1. 100% of the share capital of Jewel Ltd. acquired by Joan
|
Evaluation of Acquisition as on 30 June, 2016 |
|
|
|
Acquired Net assets – Fair value |
|
|
|
Share Capital |
|
$2,00,000.00 |
|
Retained Earnings |
|
$80,000.00 |
|
Revaluation Surplus ((9000*(100-30%)) |
|
$6,300.00 |
|
|
|
$2,86,300.00 |
|
Acquisition Cost |
|
$3,56,000.00 |
|
Goodwill on acquisition |
|
$69,700.00 |
|
journal entries (Consolidation) as on 30 June, 2016 |
|
|
|
Plant Ac Dr. |
|
$9,000.00 |
|
To Tax Liability (Deferred) |
|
$2,700.00 |
|
To Revaluation Surplus |
|
$6,300.00 |
|
(being plant considered at fair value) |
|
|
|
Share Capital A/c Dr |
|
$2,00,000.00 |
|
Retained Earnings A/c Dr. |
|
$80,000.00 |
|
Revaluation Surplus A/c Dr. |
|
$6,300.00 |
|
Goodwill A/c Dr. |
|
$69,700.00 |
|
To Jewel investment |
|
$3,56,000.00 |
|
(being entry passed for acquisition) |
|
|
|
Retained earnings A/c Dr. |
|
$6,000.00 |
|
Depreciation A/c Dr. |
|
$1,500.00 |
|
To Accumulated Depreciation A/c |
|
$7,500.00 |
|
(being recording of depreciation done) |
|
|
|
Deferred tax liability A/c Dr. |
|
$2,250.00 |
|
To, expenses of income tax |
|
$450.00 |
|
To Retained earnings |
|
$1,800.00 |
|
(being tax accounted on depreciation) |
|
|
|
Sales A/c Dr. |
|
$42,000.00 |
|
To Cost of goods sold |
|
$42,000.00 |
|
(Being stock sale of intercompany removed) |
|
|
|
Sales A/c Dr. |
|
$65,000.00 |
|
To Cost of goods sold |
|
$65,000.00 |
|
(Being stock sale of intercompany removed) |
|
|
|
Cost of goods sold A/c Dr. |
|
$2,000.00 |
|
To Inventory A/c |
|
$2,000.00 |
|
(Being elimination of Profit on inventory done) |
|
|
|
Cost of goods sold A/c Dr. |
|
$13,000.00 |
|
To Inventory |
|
$13,000.00 |
|
(Being elimination of Profit on inventory done) |
|
|
|
Sales A/c Dr. |
|
$20,000.00 |
|
To Cost of goods sold |
|
$15,000.00 |
|
To Inventory |
|
$5,000.00 |
|
(Being elimination of Profit on inventory done) |
|
|
|
Gain on sale of plant A/c Dr. |
|
$36,000.00 |
|
To Plant |
|
$36,000.00 |
|
(Being elimination of Profit on plant sale done) |
|
|
|
Management fee revenue A/c Dr. |
|
$26,500.00 |
|
To, fee expenses of Management |
|
$26,500.00 |
|
(Being revenue and expense of inter company eliminated) |
|
|
|
Dividend received from Jewel A/c Dr. |
|
$93,000.00 |
|
To payment of dividend |
|
$93,000.00 |
|
(Being inter company dividend eliminated) |
|
|
Worksheet Consolidated
|
|
|
|
Removals |
|
|
|
|
Joan |
Jewel |
Dr. |
Cr. |
|
|
Assets |
|
|
|
|
|
|
Current Assets |
|
|
|
|
$ – |
|
Accounts Receivable |
$ 55,400.00 |
$ 84,500.00 |
|
|
$ 1,39,900.00 |
|
Inventory |
$ 1,05,000.00 |
$ 38,000.00 |
|
$ 20,000.00 |
$ 1,23,000.00 |
|
Non-Current Assets |
|
|
|
|
$ – |
|
Land and buildings |
$ 2,78,000.00 |
$ 3,26,000.00 |
|
|
$ 6,04,000.00 |
|
Plant – at cost |
$ 2,99,850.00 |
$ 3,55,800.00 |
$ 9,000.00 |
$ 36,000.00 |
$ 6,28,650.00 |
|
Less: Accumulated Depreciation |
$ (85,750.00) |
$ (1,38,800.00) |
|
$7,500.00 |
$ (2,32,050.00) |
|
Investment in Jewel Ltd. |
$ 3,56,000.00 |
|
|
$ 3,56,000.00 |
$ – |
|
Goodwill |
|
|
$ 69,700.00 |
$ – |
$ 69,700.00 |
|
Total Assets |
$ 10,08,500.00 |
$ 6,65,500.00 |
$ 78,700.00 |
$ 4,19,500.00 |
$ 13,33,200.00 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Retained Earnings |
$ 3,58,000.00 |
$ 2,44,200.00 |
$ 2,19,700.00 |
$ 78,450.00 |
$ 4,60,950.00 |
|
Share capital |
$ 3,50,000.00 |
$ 2,00,000.00 |
$ 2,00,000.00 |
|
$ 3,50,000.00 |
|
Revaluation Surplus |
|
|
|
|
$ – |
|
Current Liabilities |
|
|
|
|
|
|
Accounts Payable |
$ 81,700.00 |
$ 76,300.00 |
|
|
$ 1,58,000.00 |
|
Tax Payable |
$ 66,300.00 |
$ 25,000.00 |
|
|
$ 91,300.00 |
|
Non-current Liabilities |
|
|
|
|
|
|
Loans |
$ 1,52,500.00 |
$ 1,20,000.00 |
|
|
$ 2,72,500.00 |
|
Deferred tax liability |
|
|
|
$ 450.00 |
$ 450.00 |
|
|
|
|
|
|
$ – |
|
Total Liabilities |
$ 10,08,500.00 |
$ 6,65,500.00 |
$ 4,19,700.00 |
$ 78,900.00 |
$ 13,33,200.00 |
|
|
|
|
Removals |
|
|
|
|
Joan |
Jewel |
Dr. |
Cr. |
Financials (Consolidated) |
|
Sales |
$ 7,81,400.00 |
$ 7,40,000.00 |
$ (1,27,000.00) |
|
$ 13,94,400.00 |
|
Cost of Sales |
$ (4,94,000.00) |
$ (4,38,000.00) |
$ 1,22,000.00 |
$ 15,000.00 |
$ (8,25,000.00) |
|
Gross Profit |
$ 2,87,400.00 |
$ 3,02,000.00 |
|
|
$ 5,69,400.00 |
|
Dividend recd from Jewel |
$ 93,000.00 |
$ – |
$ (93,000.00) |
|
$ – |
|
Management fee revenue |
$ 26,500.00 |
$ – |
|
$ 26,500.00 |
$ – |
|
Gain on sale of plant |
$ 40,000.00 |
$ 36,000.00 |
$ (36,000.00) |
|
$ 40,000.00 |
|
Expenses |
|
|
|
|
|
|
Admin expenses |
$ (40,800.00) |
$ (28,700.00) |
|
|
$ (69,500.00) |
|
Depreciation |
$ (29,500.00) |
$ (56,800.00) |
$1,500.00 |
|
$ (87,800.00) |
|
Expenses of Management fee |
$ – |
$ (26,500.00) |
|
$ 26,500.00 |
$ – |
|
Other expenses |
$ (1,25,100.00) |
$ (86,000.00) |
|
|
$ (2,11,100.00) |
|
Operating profit before tax |
$ 2,51,500.00 |
$ 1,40,000.00 |
|
|
$ 2,41,000.00 |
|
Income tax exp |
$ (75,500.00) |
$ (42,000.00) |
|
$ 450.00 |
$ (1,17,050.00) |
|
Operating profit after tax |
$ 1,76,000.00 |
$ 98,000.00 |
|
|
$ 1,23,950.00 |
|
Retained earnings 1 July 2015 |
$ 3,19,400.00 |
$ 2,39,200.00 |
$84,200.00 |
|
$ 4,74,400.00 |
|
Available for appropriation |
$ 4,95,400.00 |
$ 3,37,200.00 |
|
|
$ 5,98,350.00 |
|
Dividends paid |
$ (1,37,400.00) |
$ (93,000.00) |
|
$ 93,000.00 |
$ (1,37,400.00) |
|
Retained earnings 30 June 2016 |
$ 3,58,000.00 |
$ 2,44,200.00 |
|
|
$ 4,60,950.00 |
2. According to IFRS-3, a subsidiary can be termed as a company having a voting right greater than 50% controlled by different company. Specifically, it is termed as the parent company (Graham & Smart, 2012). A subsidiary can be controlled by the holding company either in part or in full. In this scenario, Bosco Ltd. contains a holding of 80% of Circus Ltd. Therefore, the relationship can be term as holding subsidiary and not associates (Horngren, 2013).
Acquisition analysis
as on 30 June, 2016
|
Acquired Net assets – Fair value |
|
|
|
Share Capital |
|
$5,00,000.00 |
|
Retained Earnings |
|
$4,25,000.00 |
|
Revaluation surplus |
|
$10,000.00 |
|
|
|
$9,35,000.00 |
|
Bosco Ltd Share (80%) |
|
$7,48,000.00 |
|
Acquisition csost |
|
$8,90,000.00 |
|
Goodwill on acquisition |
|
$1,42,000.00 |
Journal entries as on 30 June, 2016
Consolidated
|
Share Capital A/c Dr |
|
$5,00,000.00 |
|
Retained Earnings A/c Dr. |
|
$4,25,000.00 |
|
Revaluation Surplus A/c Dr. |
|
$10,000.00 |
|
Goodwill A/c Dr. |
|
$1,42,000.00 |
|
To Circus Ltd. investment |
|
$8,90,000.00 |
|
To interest of Non-Controlling |
|
$1,87,000.00 |
|
(being entry passed for Acquisition) |
|
|
|
Sales |
|
$1,43,000.00 |
|
To COGS |
|
$1,43,000.00 |
|
(being sale of inventory by Bosco to Circus) |
|
|
|
Sales |
|
$1,20,000.00 |
|
To COGS |
|
$1,20,000.00 |
|
(being sale of inventory by Circus to Bosco) |
|
|
|
COGS (84000-70000) A/c Dr. |
|
$14,000.00 |
|
To Inventory A/c |
|
$14,000.00 |
|
(Being elimination done for Unrealised gain on sale of inventory) |
|
|
|
Impairment of goodwill A/c Dr. |
|
$5,000.00 |
|
To Goodwill A/c |
|
$5,000.00 |
|
(Being Goodwill impairment done) |
|
|
|
Profit on sale of plant A/c Dr. |
|
$87,500.00 |
|
To Plant |
|
$87,500.00 |
|
(Being Profit on sale of plant eliminated done on a inter company basis) |
|
|
|
Loan from Bosco Ltd A/c Dr. |
|
$3,00,000.00 |
|
To, Loan to Circus Ltd |
|
$3,00,000.00 |
|
(being elimination of intercompany loan done) |
|
|
|
Income on interest A/c Dr. |
|
$9,000.00 |
|
To Interest expense |
|
$9,000.00 |
|
(Being Interest income & expense on inter company loan eliminated) |
|
|
|
Dividend revenue A/c Dr. |
|
$1,86,000.00 |
|
To payment of dividend |
|
$1,86,000.00 |
|
(Being elimination of dividend to holding company done ) |
|
|
|
Circus Retained earnings A/c Dr. |
|
$6,77,000.00 |
|
To Bosco Ltd (attributable profit) |
|
$5,41,600.00 |
|
To Non controlling interest (attributable profit) |
|
$1,35,400.00 |
|
(Being distribution of profit done)) |
|
|
Part – C
Acquisition analysis
As on 30 June, 2016
Full Goodwill Method
|
Acquired Net assets – Fair value |
|
|
|
Share Capital |
|
$5,00,000.00 |
|
Retained Earnings |
|
$4,25,000.00 |
|
Revaluation surplus |
|
$10,000.00 |
|
|
|
$9,35,000.00 |
|
Cost of Acquisition (890000+200000) |
|
$10,90,000.00 |
|
Acquisition leading to Goodwill |
|
$1,55,000.00 |
Journal entries (Consolidated)
as on 30 June, 2016
|
Share Capital A/c Dr |
|
$5,00,000.00 |
|
Retained Earnings A/c Dr. |
|
$4,25,000.00 |
|
Revaluation Surplus A/c Dr. |
|
$10,000.00 |
|
Goodwill A/c Dr. |
|
$1,55,000.00 |
|
To Investment in Circus Ltd. |
|
$8,90,000.00 |
|
To Non-Controlling interest |
|
$2,00,000.00 |
|
(Being full goodwill method used) |
|
|
|
Acquired Net assets – Fair value |
|
|
|
Share Capital |
|
$2,00,000.00 |
|
Retained Earnings |
|
$95,000.00 |
|
|
|
$2,95,000.00 |
|
Cricket Ltd. Share |
|
$1,18,000.00 |
|
Acquisition Cosst |
|
$1,60,000.00 |
|
Goodwill on acquisition |
|
$42,000.00 |
Consolidation Journal entries –
As on 30 June, 2017
|
Share Capital A/c Dr. |
|
$80,000.00 |
|
Retained earnings A/c Dr. |
|
$38,000.00 |
|
Goodwill A/c Dr. |
|
$42,000.00 |
|
To Investment in Charlie Ltd. |
|
$1,60,000.00 |
|
(being passing of Acquisition entry done) |
|
|
|
Sales A/c Dr. |
|
$6,000.00 |
|
To COGS |
|
$4,000.00 |
|
To Inventory |
|
$2,000.00 |
|
(Being elimination of inventory held by cricket ltd) |
|
|
|
Sales A/c Dr. |
|
$12,000.00 |
|
To COGS |
|
$9,000.00 |
|
To Inventory |
|
$3,000.00 |
|
(Being elimination of inventory held by Charlie ltd) |
|
|
|
Land A/c Dr. |
|
$50,000.00 |
|
To Asset revaluation Surplus |
|
$35,000.00 |
|
To Deferred Tax Liability |
|
$15,000.00 |
|
(being revaluation of land done) |
|
|
|
Dividend Income A/c Dr. |
|
$80,000.00 |
|
To payment of dividend |
|
$80,000.00 |
|
(Being dividend payment eliminated) |
|
|
|
Retained earnings (WN:1) |
|
$10,36,400.00 |
|
To Cricket Ltd. (attributed profit) |
|
$10,36,400.00 |
|
(Being attribution of [profit done) |
|
|
|
Working 1 Computation of attributable profit |
|
|
|
30 June 2017 – figure of Retained earnings |
|
$25,91,000.00 |
|
Cricket Ltd. – share % |
|
40% |
|
Cricket Ltd. – attributable profit |
|
$10,36,400.00 |
Graham, J. & Smart, S. (2012). Introduction to corporate finance. Australia: South-Western Cengage Learning.
Horngren, C. (2013) Financial accounting. Frenchs Forest, N.S.W: Pearson Australia Group.
Leo, Ken J. (2011). Company Accounting, Boston:McGraw Hill
Libby, R., Libby, P. & Short, D. (2011) Financial accounting. New York: McGraw-
Hill/Irwin.
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