Consolidation/Elimination Journal Entry And Calculation Of Goodwill

The concept of consolidated financial statements

Table 1: Consolidation elimination entry

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Table 2: Goodwill calculation

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Table 3: Goodwill calculation

(Source: created by author)

The consolidated financial statement means the combination of all financial statements of all the divisions, subsidiaries or sub organizations. The consolidated financial statement is important because it provides a comprehensive view of the overall performance of the company. It helps the shareholders and investor to get an overall view of the company before making investment decision (Bhasin 2015). The accounting standard AASB 10 deal with the preparation and presentation of the consolidated financial statement. The para 19 of the AASB 10 provides that the parent company shall prepare the consolidated financial statement by applying uniform accounting policies that are applied in the parent company. The consolidated figures of the financial item of various entities are included in the consolidated financial statement. The financial statements that are consolidated highlights the performance of the company. Therefore, it can be said that consolidated financial statement highlights the consolidated performance of the company. Hence, if an entity is the part of the consolidated group then at the time of preparing the consolidated financial statement all the company should be included. Therefore, based on the above discussion can be said that the financial statement of the newly acquired company should be included in the consolidated financial statement (Schaltegger et al. 2017).

The Australian accounting standard (AASB) 112 provides the accounting treatment for income taxes. The Para 1 of the AASB 112 provides that the standard is applied for accounting of income taxes. The Para 5 of the standard provides the meaning of deferred tax and deferred liability. The deferred tax liability is the amount of income tax payable in the future period because of the temporary differences in the taxable amount. The deferred tax liability is shown in the balance sheet and it is the temporary difference between accounting tax and the estimate tax payable during the year. The amount that can be deducted for the purpose of tax and accounting purpose are different. The Para 15 of the AASB 112 states that deferred tax liability shall be recognized for all the temporary differences except at the time of initial recognition of goodwill and initial recognition of business assets or liabilities (Feng  et al. 2014).  Therefore, the deferred tax liability indicates the amount that the company will have to pay additionally as a tax in the future for the purpose of transactions that have taken place during the year. The deferred tax assets represents the amount of income tax that is recoverable in the future period. The main reasons for the tax amount recoverable in the future period are deductible temporary difference; unused tax credit losses carry forwarded and unused tax losses. The Para 24 of the standard provides that deferred tax asset is recognized if it is probable that the taxable profit will be available taxable against the temporary differences that is deductible (Kravet 2014). The Para 46 of the AASB 112 states that current tax liability or assets should be measured by using the current tax rate. The Para 47 of the AASB 112 states that deferred tax assets or liabilities should be measured using the tax rate of the period when the asset is expected to be realized or the liability is expected to be settled.  The accounting standard also deals with the accounting of the deferred tax (Guan 2014). The Para 58 of the standard provides that the current and the deferred tax shall be recognized as the income or expenses during the current year. The Para 74 of the standard provides that the entity has the right to set off the deferred tax assets and the deferred tax liability provided that the entity has the legally enforceable right and they both relate to the same accounting years. Based on the above discussion, it can be said that if it is considered that the tax is paid in advance then it is regarded as the deferred tax assets. On the other hand, if it regarded that the tax is liable to be paid then it is deferred tax liability. The Para 82 of the AASB 112 makes it mandatory to disclose the deferred tax assets and liability in the financial statement (Kothari et al. 2015).

Briefly, it can be said that the financial statement of the Marks construction should be included in the consolidated financial statement. The main reason for the deferred tax assets or liability is the difference in the accounting profit and taxable profit. It is expected that the above discussion has helped in solving all the doubts. If there is any further, clarification required please contact.

Reference

Arnold, L.W. and Harris, P., 2013, January. AN EMPIRICAL ANALYSIS OF CORPORATE FINANCIAL CONDITION AFTER ACCOUNTING MALFEASANCE. In Global Conference on Business & Finance Proceedings (Vol. 8, No. 1, p. 130). Institute for Business & Finance Research.

Arnold, L.W., Harris, P. and Liu, M., 2016, January. CORPORATE ACCOUNTING MALFEASANCE: AN OVERVIEW. In Global Conference on Business & Finance Proceedings (Vol. 11, No. 1, p. 202). Institute for Business & Finance Research.

Bhasin, M.L., 2015. Corporate accounting fraud: A case study of Satyam Computers Limited.

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Schaltegger, S., Etxeberria, I.Á. and Ortas, E., 2017. Innovating Corporate Accounting and Reporting for Sustainability–Attributes and Challenges. Sustainable Development, 25(2), pp.113-122.

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