Consolidated Financial Statements And Acquisition

Purchase Consideration

Purchase consideration or acquisition entails owning the interest in another company and it can be fully or partially. If it is partial this is where the company is said to control a certain percentage of interest in a venture. The level of control likewise dictates whether there exists business combination or just control base. For instance, the acquisition made of 50% creates a joint venture or an associate and there exist no captured for preparing consolidates statements and payment or accounting for goodwill Carvalho (2016.Pg 7),

If on the other hand acquisition is made that which is more than 50% but less than 100% there is the preparation of purchase accounting since some percentage portion of the parent company is acquired hence the need to consolidate statement, create goodwill and account for the non-controlling unit Zhang (2017.Pg 250.) The last means of acquisition is now that one which the parent company acquires 100% of the shares hence no accounting for a non-controlling unit but there are purchase consideration and goodwill accounting taking place. All these above scenarios are guided by IFRS 3 and IFRS 10.

(a)Rondeu acquired 15% hence of Hoi representing 1000 share, therefore the journal entry for this transaction is;

The narration is that these two accounts are the one affected by this transaction i.e. the capital account for Hoi is reduced by 30000 i.e. debited whereas Rondeu capital account increases with the same figure a credit balance indeed. On the other hand, bank accounted is affected whereby Ronda uses the money to acquire at 30000 hence crediting bank account and increasing Hoi’s bank account value. 

1st March Share Capital And Bank Accounts Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	DR	CR
Hoi Share Capital	3000
Acquired 30% Shares from Hoi		3000
1st March Bank Accounts Transactions	DR	CR
Hoi bank account	3000
Rondeu Investment bank account		3000

30Th Nov 2017 Dividend Payable A/c	DR	CR
Dividend A/c(Rondeu)	3000
Roundel Bank A/c		3000
30Th Nov 2017 Dividend Receivable  A/c(Hoi) Shareholders	DR	CR
Hoi shareholders bank account	3000
Hoi’s Dividend Payable A/c		3000

Narration,  

In this case, the dividend payable a/c is debited with this amount and bank account is credited so as to facilitate its payment the double entry happening to the other account on shareholder’s side.  

Going with the purchase cost of 30000/1000 means that each share was valued at 10 at the time of selling the share.     

If Rondeu acquired 1000 shares of Hoi which represents 15% hence the total shares owned by Hoi is 1000*85/15=5667.This is, therefore, the amount of share owned by Hoi or left to control.

Hoi Share Capital And Bank Accounts	DR	CR
Hoi Share Premium Capital A/c=5667*10		56670
Share capital value=5667*30		170000
Hois Bank Accounts Transactions	DR	CR
Share premium account	56670
Share capital account	170000

Hoi Income/Revenue A/c	DR	CR
Revenue		150000
Profit or loss account	150000
Hois Bank Accounts Transactions	DR	CR
Share premium account	56670
Share capital account	170000

Share Capital account for Rondeu and bank account Feb 28th

	DR	CR
Acquired 30%shares from Hosi		30000
Sold shares at premium on Feb 28th		23000
Bank A/c	53000

NB; for part b and c, they appear similar to part a change is the accounts whereby instead of Roundel’s bank account it’s now Casey and JBJ as well as share capital accounts. This is so because they share the same information on capital structure and financing part.

(d)Share capital & bank a/c

	DR	CR
Acquired 30%shares from Hosi		60000
Sold shares at premium on Ist March		46000
Bank A/c for Merk	106000

Dividend Paid  for Hoi Investment on 30th Nov by Rondeu	DR	CR
Dividend A/c	25000
Bank A/c		25000

Dividend Receivable A/c  for Hoi Investment shareholders on 30th Nov	DR	CR
Hoi Shareholders Bank A/c	25000
Hoi’s Dividend A/c		25000

Hoi Share Capital A/c=2000*70/30	DR	CR
Share premium a/c=4667*10		46670
Share capital value=4667*30		140000

Hoi’s Bank A/c	DR	CR
Share premium a/c=4667*10	46670
Share capital value=4667*30	140000

Hoi’s Income A/c	DR	CR
Revenue		150000
Profit & Loss A/c	150000

All the above journal entries have correspondence double entries with similar narration to that in (a) above

Although consolidation is done it is prudent to understand that it is only allowed to the 60% portion controlled by Victory and the rest part to the non-controlling part i.e.40% 

Victory and Sauce Ltd
Consolidated Statement of Financial Position As
Jan 2nd, 2017
Assets;	Notes	Victory	Sauce	Combined
Non-Curent Assets’		$	$	$
Land	1	216000	207200	216000
Building	1	2240000	320000	2240000
Machinery	1	1080000	160000	1080000
Total Non-Current Assets		3536000	687200	3536000
Current Assets’
Inventory		784000	96000	784000
Account Receivable		561200	800	561200
Cash		448000	32000	448000
Total Current Assets		1793200	128800	1793200
Total Assets		5329200	816000	5329200
Sharholders Equity
Common shares		2145200	0	2145200
Retained Earnings		2112000	208000	2112000
Non-Controlling Interest		0	320000	0
Total Shareholders Equity		4257200	528000	4257200
Non-Current Liabilty
Long Term Loan Bank		240000	160000	240000
Current Liability
A/P and accrued liabilities		832000	128000	832000
Total Liabilities		1072000	288000	1072000
Total Liabilities & Shareholders’ Equity		5329200	816000	5329200

Note 1,

Victory acquires 60% of land from sauce hence 360000*0.6=216000

Sauce controls 40%=144000

Building=1200000*0.6=720000 for Victory therefore total=720000+2080000=2800000-560000

Building for Sauce-1200000*0.4=480000-160000

Depreciation portion=400000*0.6=240000

Total Depreciation for Victory=240000+320000=560000

Machinery is 1040000*0.6=624000 portion of 60% owned by victory

For sauce=1040000-624000=416000,

Depreciation=640000*0.6=384000 for victory machine=624000-384000=240000

=840000+240000=1080000, dep for sauce machinery=640000-384000=256000

NBV for Sauce machinery=416000-256000=160000

Note 2,

=800000*0.6=480000 control of share

(b)

In this case for both revenue and expense again the controlling portion has to be affected and this time it has to be factored from the day of acquisition.

Victory and Sauce Ltd
Consolidated Statement of Financial Position As
Jan 2nd, 2017
	Notes	Victory	Sauce	Combined
		$	$	$
Sales	3	20800000	4800000	20800000
Add Other Income		56000	0	56000
Add Interest Income		20000	0	20000
Add Divided Income		192000		192000
Total Income		21068000	4800000	21068000
Less Cost Of Sales		10800000	1920000	10800000
Other Operating Expenses		8432000	896000	8432000
Interest Expense		640000	1920000	640000
Total expenses		19872000	4736000	19872000
Total Comprehensive Income		1196000	64000	1196000

Note 3,Sales apportionment=8000000*0.6=4800000

=4800000+16000000=20800000

Note 2,

Interest charged=400000*0.1*0.5=20000

(c)

Victoria
Consolidated Retained Earnings
For Year End 2018
	Notes	Victory
		$
Retained Earnings balance brought down(31st Dec 2017)		2784000
Add Net income	4	624000
Less Dividend Declared	4	288000
Total Retained Earnings Dec 2018		3120000

 Note 4,

Ideally, Victory retained earning has some portion of income and expense from Sauce that has to be included so as to calculate the retained. What stands is that we cannot portion the opening balances with an assumption that by the time they were being reported the controlling percentage portion is presumed to be capture Chen (2018.Pg 200)

Therefore, income for Victory has to be summed up with=1040000*0.6=62400, the same applies to the dividend declared by =480000*0.6=288000.

The information presented and the calculation made is based on IAS 27, IFRS 3 and IFRS 10 that outlines and gives the clear framework on how each and every event is to be treated for both accounting and reporting purpose Johansson (2016.Pg 25).

References

Chen, C.W., Collins, D.W., Kravet, T.D. and Mergenthaler, R.D., 2018. Financial statement comparability and the efficiency of acquisition decisions. Contemporary Accounting Research, 35(1), pp.164-202.

Zhang, I.X. and Zhang, Y., 2017. Accounting discretion and purchase price allocation after acquisitions. Journal of Accounting, Auditing & Finance, 32(2), pp.241-270.

Johansson, S.E., Hjelström, T. and Hellman, N., 2016. Accounting for goodwill under IFRS: A critical analysis. Journal of International Accounting, Auditing and Taxation, 27, pp.13-25.

Carvalho, C., Rodrigues, A.M. and Ferreira, C., 2016. The Recognition of Goodwill and Other Intangible Assets in Business Combinations–The Portuguese Case. Australian Accounting Review, 26(1), pp.4-20.