l consolidations week 1 text chap 13 & 14 aasb 1024 text chap 13 & 14 aasb 1024
TRANSCRIPT
ConsolidationsWEEK 1
TEXTCHAP 13 & 14
AASB 1024
TEXTCHAP 13 & 14
AASB 1024
Investments in other companies
Cost method A Ltd purchases shares in B Ltd $100 000
DR Investment in B Ltd 100 000
CR Cash 100 000 Balance Sheet
Investments (note 6) 100 000 Consolidation is how do we record this amount
when A Ltd has substantial ownership/control in B Ltd
Investments in other companies
Cost method
– records asset at cost & records dividends received
Equity method
– where company has a significant influence over another company AASB 1016/ AAS14
Consolidation method
– where one company gains “control” of another company
Consolidation Where a company gains control of another
company -referred to as the parent or chief entity - it is required to prepare consolidated accounts of its affairs & the entities under its control - subsidiaries (The company will still use cost method & then do adjustments to comply with requirements for consolidation)
Consolidated accounts as per AASB 1024 & Corporations law
Consolidated Profit & Loss
Consolidated Balance Sheet
Consolidated Cash Flow Statement
Consolidated accounts are prepared by adding together the accounts of the entities comprising the economic entity
Consolidated accounts are required in addition to the individual accounts
CONSOLIDATIONCONSOLIDATION
Parent entity/ Subsidiary
e.g. company A controls company B
Company A is required to prepare consolidated accounts for A & its subsidiary B ( A is the parent and B is the subsidiary)
Control as per corporations law
controls composition of the board
controls maximum number of votes
holds more than 50% of issued capital AASB control
capacity of an entity to dominate the decision-making .....of another entity
Definitions
Consolidation process
Firstly, to identify the parent entity and all of its subsidiaries (i.e. the economic entity)
Control is assumed to exist in this course if one company owns more than 50% of another company
– please note that in practice control may not exist with 50% ownership but may in fact exist with less
Entity concept of consolidation
60%
O.E.I.
40%
A LTD
B LTD
O.E.I. is the equity of the entity other than
that of theparent entity
Adjustment entries on consolidation
Two major types of adjustments� Eliminate the investment ‘Shares in subsidiary’
(referred to as the pre-acquisition entry)
Adjustment entries on consolidation
Two major types of adjustments� Eliminate the investment ‘Shares in subsidiary’
(referred to as the pre-acquisition entry)
� Eliminations of inter-company transactions
( future weeks)
Adjustment entries on consolidation
Two major types of adjustments
� Eliminate the investment ‘Shares in subsidiary’
(referred to as the pre-acquisition entry)
� Eliminations of inter-company transactions
( future weeks)
Adjustment entries on consolidation
Two major types of adjustments
� Eliminate the investment ‘Shares in subsidiary’
(referred to as the pre-acquisition entry)
� Eliminations of intercompany transactions
( future weeks)
Assumptions Week 1
1) Wholly Owned Subsidiaries2) Net Assets Acquired at Fair Values
Assumptions Week 1
1) Wholly Owned Subsidiaries2) Net Assets Acquired at Fair Values
Pre-acquisition adjustment Assume that H Ltd gains control of S Ltd by
purchasing all of its issued capital for $20,000 cash on 1 July 19x0 and that , immediately prior to purchase the Balance Sheets of H Ltd & S Ltd were :-
H LTD S LTD
CAPITAL 30,000 15,000
RETAINED PROFITS 15,000 5,000
$45,000 $20,000
CASH 20,000 -
OTHER ASSETS 25,000 20,000
$45,000 $20,000
Pre-acquisition adjustment Assume that H Ltd gains control of S Ltd by
purchasing all of its issued capital for $20,000 cash on 1 July 19x0 and that , immediately prior to purchase the Balance Sheets of H Ltd & S Ltd were :-
H LTD S LTD
CAPITAL 30,000 15,000
RETAINED PROFITS 15,000 5,000
$45,000 $20,000
CASH 20,000 -
OTHER ASSETS 25,000 20,000
$45,000 $20,000SHARES IN S LTD IMMEDIATELY AFTER
ACQUISITIONBALANCE SHEETS
IMMEDIATELY AFTERACQUISITION
BALANCE SHEETS
PRE-ACQUISITION ADJUSTMENT
Assume that H Ltd gains control of S Ltd by purchasing all of its issued capital for $20,000 cash on 1 July 19x0 and that , immediately prior to purchase the Balance Sheets of H Ltd & S Ltd were :-
H LTD S LTD
CAPITAL 30,000 15,000
RETAINED PROFITS 15,000 5,000
$45,000 $20,000
SHARES IN S LTD 20,000 -
OTHER ASSETS 25,000 20,000
$45,000 $20,000
WHAT DID H LTD ACQUIRE
FOR ITS $20,000NET ASSETS OF S LTD
i.e.CAPITAL $15,000&
RETAINED PROFITS $5,000
WHAT DID H LTD ACQUIRE
FOR ITS $20,000NET ASSETS OF S LTD
i.e.CAPITAL $15,000&
RETAINED PROFITS $5,000
Pre-acquisition adjustment Assume that H Ltd gains control of S Ltd by
purchasing all of its issued capital for $20,000 cash on 1 July 19x0 and that , immediately prior to purchase the Balance Sheets of H Ltd & S Ltd were :-
H LTD S LTD
CAPITAL 30,000 15,000
RETAINED PROFITS 15,000 5,000
$45,000 $20,000
SHARES IN S LTD 20,000 -
OTHER ASSETS 25,000 20,000
$45,000 $20,000
EQUITY ACQUIREDCAPITAL 15,000RETAINED PROFITS 5,000COST OF EQUITY 20,000
EQUITY ACQUIREDCAPITAL 15,000RETAINED PROFITS 5,000COST OF EQUITY 20,000
Pre-acquisition adjustment Assume that H Ltd gains control of S Ltd by
purchasing all of its issued capital for $20,000 cash on 1 July 19x0 and that , immediately prior to purchase the Balance Sheets of H Ltd & S Ltd were :-
H LTD S LTD
CAPITAL 30,000 15,000
RETAINED PROFITS 15,000 5,000
$45,000 $20,000
SHARES IN S LTD 20,000 -
OTHER ASSETS 25,000 20,000
$45,000 $20,000
EQUITY ACQUIREDCAPITAL 15,000RETAINED PROFITS 5,000COST OF EQUITY 20,000
EQUITY ACQUIREDCAPITAL 15,000RETAINED PROFITS 5,000COST OF EQUITY 20,000 Consolidation entry::
DR CAPITAL 15,000DR RET. PROFITS 5,000 CR SHARES IN S LTD 20,000
Consolidation entry::DR CAPITAL 15,000DR RET. PROFITS 5,000 CR SHARES IN S LTD 20,000
Consolidation Worksheet H LTD S LTD ADJUST’S CONS
DR CRCAPITAL 30,000 15,000
RETAINED PROF 15,000 5,000
$45,000 $20,000
SHARES IN S LTD 20,000
OTHER ASSETS 25,000 20,000
$45,000 $20,000
Consolidation Worksheet H LTD S LTD ADJUST’S CONS
DR CRCAPITAL 30,000 15,000 15,000
RETAINED PROF 15,000 5,000 5,000
$45,000 $20,000
SHARES IN S LTD 20,000 20,000
OTHER ASSETS 25,000 20,000
$45,000 $20,000
Consolidation Worksheet H LTD S LTD ADJUST’S CONS
DR CRCAPITAL 30,000 15,000 15,000 30,000
RETAINED PROF 15,000 5,000 5,000 15,000
$45,000 $20,000 $45,000
SHARES IN S LTD 20,000 20,000 -
OTHER ASSETS 25,000 20,000 45,000
$45,000 $20,000 $45,000
Worksheet - after one year H LTD S LTD ADJUST’S CONS
DR CRCAPITAL 30,000 15,000 15,000 30,000
RETAINED PROF 25,000 12,000 5,000 32,000
$55,000 $27,000 $62,000
SHARES IN S LTD 20,000 20,000 -
OTHER ASSETS 35,000 27,000 62,000
$55,000 $27,000 $62,000
In following years Adj entrywill be the same i.e.based on Acq date
Pre-acquistion Dividends 3 cases
(1) Dividend payable at date of acquisition
(2) Dividend paid subsequent to acquisition
(3) Dividend payable since acquisition
DIVIDENDSFROM PROFITS
BEFOREACQUISITION
DIVIDENDSFROM PROFITS
BEFOREACQUISITION
Pre-acquisition dividends Dividend Payable @ acq
Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :-
S LTD
CAPITAL 15,000
RETAINED PROFITS 3,500
DIVIDEND PAYABLE 1,500
$20,000
ASSETS $20,000
Pre-acquisition dividends Dividend Payable @ acq
Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :-
S LTD
CAPITAL 15,000
RETAINED PROFITS 3,500
DIVIDEND PAYABLE 1,500
$20,000
ASSETS $20,000
entry::
Equity AcquiredCapital 15,000Retd. Profits 3,500Divid. Payable 1,500
Cost $20,000(includes dividend receivable $1 500)
Pre-acquisition dividendsDividend Payable @ acq
Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :-
S LTD
CAPITAL 15,000
RETAINED PROFITS 3,500
DIVIDEND PAYABLE 1,500
$20,000
ASSETS $20,000Purchase entry in books:-DR Shares in Sub 18 500DR Dividend Receivable 1 500 CR Cash 20 000(Pre-acq dividend : reduction in carrying amount of investment)
Purchase entry in books:-DR Shares in Sub 18 500DR Dividend Receivable 1 500 CR Cash 20 000(Pre-acq dividend : reduction in carrying amount of investment)
Pre-acquisition dividends Dividend Payable @ acq
Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :-
S LTD
CAPITAL 15,000
RETAINED PROFITS 3,500
DIVIDEND PAYABLE 1,500
$20,000
ASSETS $20,000
entry::
Capital 15,000Retd. Profits 3,500Div. Payable 1,500 Div Receivable 1,500 Shares in Sub 18,500(Pre-acq entry)
entry::
Equity AcquiredCapital 15,000Retd. Profits 3,500Divid. Payable 1,500
Cost $20,000(includes dividend receivable $1 500)
Purchase entry in books:-DR Shares in Sub 18 500DR Dividend Receivable 1 500 CR Cash 20 000(Pre-acq dividend : reduction in carrying amount of investment)
Purchase entry in books:-DR Shares in Sub 18 500DR Dividend Receivable 1 500 CR Cash 20 000(Pre-acq dividend : reduction in carrying amount of investment)
Pre-acquisition dividendsDividend Payable @ acq
Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :-
S LTD
CAPITAL 15,000
RETAINED PROFITS 3,500
DIVIDEND PAYABLE 1,500
$20,000
ASSETS $20,000
consolidation entry:: SUBSEQUENT YEARS
CAPITAL 15,000RETD. PROFITS 3,500 Shares in Sub 18,500
entry::
Capital 15,000Retd. Profits 3,500Div. Payable 1,500 Div Receivable 1,500 Shares in Sub 18,500(Pre-acq entry)
Pre-acquisition dividendsDividend Paid after acq
Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :-
S LTD
CAPITAL 15,000
RETAINED PROFITS 5,000
$20,000
ASSETS $20,000
Since acquisition S Ltd pays a dividend $3,000 from pre-acquisition profits
Pre-acquisition dividendsDividend Paid after acq
Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :-
S LTD
CAPITAL 15,000
RETAINED PROFITS 5,000
$20,000
ASSETS $20,000
Since acquisition S Ltd pays a dividend $3,000 from pre-acquisition profits
CONSOLIDATION ENTRY::DR CAPITAL 15,000DR RET.PROFITS 5,000 CR SHARES IN SUB 20,000(Pre-acq @ acquisition date)
CONSOLIDATION ENTRY::DR CAPITAL 15,000DR RET.PROFITS 5,000 CR SHARES IN SUB 20,000(Pre-acq @ acquisition date)
Pre-acquisition dividendsDividend Paid after acq
Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :-
S LTD
CAPITAL 15,000
RETAINED PROFITS 5,000
$20,000
ASSETS $20,000
Since acquisition S Ltd pays a dividend $3,000 from pre-acquisition profits
SINCE AcquisitionENTRY in Books::SubsidiaryDR RET.PROFITS 3,000 (Dividend Paid) CR Bank 3,000
Holding CoyDR Bank 3,000 Cr Shares in Sub 3,000
SINCE AcquisitionENTRY in Books::SubsidiaryDR RET.PROFITS 3,000 (Dividend Paid) CR Bank 3,000
Holding CoyDR Bank 3,000 Cr Shares in Sub 3,000
Pre-acquisition dividendsDividend Paid after acq
Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :-
S LTD
CAPITAL 15,000
RETAINED PROFITS 5,000
$20,000
ASSETS $20,000
SINCE ACQUISITION S LTD PAYS A DIVIDEND $3,000 FROM PRE-ACQUISITION PROFITS
ENTRY::DR CAPITAL 15,000DR RET.PROFITS 5,000 CR DIVIDEND PAID 3,000 CR SHARES IN SUB 17,000
ENTRY::DR CAPITAL 15,000DR RET.PROFITS 5,000 CR DIVIDEND PAID 3,000 CR SHARES IN SUB 17,000
SINCE AcquisitionENTRY in Books::SubsidiaryDR RET.PROFITS 3,000 (Dividend Paid) CR Bank 3,000
Holding CoyDR Bank 3,000 Cr Shares in Sub 3,000
SINCE AcquisitionENTRY in Books::SubsidiaryDR RET.PROFITS 3,000 (Dividend Paid) CR Bank 3,000
Holding CoyDR Bank 3,000 Cr Shares in Sub 3,000
CONSOLIDATION ENTRY::DR CAPITAL 15,000DR RET.PROFITS 5,000 CR SHARES IN SUB 20,000(Pre-acq @ acquisition date)
CONSOLIDATION ENTRY::DR CAPITAL 15,000DR RET.PROFITS 5,000 CR SHARES IN SUB 20,000(Pre-acq @ acquisition date)
Pre-acquisition dividendsDividend Paid after acq
Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :-
S LTD
CAPITAL 15,000
RETAINED PROFITS 5,000
$20,000
ASSETS $20,000
SINCE ACQUISITION H LTD PAYS A DIVIDEND $3,000 FROM PRE-ACQUISITION PROFITS
ENTRY::DR CAPITAL 15,000DR RET.PROFITS 5,000 CR DIVIDEND PAID 3,000 CR SHARES IN SUB 17,000
ENTRY::DR CAPITAL 15,000DR RET.PROFITS 5,000 CR DIVIDEND PAID 3,000 CR SHARES IN SUB 17,000SUBSEQUENT YEARS::
DR CAPITAL 15,000DR RET. PROFITS 2,000 CR SHARES IN SUBS 17,000
SUBSEQUENT YEARS::DR CAPITAL 15,000DR RET. PROFITS 2,000 CR SHARES IN SUBS 17,000
Pre-acquisition dividends declared but not paid
Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :-
S LTD
CAPITAL 15,000
RETAINED PROFITS 5,000
$20,000
ASSETS $20,000
Since acquisition S Ltd provides for a dividend $3,000 from pre-acquisition profits
Pre-acquisition dividends declared but not paid
Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :-
S LTD
CAPITAL 15,000
RETAINED PROFITS 5,000
$20,000
ASSETS $20,000
Since acquisition S Ltd pays a dividend $3,000 from pre-acquisition profits
Pre-acq adjustment:Dr Capital 15 000DR R P 5 000 Cr Shares in Sub 20 000
Pre-acq adjustment:Dr Capital 15 000DR R P 5 000 Cr Shares in Sub 20 000
Pre-acquisition dividends declared but not paid
Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :-
S LTD
CAPITAL 15,000
RETAINED PROFITS 5,000
$20,000
ASSETS $20,000
Since acquisition S Ltd pays a dividend $3,000 from pre-acquisition profits
Entries in Books ::Subsidiary CoyDr Retained Profits 3 000 ( Dividend Provided) CR Provision for Dividend 3 000Holding CoyDR Dividend Receivable 3 000 Cr Shares in Subsidiary 3 000
Entries in Books ::Subsidiary CoyDr Retained Profits 3 000 ( Dividend Provided) CR Provision for Dividend 3 000Holding CoyDR Dividend Receivable 3 000 Cr Shares in Subsidiary 3 000
Pre-acquisition dividends declared but not paid
Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :-
S LTD
CAPITAL 15,000
RETAINED PROFITS 5,000
$20,000
ASSETS $20,000
Since acquisition S Ltd pays a dividend $3,000 from pre-acquisition profits
Pre-acq adjustment:Dr Capital 15 000DR R P 5 000Dr Provision for Div 3 000 Cr Dividend Provided 3 000 Cr Dividend Receivable 3 000 Cr Shares in Sub 17 000
Pre-acq adjustment:Dr Capital 15 000DR R P 5 000Dr Provision for Div 3 000 Cr Dividend Provided 3 000 Cr Dividend Receivable 3 000 Cr Shares in Sub 17 000
Pre-acq adjustment:Dr Capital 15 000DR R P 5 000 Cr Shares in Sub 20 000
Pre-acq adjustment:Dr Capital 15 000DR R P 5 000 Cr Shares in Sub 20 000
Entries in Books ::Subsidiary CoyDr Retained Profits 3 000 ( Dividend Provided) CR Provision for Dividend 3 000Holding CoyDR Dividend Receivable 3 000 Cr Shares in Subsidiary 3 000
Entries in Books ::Subsidiary CoyDr Retained Profits 3 000 ( Dividend Provided) CR Provision for Dividend 3 000Holding CoyDR Dividend Receivable 3 000 Cr Shares in Subsidiary 3 000
Pre-acquisition dividends declared but not paid
Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :-
S LTD
CAPITAL 15,000
RETAINED PROFITS 5,000
$20,000
ASSETS $20,000
Since acquisition S Ltd pays a dividend $3,000 from pre-acquisition profits
Following year:Dr Capital 15 000DR R P 2 000 Cr Shares in Sub 17 000
Following year:Dr Capital 15 000DR R P 2 000 Cr Shares in Sub 17 000
Pre-acq adjustment:Dr Capital 15 000DR R P 5 000Dr Provision for Div 3 000 Cr Dividend Provided 3 000 Cr Dividend Receivable 3 000 Cr Shares in Sub 17 000
Pre-acq adjustment:Dr Capital 15 000DR R P 5 000Dr Provision for Div 3 000 Cr Dividend Provided 3 000 Cr Dividend Receivable 3 000 Cr Shares in Sub 17 000
Goodwill / Discount on acquisition
Goodwill
Fair values of assets acquired less than the fair value of assets given up
(must be written off over a maximum of 20 years)
Discount
Fair values of assets acquired greater than fair values of assets given up
(must be written off fair values of non-monetary assets)
Goodwill
At 1 July 19x0 Green Ltd acquired control of Trees Ltd by purchasing all of its issued shares for $100,000. At this date the accounts of Trees Ltd contained the following balances :-
CAPITAL 60,000
GENERAL RESERVE 10,000
RET. PROFITS 20,000
Any goodwill acquired amortised over 10 years.
GOODWILLAt 1 July 19x0 Green Ltd acquired control of Trees
Ltd by purchasing all of its issued shares for $100,000. At this date the accounts of Trees Ltd contained the following balances :-
CAPITAL 60,000
GENERAL RESERVE10,000
RET. PROFITS 20,000
Any goodwill acquired amortised over 10 years.
entry at date acquisition::DR CAPITAL 60,000DR GEN RESERVE10,000DR RET. PROFITS 20,000DR GOODWILL 10,000 CR SHARES IN S 100,000
GOODWILLAt 1 July 19x0 Green Ltd acquired control of Trees
Ltd by purchasing all of its issued shares for $100,000. At this date the accounts of Trees Ltd contained the following balances :-
CAPITAL 60,000
General Reserve 10,000
RET. PROFITS 20,000
Any goodwill acquired amortised over 10 years.
entry after 1 year:DR OPER. PROF 1,000DR CAPITAL 60,000DR G.R. 10,000DR R.P. 20,000DR GOODWILL 10,000 CR Acc Amortisation 1,000 CR SHARES IN S 100,000
entry after 1 year:DR OPER. PROF 1,000DR CAPITAL 60,000DR G.R. 10,000DR R.P. 20,000DR GOODWILL 10,000 CR Acc Amortisation 1,000 CR SHARES IN S 100,000
GOODWILLAt 1 July 19x0 Green Ltd acquired control of Trees
Ltd by purchasing all of its issued shares for $100,000. At this date the accounts of Trees Ltd contained the following balances :-
CAPITAL 60,000
SHARE PREMIUM 10,000
RET. PROFITS 20,000
Any goodwill acquired amortised over 10 years..
entry AFTER 2 YEARS ::DR OPER. PROFIT 1,000DR CAPITAL 60,000DR GEN RESERVE10,000DR RET. PROFITS 21,000DR GOODWILL 10,000 CR Acc amortisation 2,000 CR SHARES IN S 100,000
entry after 1 year:DR OPER. PROF 1,000DR CAPITAL 60,000DR G.R . 10,000DR R.P. 20,000DR GOODWILL 10,000 CR Acc Amortisation 1000 CR SHARES IN S 100000
entry after 1 year:DR OPER. PROF 1,000DR CAPITAL 60,000DR G.R . 10,000DR R.P. 20,000DR GOODWILL 10,000 CR Acc Amortisation 1000 CR SHARES IN S 100000
Discount on AcquisitionAssume that on 1 July 19x0, H Ltd acquires all the
issued shares of S Ltd for $17,000. The share capital section of S Ltd at that date was :
CAPITAL 15,000
RESERVES 3,000
RET. PROFITS 2,000
CURRENT ASSETS 5,000
LAND 10,000
EQUIPMENT 5,000
EQUITY ACQUIRED: CAPITAL 15,000 RESERVES 3,000 RET PROFITS 2,000 20,000COST OF SUBS 17,000DISCOUNT $3,000
DISCOUNT ON ACQUISITIONAssume that on 1 July 19x0, H Ltd acquires all the
issued shares of S Ltd for $17,000. The share capital section of S Ltd at that date was :
CAPITAL 15,000
RESERVES 3,000
RET. PROFITS 2,000
CURRENT ASSETS 5,000
LAND 10,000
EQUIPMENT 5,000
EQUITY ACQUIRED: CAPITAL 15,000 RESERVES 3,000 RET PROFITS 2,000 20,000COST OF SUBS 17,000DISCOUNT $3,000
DISCOUNT AGAINST FAIR VALUES NON-MONETARY ASSETS BV Gross* TaxLAND 10,000 (10/15 $3,000) 2,000 2,857 ( 857)EQUIP 5,000 ( 5/15 ) 1,000 1,429 (429) $3,000* Divide by.7
DISCOUNT ON ACQUISITIONAssume that on 1 July 19x0, H Ltd acquires all the
issued shares of S Ltd for $17,000. The share capital section of S Ltd at that date was :
CAPITAL 15,000
RESERVES 3,000
RET. PROFITS 2,000
CURRENT ASSETS 5,000
LAND 10,000
EQUIPMENT 5,000
EQUITY ACQUIRED: CAPITAL 15,000 RESERVES 3,000 RET PROFITS 2,000 20,000COST OF SUBS 17,000DISCOUNT $3,000
DR CAPITAL 15,000DR RESERVES 3,000DR RET. PROFITS 2,000 CR LAND 2,857Dr Deferred Tax Asset 857 CR EQUIPMENT 1,429Dr Deferred Tax Asset 429 CR SHARES IN S 17,000
DISCOUNT AGAINST FAIR VALUES NON-MONETARY ASSETS BV Gross* TaxLAND 10,000 (10/15 $3,000) 2,000 2,857 ( 857)EQUIP 5,000 ( 5/15 ) 1,000 1,429 (429) $3,000* Divide by.7
DISCOUNT ON ACQUISITIONAssume that on 1 July 19x0, H Ltd acquires all the
issued shares of S Ltd for $17,000. The share capital section of S Ltd at that date was :
CAPITAL 15,000
RESERVES 3,000
RET. PROFITS 2,000
CURRENT ASSETS 5,000
LAND 10,000
EQUIPMENT 5,000
ENTRY AFTER 1 YEAR ASSUME EQUIP 10 YEARS LIFE CR DEPREC 143DR ACC DEPN 143DR Tax Expense 43DR CAPITAL 15,000DR RESERVES 3,000DR RET. PROFITS 2,000 CR LAND 2,857Dr Deferred Tax Asset 857 CR EQUIPMENT 1,429Dr Deferred Tax Asset 386 CR SHARES IN S 17,000
DR CAPITAL 15,000DR RESERVES 3,000DR RET. PROFITS 2,000 CR LAND 2,857Dr Deferred Tax Asset 857 CR EQUIPMENT 1,429Dr Deferred Tax Asset 429 CR SHARES IN S 17,000
DISCOUNT ON ACQUISITIONAssume that on 1 July 19x0, H Ltd acquires all the
issued shares of S Ltd for $17,000. The share capital section of S Ltd at that date was :
CAPITAL 15,000
RESERVES 3,000
RET. PROFITS 2,000
CURRENT ASSETS 5,000
LAND 10,000
EQUIPMENT 5,000
ENTRY AFTER 1 YEAR ASSUME EQUIP 10 YEARS LIFE CR DEPREC 143DR ACC DEPN 143DR Tax Expense 43DR CAPITAL 15,000DR RESERVES 3,000DR RET. PROFITS 2,000 CR LAND 2,857Dr Deferred Tax Asset 857 CR EQUIPMENT 1,429Dr Deferred Tax Asset 386 CR SHARES IN S 17,000
ENTRY AFTER 2 YEARs ASSUME EQUIP 10 YEARS LIFE CR DEPREC 143DR ACC DEPN 286DR Tax Expense 43DR CAPITAL 15,000DR RESERVES 3,000DR RET. PROFITS 1,900 CR LAND 2,857Dr Deferred Tax Asset 857 CR EQUIPMENT 1,429Dr Deferred Tax Asset 343 CR SHARES IN S 17,000
Accumulated Depreciationat acquisition
The accumulated balances on acquisition should be written off:
as the consolidation is adjusting to fair values therefore write off accumulated depreciation
eg P Ltd purchases S Ltd & on that date balances as follows
Plant 80 000
Acc Depn 22 000 58 000
Furniture 32 000
Acc Depn 12 000 20 000
Accumulated Depreciationat acquisition
The accumulated balances on acquisition should be written off:
as the consolidation is adjusting to fair values therefore write off accumulated depreciation
eg P Ltd purchases S Ltd & on that date balances as follows
Plant 80 000
Acc Depn 22 000 58 000
Furniture 32 000
Acc Depn 12 000 20 000
ENTRY
DR Acc Depn - Plant 22 000 Cr Plant 22 000
Dr Acc Depn - Furn 12 000 Cr Furniture 12 000
Tutorial Questions
Exercise 14.1 Exercise 14.2 Exercise 14.4 Problem 14.1 Problem 14.2