Corporate Accounting Systems - Part A

a) Acquisition Analysis at 1st July’2018

Acquistion Analysis

Book value of Net Assets

$

Share Capital

235,000

Retained Earnings

115,000

Total book value of net assets

350,000

   

Add: Fair Value Adjustments

Nil

FVINA (a)

350,000

Purchase Consideration (b)

650,000

Goodwill (b)-(a)

300,000

b) Adjustments/Elimination Journal entries for Consolidation as at 30th June’2019

BCVR journal entries as at 30th June’2019

 Particulars

Dr.

$

Cr.

$

Goodwill

300,000

 

Business Combination Valuation Reserve

 

300,000

(Recognition of Goodwill arising at acquisition of Queensland Retail Ltd.)

   

Pre-Acquisition Journal entries at 30th June’2019

Particulars

Dr.

$

Cr.

$

Share Capital

235,000

 

Retained Earnings

115,000

 

Business Combination Valuation Reserve

300,000

 

Investment in Queensland Retail Ltd.

 

650,000

(Pre-Acquisition Journal Entry for elimination of Investment in Queensland Retail Ltd.)

   

Elimination Entries at 30th June’2019

Particulars

Dr.

$

Cr.

$

1. a) Gain on Sale of Machinery

36,000

 

Machinery

 

36,000

(Elimination of gain on Intra group sale)

   
     

b) Deferred Tax Asset

10,800

 

Income Tax Expense

 

10,800

(Reversal of Income tax expense due to elimination of

Intragroup gain)

   
     

c) Accumulated Depreciation

3,750

 

Depreciation

 

3,750

(Reversal of Depreciation Expense on account of

Elimination of intragroup gain and corresponding

Adjustment in value of machinery)

   
     

d) Income Tax Expense

 1,125

 

Deferred Tax Asset

 

1,125

(Recognition of Income tax expense due to reversal of

Depreciation)

   
     

2. a) Sales Revenue

50,000

 

Cost of Sales

 

46,000

Inventory

 

4,000

(Elimination of profit on intragroup sale of inventory)

   
     

b) Deferred Tax Asset

1,200

 

Income Tax Expense

 

1,200

(Reversal of Income Tax Expense due to elimination of profit

On intragroup sale of inventory)

   
     

a) Acquisition Analysis at 30th June’2020

Acquistion Analysis

 

$

Share Capital

550,000

Retained Earnings

100,000

Revaluation Surplus

150,000

Total

800,000

   

Add: Fair Value Adjustments

 

Plant 26,000(1-0.3)

18,200

   

FVINA (a)

818,200

Share of Wholesale Ltd. (80%)

654,560

Purchase Consideration (b)

800,000

Fair Value of NCI (c)

163,640

Goodwill (b) +(c)-(a)

145,440

Calculation of NCI

 Share Capital (550,000*.2) = 110,000

Retained Earnings (100,000*.2)= 20,000

Revaluation Surplus(150,000*.2)= 30,000

Fair Value Adjustments(18,200*.2)= 3,640

________

$ 163,640

b) Adjustments/Elimination Journal entries for Consolidation as at 30th June’2020

Pre-Acquisition Journal Entries as on 30th June’2020

 Particulars

Dr.

$

Cr.

$

Share Capital

440,000

 

Retained Earnings

80,000

 

Revaluation Reserve

120,000

 

Business Combination Valuation Reserve

 160,000

 

Investment in House Construction Ltd.

 

800,000

(Pre-Acquisition Journal Entry for elimination of Investment in House Construction Ltd.)

   

 Share Capital

110,000

 

 Retained Earnings

20,000

 

 Revaluation Surplus

30,000

 

Business Combination Valuation Reserve

3,640

 

Non-Controlling Interest

 

163,640

BCVR journal entries as at 30th June’2020

Particulars

Dr.

$

Cr.

$

Goodwill

145,440

 

Business Combination Valuation Reserve

 

145,440

(Recognition of Goodwill arising at acquisition of Queensland Retail Ltd.)

   

Accumulated Depreciation

85,000

 

Plant

 

59,000

Deferred Tax Liability

 

 7,800

Business Combination Valuation Reserve

 

18,200

(Recording Plant at fair value on acquisition)

   
     

In addition to above Journal entries, Pre-acquisition journal entries and BCVR journal entries on account of acquisition of Queensland ltd. as given in I. b) above shall also be made.

Elimination Entries at 30th June’2020

 

Dr.

$

Cr.

$

1. a) Retained Earnings (1/7/19)

36,000

 

Machinery

 

36,000

(Elimination of gain on Intra group sale)

   
     

b) Deferred Tax Asset

10,800

 

Retained Earnings (1/7/19)

 

10,800

(Reversal of Income tax expense (2018-19)

due to elimination of Intragroup gain)

   
     

c) Accumulated Depreciation

8,250

 

Depreciation

 

4,500

Retained Earnings (1/7/19)

 

3,750

(Reversal of Depreciation Expense on account of

Elimination of intragroup gain and corresponding

Adjustment in value of machinery)

   
     

d) Income Tax Expense

 1,350

 

Retained Earnings (1/7/19)

 1,125

 

Deferred Tax Asset

 

2,475

(Recognition of Income tax expense due to reversal of

Depreciation)

   
     

2. a) Sales Revenue

70,000

 

Cost of Sales

 

65,500

Inventory

 

4,500

(Elimination of profit on intragroup sale of inventory)

   
     

b) Deferred Tax Asset

1,350

 

Income Tax Expense

 

1,350

(Reversal of Income Tax Expense due to elimination of profit

On intragroup sale of inventory)

   
     

3.  Consultancy fee Payable

3,000

 

Consultancy fee receivable

 

 3,000

(Reversal of Intragroup transaction)

   
     

4.  Loan Payable

55,000

 

Loan Receivable

 

55,000

(Reversal of Intragroup transaction)

   
     

5. Interest Revenue

1,925

 

Interest Expense

 

1,925

(Reversal of Intragroup revenue and expense)

   
     

6. Retained Earnings (1/7/19)

10,000

 

Impairment on Goodwill

15,000

 

Accumulated Impairment

 

25,000

(Recognition of Impairment loss expense on Goodwill)

   
     

Corporate Accounting Systems - Part B

There are many benefits associated with acquiring a business in same industry. The primary advantage is that acquiror company can create economies of scale, which can be achieved by increasing production by reducing production costs. The other advantage is that company can implement same marketing and sales strategies for the new company, which can lead to reduced costs and boosting productivity.

However, if the business being acquired is from a different industry, it has many challenges associated with it.

Since, the acquiror company may not have experience in the industry of acquiree company, it may not be able to fully leverage the potential advantages of the acquisition which may even cause the performance of the acquiror company to go down after the acquisition. It may cause serious setback to acquiror company in terms of profitability. To overcome this challenge, acquiror company may consider to hire senior people in the management who have the relevant experience in the industry in which acquiree company operates, so that they may provide suitable guidance and advice to senior management in terms of business decisions.

Another disadvantage is that acquisition may shift the focus from the core business of acquiror and which may lead to reduced performance. This disadvantage may be overcome by doing proper resource planning for different verticals and budgetary exercises. Prompt action should be taken for significant deviations from the budget. The common costs should be appropriately and correctly allocated to different verticals of the business.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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