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Answer:

Acquisition Analysis:

Particulars

 

Fair Value

Carrying Amount

Net Fair Value

Share Capital

 

0

0

380000

General Reserve

 

0

0

52000

Retained Earnings

 

0

0

40000

Plant & Machinery

 

199000

187000

12000

Net Fair Value of Identifiable Assets & Liabilities of Square Ltd.

A

199000

187000

484000

Consideration Transferred

B

 

 

560000

Goodwill of Square Ltd.

C= A-B

 

 

76000

 

Consolidation Worksheet Journal Entries:-

Dr.

Cr.

Date

Particulars

Amount

Amount

1

Business Combination Valuation:

 

 

 

1.a

Accumulated Depreciation - Plant & Machinery A/c.

Dr.

33000

 

 

To,

Plant & Machinery A/c.

 

21000

 

To,

Deferred Tax Liability A/c.

 

6300

 

To,

Business Combination Valuation Reserve A/c.

 

5700

1.b

Depreciation Expense A/c.

Dr.

1200

 

 

Retained Earnings (1/1/2016) A/c.

Dr.

4800

 

 

To,

Accumulated Depreciation - Plant & Machinery A/c.

 

6000

1.c

Deferred Tax Liability A/c.

Dr.

1800

 

 

To,

Income Tax Expenses A/c.

 

360

 

To,

Retained Earnings (1/1/2016) A/c.

 

1440

1.d

Goodwill A/c.

Dr.

76000

 

 

To,

Business Combination Valuation Reserve A/c.

 

76000

2

Transfer from General Reserve:-

 

 

 

 

General Reserve A/c.

Dr.

38000

 

 

To,

Share Capital A/c.

 

38000

3

Pre-Acquisition Entries:

 

 

 

3.a

At 1/1/2012:-

 

 

 

 

Retained Earnings (1/1/2012)

Dr.

40000

 

 

Share Capital A/c.

Dr.

380000

 

 

General Reserve A/c.

Dr.

52000

 

 

Business Combination Valuation Reserve A/c.

Dr.

88000

 

 

To,

Shares in Navy Ltd. A/c.

 

560000

3.b

At 31/12/2016:-

 

 

 

 

Retained Earnings (1/1/2016)

Dr.

40000

 

 

Share Capital A/c.

Dr.

418000

 

 

General Reserve A/c.

Dr.

14000

 

 

Business Combination Valuation Reserve A/c.

Dr.

88000

 

 

To,

Shares in Navy Ltd. A/c.

 

560000

4

Sale & Profit in Closing Inventory:

 

 

 

 

Sales Revenue A/c.

Dr.

44000

 

 

To,

Cost of Sales A/c.

 

40400

 

To,

Inventories A/c.

 

3600

 

Deferred Tax Asset A/c.

Dr.

1080

 

 

To,

Income Tax Expense A/c.

 

1080

5

Sale of Inventory classified as Plant:

 

 

 

 

Retained Earnings (1/1/2016) A/c.

Dr.

9100

 

 

Deferred Tax Assets A/c.

Dr.

3900

 

 

To,

Plant & Machinery A/c.

 

13000

 

Accumulated Depreciation - Plant & Machinery A/c.

Dr.

5850

 

 

To,

Depreciation Expense A/c.

 

1300

 

To,

Retained Earnings (1/1/2016) A/c.

 

4550

 

Income Tax Expenses A/c.

Dr.

390

 

 

Retained Earnings (1/1/2016) A/c.

Dr.

1365

 

 

To,

Deferred Tax Assets A/c.

 

1755

6

Sale of Plant:

 

 

 

 

Proceeds from Sale of PP&E A/c.

Dr.

84000

 

 

Plant & Machinery A/c.

Dr.

14000

 

 

To,

Carrying Amount of PP&E A/c.

 

98000

 

Income Tax Expense A/c.

Dr.

4200

 

 

To,

Deferred Tax Liability A/c.

 

4200

 

Depreciation Expense A/c.

Dr.

1120

 

 

To,

Accumulated Depreciation - Plant & Machinery A/c.

 

1120

 

Deferred Tax Asset A/c.

Dr.

336

 

 

To,

Income Tax Expense A/c.

 

336

7

Profit in Opening/Closing Inventory:

 

 

 

 

Retained Earnings (1/1/2016) A/c.

Dr.

1050

 

 

Income Tax Expenses A/c.

Dr.

450

 

 

To,

Cost of Sales A/c.

 

1500

8

Dividend Declared:

 

 

 

 

Accounts Payables A/c.

Dr.

12000

 

 

To,

Dividend Declared A/c.

 

12000

 

Other Income A/c.

Dr.

12000

 

 

To,

Accounts Receivables A/c.

 

12000

 

Consolidation Worksheet:

 

 

 

Adjustments

 

Particulars

Square Ltd.

Navy Ltd.

 

Dr.

Cr.

 

Group

Sales Revenue

847000

260000

4

44000

 

 

1063000

Less: Cost of Sales

376000

213180

 

 

41900

4,7

547280

Gross Profit

471000

46820

 

 

 

 

515720

Less: Other Expenses

56000

10000

1.b,6

2320

1300

5

67020

Operating Profit

415000

36820

 

 

 

 

448700

Add:

 

 

 

 

 

 

 

Proceeds from Sale of PP&E

30000

84000

6

84000

 

 

30000

Carrying Amount of PP&E

36000

98000

 

 

98000

6

36000

Gain/(Loss) on Sale

-6000

-14000

 

 

 

 

-6000

Other Income

30000

12000

8

12000

 

 

30000

Profit before Tax

439000

34820

 

 

 

 

472700

Less: Income Tax Expenses

104000

14000

5,6,7

5040

1776

1.c,4,6

121264

Net Profit

335000

20820

 

 

 

 

351436

Retained Earnings (1/1/2016)

80000

130000

1.b,3.b,5,7

56315

5990

1.c,5

159675

Less: Dividend Declared

22000

12000

 

 

12000

8

22000

Retained Earnings (31/12/2016)

393000

138820

 

 

 

 

489111

Share Capital

1000000

418000

3.b

418000

 

 

1000000

General Reserve

50000

14000

3.b

14000

 

 

50000

Asset Revaluation Surplus

20000

12000

 

 

 

 

32000

Business Combination Valuation Reserve

 

 

3.b

88000

81700

1.a,1.d

-6300

Other Components of Equity

30000

20000

 

 

 

 

50000

Total Equity

1493000

602820

 

 

 

 

1614811

Deferred Tax Liabilities

12480

10400

1.c

1800

10500

1.a,6

31580

Current Tax Liabilities

46000

38000

 

 

 

 

84000

Accounts Payable

48000

30000

8

12000

 

 

66000

Total Equity & Liabilities

1599480

681220

 

 

 

 

1796391

Plant & Machinery

900000

688000

6

14000

34000

1.a,5

1568000

Acc. Depreciation - Plant & Machinery

-600000

-522000

1.a,5

38850

7120

1.b,6

-1090270

Motor Vehicles

569400

305800

 

 

 

 

875200

Acc. Depreciation - Motor Vehicle

-300000

-180000

 

 

 

 

-480000

Goodwill

 

 

1.d

76000

 

 

76000

Shares in Navy Ltd.

560000

 

 

 

560000

3.b

0

Financial Assets

140000

70000

 

 

 

 

210000

Deferred Tax Assets

25400

12600

4,5,6

5316

1755

5

41561

Accounts Receivable

52000

16840

 

 

12000

8

56840

Inventories

158880

218000

 

 

3600

4

373280

Bank

93800

71980

 

 

 

 

165780

Total Assets

1599480

681220

 

871641

871641

 

1796391

Acquisition Analysis:

Particulars

 

Fair Value

Carrying Amount

Net Fair Value

Share Capital

 

0

0

120000

General Reserve

 

0

0

24000

Retained Earnings

 

0

0

16000

Plant

 

88000

80000

8000

Land

 

80000

60000

20000

Inventory

 

52000

40000

12000

Goodwill

 

0

5000

-5000

Net Fair Value of Identifiable Assets & Liabilities of Square Ltd.

A

220000

185000

195000

Consideration Transferred

 

 

 

161400

Less: 80% Dividend Payable

 

 

 

8000

Net Consideration Transferred

B

 

 

153400

Non-Controlling Interest

C

 

 

39000

Total Purchase Value

D=B+C

 

 

192400

Gain on Bargain Purchase

E=D-A

 

 

-2600

 

Consolidation Worksheet Journal Entries:-

Dr.

Cr.

Date

Particulars

Amount

Amount

 

Asset Revaluation Entries:

 

 

 

 

Retained Earnings (1/7/2016) A/c.

Dr.

12000

 

 

To,

Deferred Tax Liability A/c.

 

3600

 

To,

Transfer from Asset Revaluation Surplus A/c.

 

1080

 

Gain on Sale of Land A/c.

Dr.

20000

 

 

To,

Income Tax Expenses A/c.

 

6000

 

To,

Transfer from Asset Revaluation Surplus A/c.

 

14000

 

Accumulated Depreciation - Plant A/c.

Dr.

20000

 

 

To,

Plant A/c.

 

12000

 

To,

Deferred Tax Liability A/c.

 

3600

 

To,

Asset Revaluation Surplus A/c.

 

4400

 

Depreciation Expense A/c.

Dr.

2000

 

 

Retained Earnings (1/7/2016) A/c.

Dr.

2000

 

 

To,

Accumulated Depreciation - Plant & Machinery A/c.

 

4000

 

Deferred Tax Liability A/c.

Dr.

1200

 

 

To,

Income Tax Expenses A/c.

 

600

 

To,

Retained Earnings (1/7/2016) A/c.

 

600

 

Transfer from General Reserve:-

 

 

 

 

General Reserve A/c.

Dr.

8000

 

 

To,

Retained Earnings A/c.

 

8000

 

Pre-Acquisition Entries:

 

 

 

 

At 1/7/2015:-

 

 

 

 

Retained Earnings (1/7/2015) A/c.

Dr.

12800

 

 

Share Capital A/c.

Dr.

96000

 

 

General Reserve A/c.

Dr.

19200

 

 

Asset Revaluation Surplus A/c.

Dr.

28000

 

 

To,

Gain on Bargain Purchase A/c.

 

2600

 

To,

Shares in Hana Ltd. A/c.

 

153400

 

At 30/07/2017:-

 

 

 

 

Retained Earnings (1/7/2016)

Dr.

38800

 

 

Share Capital A/c.

Dr.

96000

 

 

General Reserve A/c.

Dr.

12800

 

 

Asset Revaluation Surplus A/c.

Dr.

8400

 

 

To,

Gain on Bargain Purchase A/c.

 

2600

 

To,

Shares in Hana Ltd. A/c.

 

153400

 

Transfer from Asset Revaluation Surplus A/c.

Dr.

12064

 

 

To,

Asset Revaluation Surplus A/c.

 

12064

 

NCI Share of Equity as on 1/7/2015:-

 

 

 

 

Retained Earnings (1/7/2016)

Dr.

3200

 

 

Share Capital A/c.

Dr.

24000

 

 

General Reserve A/c.

Dr.

4800

 

 

Asset Revaluation Surplus A/c.

Dr.

7000

 

 

To,

NCI A/c.

 

39000

 

NCI Share of Equity from 1/6/2016 - 30/06/2017:

 

 

 

 

NCI Share of Profit A/c.

Dr.

7760

 

 

To,

NCI A/c.

 

7760

 

Transfer from Asset Revaluation Surplus A/c.

Dr.

3016

 

 

To,

Asset Revaluation Surplus A/c.

 

3016

 

NCI A/c.

Dr.

2400

 

 

To,

Dividend Paid A/c.

 

2400

 

NCI A/c.

Dr.

3200

 

 

To,

Dividend Declared A/c.

 

3200

 

Dividend Paid:

 

 

 

 

Other Revenue A/c.

Dr.

9600

 

 

To,

Dividend Paid A/c.

 

9600

 

Dividend Declared:

 

 

 

 

Payables A/c.

Dr.

12800

 

 

To,

Dividend Declared A/c.

 

12800

 

Other Revenue A/c.

Dr.

12800

 

 

To,

Receivables A/c.

 

12800

 

Intragroup Sales:

 

 

 

 

Sales Revenue A/c.

Dr.

120000

 

 

To,

Cost of Sales A/c.

 

115000

 

To,

Inventory A/c.

 

5000

 

Deferred Tax Asset A/c.

Dr.

1500

 

 

To,

Income Tax Expense A/c.

 

1500

 

NCI A/c.

 

700

 

 

To,

NCI Share of Profit A/c.

 

700

 

Sale of Inventory classified as Plant:

 

 

 

 

Retained Earnings (1/7/2016) A/c.

Dr.

3500

 

 

Deferred Tax Assets A/c.

Dr.

1500

 

 

To,

Plant & Machinery A/c.

 

5000

 

Accumulated Depreciation - Plant & Machinery A/c.

Dr.

1500

 

 

To,

Depreciation Expense A/c.

 

1000

 

To,

Retained Earnings (1/7/2016) A/c.

 

500

 

Income Tax Expenses A/c.

Dr.

300

 

 

Retained Earnings (1/7/2016) A/c.

Dr.

150

 

 

To,

Deferred Tax Assets A/c.

 

450

 

NCI A/c.

Dr.

610

 

 

To,

NCI Share of Profit A/c.

 

610


Acquisition Analysis:

Particulars

 

Fair Value

Carrying Amount

Net Fair Value

Share Capital

 

0

0

300000

Retained Earnings

 

0

0

200000

Building

 

200000

160000

40000

Net Fair Value of Identifiable Assets & Liabilities of Square Ltd.

A

200000

160000

540000

Consideration Transferred

B

 

 

240000

Non-Controlling Interest

C

 

 

405000

Total Purchase Value

D=B+C

 

 

645000

Goodwill

E=D-A

 

 

0

Though, Star Ltd. had acquired significant portion of interest in Mart Ltd., but it does not own majority voting right, i.e, equal or above 50% of the voting interest. Hence, Mart Ltd. cannot be considered as The Subsidiary Company of Star Ltd. For this reason, no goodwill or gain on bargain purchase would be recorded in the books of Star Ltd. for the acquisition of 25% shares in Mart Ltd.

Investment Journal Entries:-

Dr.

Cr.

Date

Particulars

Amount

Amount

 

Investment in Mart Ltd.:

 

 

 

1/7/2015

Investment in Mart Ltd. A/c.

Dr.

240000

 

 

To,

Cash A/c.

 

240000

 

Profit of Mart Ltd. on 2015-16:-

 

 

 

30/6/2016

Investment in Mart Ltd. A/c.

Dr.

15000

 

 

To,

Equity Income in Mart Ltd.

 

15000

 

Income Tax Expenses A/c.

Dr.

4500

 

 

To,

Deferred Tax Liability A/c.

 

4500

 

Dividend Received on 2015-16:-

 

 

 

30/06/2016

Cash A/c.

Dr.

5000

 

 

To,

Investment in Mart Ltd. A/c.

 

5000

 

Income Tax Expenses A/c.

Dr.

1500

 

 

To,

Current Tax Liability A/c.

 

1500

 

Profit of Mart Ltd. on 2016-17:-

 

 

 

30/6/2017

Investment in Mart Ltd. A/c.

Dr.

50000

 

 

To,

Equity Income in Mart Ltd.

 

50000

 

Income Tax Expenses A/c.

Dr.

15000

 

 

To,

Deferred Tax Liability A/c.

 

15000

 

Dividend Received on 2016-17:-

 

 

 

30/06/2016

Cash A/c.

Dr.

25000

 

 

To,

Investment in Mart Ltd. A/c.

 

25000

 

Income Tax Expenses A/c.

Dr.

7500

 

 

To,

Current Tax Liability A/c.

 

7500

It is assumed that, Star Ltd. is not eligible to enjoy tax offset for Dividend Received Deduction. Otherwise, it can save 20% tax expenses for the cash dividend received.

Bibliography:-

Beams, F. A., Anthony, J. H., Bettinghaus, B., & Smith, K. (2015). Beams: Advanced Accounting. Pearson Higher Ed.

Deegan, C. (2013). Financial accounting theory. McGraw-Hill Education Australia

Gornik-Tomaszewski, S., & Larson, R. K. (2014). New consolidation requirements under IFRS. Review of Business, 35(1), 47.

Gray, S. J. (Ed.). (2014). International accounting and transnational decisions. Butterworth-Heinemann

Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015). Issues in financial accounting. Pearson Higher Education AU.

Hoskin, R. E., Fizzell, M. R., & Cherry, D. C. (2014). Financial Accounting: a user perspective. Wiley Global Education.

Hoyle, J. B., Schaefer, T., & Doupnik, T. (2015). Advanced accounting. McGraw Hill

Knapp, J. (2013). A Reconsideration of Consolidation Accounting Requirements and Pre?acquisition Dividends. Australian Accounting Review, 23(3), 190-207.

Parker, R. H. (2014). Concepts of consolidation in the EEC. International Accounting and Transnational Decisions, 171.

Saunders, A., & Cornett, M. M. (2014). Financial institutions management. McGraw-Hill Education,.

Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to concepts, methods and uses. Cengage Learning

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