 000

GRIFFIN LTD
as at 30 June 2016
Current Assets
Cash $42 000
Accounts receivable 40 000
Inventory 81 000
Total Current Assets 163 000
Non-current Assets
Property, plant, and equipment $550 000
Accumulated depreciation (160 000) 390 000
Goodwill 24 800
Intangibles: Brands 12 000
Equity
Reserves: General reserve 20 000
Current Liabilities
Payables 48 000
Provisions 27 000
Total Current Liabilities 75 000
Non-current Liabilities
Deferred tax liability __3 600
Total Liabilities 78 600

Question 19.14 Consolidation worksheet entries

On 1 July 2015, Zack Ltd acquired all the issued shares (ex div.) of William Ltd for $227 500. At
this date the equity of William Ltd consisted of:

At acquisition date, William Ltd reported a dividend payable of $8000. All the identifiable
assets and liabilities of William Ltd were recorded at amounts equal to their fair values except
for:

Plant (cost $200 000) $175 000 $190 000
Land 150 000 155 000
Inventory 32 000 40 000
The plant was considered to have a further 3-year life. Of the inventory, 90% was sold by
30 June 2016 and the remainder was sold by 30 June 2017. The land was sold in January 2016
for $170 000. William Ltd had recorded goodwill of $2000 (net of accumulated impairment
losses of $12 000).William Ltd was involved in a court case that could potentially result in the
company paying damages to customers. Zack Ltd calculated the fair value of this liability to be
$8000, even though William Ltd had not recorded any liability.
The following events occurred in the year ending 30 June 2016.
• On 12 August 2015 William Ltd paid the dividend that existed at 1 July 2015.
• On 1 December 2015 William Ltd transferred $17 000 from the general reserve existing at
1 July 2015 to retained earnings.
• On 1 January 2016 William Ltd made a call of 10c per share on its issued shares. William
Ltd had 100 000 shares on issue. All call money was received by 31 January 2016.
• On 29 June 2016 William Ltd reassessed the liability in relation to the court case as the
chances of winning the case had improved. The fair value was now considered to be $2000.
Required
Prepare the consolidation worksheet entries for the preparation by Zack Ltd of its consolidated
financial statements at 30 June 2016.
Acquisition analysis at 1 July 2015:

and liabilities of William Ltd = ($150 000 + $34 000 + $20 000) (equity)
+ $8 000 (1 – 30%) (inventory)
+ $15 000 (1 – 30%) (plant)
+ $5 000 (1 – 30%) (land)
- $8 000 (1 – 30%) (provision for damages)
- $2 000 (goodwill)
= $216 000
Goodwill = $11 500

Accumulated depreciation – plant Dr 25 000

Plant Cr 10 000

(1/3 x $15 000)
Deferred tax liability Dr 1 500

Land Dr 5 000
Inventory Dr 800

Accumulated impairment losses Dr 12 000

Goodwill Cr 2 500


Deferred tax asset Dr 600
Provision for damages Cr 2 000

reserve Dr 4 200
Gain Cr 6 000
At 1/7/15:

Shares in William Ltd Cr 227 500
The entry at 30/06/2016 is affected by:

- 90% of inventory sold, 10% on hand
- re-measurement of liability from $8000 to $2000
- $17 000 transfer from pre-acquisition general reserve
- call of 10c per share on 100 000 shares
‘
(Sale of inventory)

(Re-measurement of liability)


Shares in William Ltd Cr 10 000

Question 19.15 Consolidation worksheet entries

Ron Ltd operates a number of supermarkets with an emphasis on the supply of quality produce.
The operations of Sam Ltd are primarily in the fine fruit market. Believing that the acquisition
of Sam Ltd would enable Ron Ltd to expand its supply of quality produce to its customers, Ron
Ltd commenced actions to acquire the shares of Sam Ltd. On 1 July 2013, Ron Ltd acquired all
the issued shares (cum div.) of Sam Ltd for $123 500. At this date the equity of Sam Ltd
consisted of:

Reserves 5 000
On 1 July 2013, Sam Ltd had recorded a dividend payable of $6000 and goodwill of $5000
(net of accumulated impairment losses of $7000). The dividend was paid in August 2013. In the
previous year’s annual report Sam Ltd had reported the existence of a contingent liability for
damages based upon a lawsuit by a customer who had slipped on some fallen fruit in one of the
stores operated by Sam Ltd. Ron Ltd calculated that this liability had a fair value of $10 000.
Sam Ltd also had some customer databases that were not recorded as assets but Ron Ltd placed
affair value of $6000 on these items. Sam Ltd believed that the databases had a future life of
4 years.
All of the identifiable assets and liabilities of Sam Ltd were recorded at amounts equal to their
fair values except for the following:

Plant (cost $120 000) $94 000 $96 000
Land 80 000 85 000
Inventory 20 000 24 000
The plant had an expected remaining useful life of 10 years. The land was sold by Sam Ltd in
February 2015. The inventory was all sold by 30 June 2014.
In February 2016, Sam Ltd transferred $3000 of the reserves on hand at 1 July 2013 to
retained earnings. The remaining $2000 was transferred in February 2017.
The court case involving the damages sought by the customer was settled in May 2017.
Sam Ltd was required to pay $7500 to the customer.
Required
Prepare the consolidation worksheet entries for the preparation by Sam Ltd of its consolidated
financial statements at 30 June 2017.
At 1 July 2013:
and liabilities of Sam Ltd = ($100 000 + $5 000 + 10 000) (equity)
+ $2 000 (1 – 30%) (plant)
+ $5 000 (1 – 30%) (land)
+ $4 000 (1 – 30%) (inventory)
+ $6 000 (1 – 30%) (data bases)
- $10 000 (1 -30%) (damages payable)
- $5 000 (goodwill)
= $114 900
= $117 500
Goodwill = $2 600
Recorded goodwill = $5 000

Unrecorded goodwill = $(2 400)
A. Worksheet entries at 30 June 2017:

Plant Cr 24 000

(1/10 x $2 000 p.a. for 4 years)

Amortisation expense – data bases Dr 1 500


reserve Dr 7 000
Gain Cr 2 500
Accumulated impairment losses - goodwill Dr 7 000

Goodwill Cr 9 400
At 1/7/13:

Reserves Dr 5 000
Shares in Sam Ltd Cr 117 500

At 30/6/17, the entry at acquisition date is affected by:

- sale of inventory in prior period
- payment of dividend: $6 000 in prior period
- sale of land in prior period
- transfer from reserves - $3 000 - in prior period

- transfer from reserve - $2 000 – in current period

- settlement of court case in current period
- de-recognition of data bases in current period

Reserves Dr 2 000
Shares in Sam Ltd Cr 117 500
* = $10 000 + $2 800 (BCVR - inventory) + $3 500 (BCVR – land) + $3 000 (reserve
transfer)
Transfer from reserves Dr 2 000

Reserves Cr 2 000

(Court case settled)

reserve Dr 4 200
(Data bases de-recognised)

Question 19.16 Consolidation worksheet entries, consolidated financial

statements
George Ltd acquired all the issued shares (ex div.) of Francis Ltd on 1 July 2014 for $246 000.
At this date the equity of Francis Ltd consisted of:

At the acquisition date all the identifiable assets and liabilities of Francis Ltd consisted of:

Plant (cost $230 000) $200 000 $210 000
Land 100 000 120 000
Inventory 30 000 38 000
The inventory was all sold by 30 June 2015. The land was sold on 1 February 2015 for $150
000. The plant was considered to have a further 5-year life. The plant was sold for $155 000 on 1
January 2016. Also at acquisition date Francis Ltd had recorded a dividend payable of $7000
and goodwill (net of accumulated impairment losses of $13 000) of $5000. Francis Ltd had not
recorded some internally generated brands that George Ltd considered to have a fair value of
$12 000. The brand was considered to have an indefinite life. Also not recorded by Francis Ltd
was a contingent liability relating to a current court case in which Francis Ltd was involved and
a supplier was seeking compensation. George Ltd placed a fair value of $15 000 on this liability.
This court case was settled in May 2016 at which time Francis Ltd was required to pay damages
of $16 000.
In February 2015, Francis Ltd transferred $20 000 from the general reserve on hand at 1 July
2014 to retained earnings. A further $15 000 was transferred in February 2016.
Both companies have an equity account entitled ‘Other components of equity’ to which
certain gains and losses from financial assets are taken. At 1 July 2014, the balances of these
accounts were $30 000 (George Ltd) and $15 000 (Francis Ltd). The financial statements of the
two companies at 30 June 2016 contained the following information:
PLEASE NOTE THAT THE BELOW CHANGES DETAILED IN THE WHITE BOXES
WILL BE TAKEN INTO AFFECT IN THE 1 ST REPRINT OF THE TEXT.

Total Equity and Liabilities for

George should show as $658 000
The amount for “Shares in

Francis” of $246 000 should be
shown in George’s column.
Required
Prepare the consolidated financial statements for George Ltd at 30 June 2016.
At 1 July 2014:

and liabilities of Francis Ltd = ($130 000 + $50 000 + $40 500) (equity)
+ $20 000 (1 – 30%) (land)
+ $10 000 (1 – 30%) (plant)
+ $8 000 (1 – 30%) (inventory)
+ $12 000 (1 – 30%) (brands)
- $15 000 (1 -30%) (liability)
- $5 000 (goodwill)

= $240 000
Goodwill acquired = $6 000
Depreciation expense – plant Dr 1 000

Gain/(loss) on sale of non-current assets Dr 7 000
Transfer from business combination reserve Cr 7 000
(1/5 x $10 000 p.a for 1½ years.)
Brands Dr 12 000

reserve Dr 10 500
Accumulated impairment losses – goodwill Dr 13 000

Goodwill Cr 12 000

At 1 July 2014:

Shares in Francis Ltd Cr 246 000
At 30 June 2016:
The above entry is affected by:
- sale of inventory in prior period
- sale of land in prior period
- settlement of court case in current period
- sale of plant in current period

Shares in Francis Ltd Cr 246 000
* = $40 500 + $20 000 (general reserve transfer) + $5 600 (BCVR – inventory)
+ $14 000 (BCVR – land))

(Sale of plant)

(Settlement of court case)



George Francis Adjustments Group
Ltd Ltd Dr Cr
Revenues 90 000 64 000 1 1 000 153 000
Expenses 34 000 42 000 15 000 1 61 000
Trading profit 56 000 22 000 92 000
Gains (losses) on sale 8 000 8 000 1 7 000 9 000
of non-current assets
Profit before tax 64 000 30 000 101 000
Income tax expense 12 000 5 000 1 4 500 2 400 1 19 100
Profit 52 000 25 000
(1/7/15) 2 80 100
Transfer from BCVR 0 0 1 10 500 7 000 1 0
2 7 000 10 500 2
Transfer from general 30 000 15 000 15 000 30 000
reserve
185 000 95 000 188 400
Dividend paid 20 000 0 20 000
(30/6/16)
Share capital 150 000 130 000 2 130 000 150 000
General reserve 10 000 20 000 2 30 000 15 000 2 15 000
BCVR 0 0 2 5 900 8 400 1 0
2 10 500 1 000 1
7 000 2
325 000 245 000 333 400
Other components of 30 000 15 000 45 000
equity (1/7/15)
Increases/Decreases 5 000 3 000 8 000
Other components of 35 000 18 000 53 000
equity (30/6/16)
Total equity 360 000 263 000 386 400
Accounts payable 30 000 10 000 40 000
Deferred tax liability 18 000 10 000 3 600 1 31 600
Other liabilities 250 000 230 000 480 000
658 000 513 000 938 000
Goodwill 20 000 18 000 12 000 1 26 000
Accumulated 0 (13 000) 1 13 000 0
impairment losses
Inventory 40 000 30 000 70 000
Cash 10 000 5 000 15 000
Financial assets 110 000 207 000 317 000
Shares in Francis Ltd 246 000 0 246 000 2 0
Land 20 000 20 000 40 000
Brands 80 000 0 1 12 000 92 000
Plant 314 000 466 000 780 000
658 000 513 000 327 900 327 900 938 000

GEORGE LTD
Consolidated Statement of profit or Loss and Other Comprehensive Income
Revenues $153 000

Expenses 61 000
Trading profit 92 000
Gains (losses) on sale of non-current assets 9 000
Profit before income tax 101 000
Other comprehensive income:
Other components of equity: Gains 800
GEORGE LTD
Retained earnings balance at 1 July 2015 $76 500

Transfer from general reserve 30 000
Dividend paid (20 000)
Retained earnings balance at 30 June 2016 $168 400
Share capital balance at 1 July 2015 $150 000

Share capital balance at 30 June 2016 $150 000
General reserve balance at 1 July 2015 $45 000

Transfers from general reserve (30 000
General reserve balance at 30 June 2016 $15 000
Other components of equity at 1 July 2015 $45 000

Gains 8 000
Other components of equity at 30 June 2016 $53 000

GEORGE LTD
as at 30 June 2016
Current Assets
Inventory $70 000
Financial assets 317 000
Cash 15 000
Total Current Assets 402 000
Non-current Assets
Property, plant and equipment:
Land 40 000
Plant 780 000
Accumulated depreciation – Plant (402 000)
Brands 92 000
Goodwill 26 000
Equity
Reserves: General reserve 15 000
Other components of equity 53 000
Liabilities
Current liabilities
Accounts payable 40 000
Non-current liabilities
Deferred tax liabilities 31 600
Other 480 000
Total non-current liabilities 511 600

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Solutions Manual

Company Accounting 10e

© John Wiley & Sons Australia, Ltd 2015

Chapter 19 – Consolidation: wholly owned

1. Explain the purpose of the pre-acquisition entries in the preparation of consolidated

The purpose of the pre-acquisition entry is to:

Share capital $200 Share capital $100

Shares in B Ltd 150 --

© John Wiley and Sons Australia, Ltd 2015 19.1

3. Is it necessary to distinguish pre-acquisition dividends from post-acquisition dividends?

Parent Subsidiary Dr Cr Group

Explain the meaning of and accounting for an excess as per AASB 3

Excess is shown in the pre-acquisition entry as a gain.

© John Wiley and Sons Australia, Ltd 2015 19.2

7. How does AASB 3 Business Combinations affect the acquisition analysis?

8. What is the purpose of the business combination valuation entries?

© John Wiley and Sons Australia, Ltd 2015 19.3

© John Wiley and Sons Australia, Ltd 2015 19.4

Case Study 1 Handling research outlays

Deferred Tax Liability Dr x

© John Wiley and Sons Australia, Ltd 2015 19.5

Case Study 2 Unrecorded liability

Business Combination Valuation Reserve Dr 28 000

Transfer from BCVR Dr 28 000

© John Wiley and Sons Australia, Ltd 2015 19.6

Transfer from BCVR Dr 28 000

Transfer from BCVR Dr 28 000

© John Wiley and Sons Australia, Ltd 2015 19.7

Case Study 3 Accounting for assets and liabilities

© John Wiley and Sons Australia, Ltd 2015 19.8

Case Study 4 Goodwill

© John Wiley and Sons Australia, Ltd 2015 19.9

Case Study 5 Bargain purchase

1. The gain arises as a result of a bargain purchase.

© John Wiley and Sons Australia, Ltd 2015 19.10

Question 19.1 Pre-acquisition entries at acquisition date and one year

Share capital — 20 000 $5 shares $100 000

A. Pre-acquisition entries at 1 July 2016:

Retained earnings (1/7/16) Dr 60 000

B. Pre-acquisition entries at 30 June 2017

Retained earnings (1/7/16) Dr 60 000

Retained earnings (1/7/16) Dr 15 000

© John Wiley and Sons Australia, Ltd 2015 19.11

Question 19.2 Consolidation worksheet entries at acquisition date and

Share capital $100 000

A: Worksheet entries at 1 July 2016

Retained earnings (1/7/16) Dr 70 000

Dividend payable Dr 20 000

B: Worksheet entries at 30 June 2017

Retained earnings (1/7/16) Dr 70 000

C: Differences if shares issued on an ex div basis

© John Wiley and Sons Australia, Ltd 2015 19.12

1. Business combination valuation entries

© John Wiley and Sons Australia, Ltd 2015 19.13

Question 19.3 Worksheet entries at acquisition date and at subsequent

Share capital $150 000

A: Consolidation worksheet entries at 1 January 2017

Net fair value of identifiable assets

Business combination valuation entries

Retained earnings (1/1/17) Dr 60 000

Dividend payable Dr 10 000

© John Wiley and Sons Australia, Ltd 2015 19.14

B: Consolidation worksheet entries at 30 June 2017