Issues Related To Palvidia Limited And Soletta Limited Acquisition

The main purpose of the financial statements in the consolidated form is to lay down the financial performance as well as the financial position of the parent company and all of its subsidiaries. The second purpose of the consolidated financial statement is to disclose the results for the benefits of the stakeholders of the company in the manner that the group represents one single entity even though it has number of subsidiaries (Hove,2016).

Group, Parent and Subsidiary

The entity which controls the management and the functioning of the other entity is known as parent entity.

The entity which is controlled by the other entity is known as the subsidiary (AASB, 2011).

The group is the broad term and includes the parent entity and the number of subsidiaries in which the parent entity has the controlling power.

Number of Parents Group Can have

The group can have only one parent company which will be presenting the financial results of all the subsidiaries on which it exercises the control in accordance with the provisions of the Australian Accounting standard. If there is more than one parent in the group then the financial statements cannot be presented in the defined and consolidated manner. Thus, the group has only one parent company (IAS Website, 2016).

Necessity of Adjustments for intra group Transactions

Intra group transactions always occur between the subsidiary and the parent entity in the normal course of business. The adjustments relating to these transactions shall be done on the regular basis. It is because of the fact that there is the high possibility of having the transactions recorded in the books of accounts twice till the time it is knock off while preparing the financial statements (AASB 101; Accounting for Intra group Transactions, 2016).

Realization of Profit transfers within the Group

The profits are realized when the entity outside of the group is involved. It means when the inventory is sold to the other entity, which is not the part of the group, the profit will be realized.

Chief Financial Officer

Answer 2 (a)	PALDIVIA LIMITED
	Acquisition Anlaysis

	Cost of Acquisition
	Cash		$ 1,000,000
	Shares in Soletta Limited		$ –	$ 1,000,000

	Book Value of Net Assets
	Share Capital		$ 650,000
	General Reserve		$ 20,000
	Retained Earnings		$ 250,000
	Total Book Value of Net Assets		$ 920,000
	Add:
	Fair Value Adjustments
	Increase in Equipment	$ 30,000
	Increase in Contingent Liability	$ (40,000)
			$ (10,000)

	Fair Value of Net Assets			$ 910,000
	Goodwill (100% Acquisition)			$ 90,000

Answer 2 (b)	General Journal

	Date	Particulars	Debit Amount	Credit Amount

		PRE ACQUISITION
	1-Jul-19	Retained Earnings	$ 250,000
		Share Capital	$ 650,000
		Business Combination Valuation Reserve	$ 100,000
		Shares in Soletta Limited		$ 1,000,000

		AT THE TIME OF ACQUISITION

	1-Jul-19	Depreciation – Accumulated	$ 80,000
		To Equipment		$ 80,000

	1-Jul-19	Equipment	$ 80,000
		Business Combination Valuation Reserve		$ 80,000

	1-Jul-19	Goodwill	$ 90,000
		Business Combination Valuation Reserve		$ 90,000

		AFTER ACQUISITION



	1-Jul-19	Depreciation	$ 40,000
		Retained Earnings	$ 40,000
		Accumulated Depreciation		$ 80,000


		Consolidation Entries

	1	Share Capital	$ 1,000,000
		Share in Soletta Limited		$ 1,000,000

	2	Goodwill	$ 90,000
		Share in Soletta Limited		$ 90,000

Answer 3	General Journal

	S. No.	Partiuculars	Debit Amount	Credit Amount


	a)	Retained Earnings	$ 175
		Income Tax Expense	$ 75
		To Cost of Sales		$ 250


	b)	Retained Earnings	$ 2,800
		Deferred Tax’	$ 1,200
		To Tractor		$ 4,000

		Accumulated Depreciation	$ 600
		To Depreciation		$ 400
		To Retained Earnings		$ 200
		(10% for 1.5 years on $6000)

		Income Tax Expense	$ 120
		Retained Earnings	$ 60
		To Deferred Tax Asset		$ 180


	c)	Retained Earnings	$ 70
		Income Tax Expense	$ 30
		To Cost of Sales		$ 100

		Inventory	$ 300
		To Bank		$ 300

		Inventory	$ 100
		To Bank		$ 100



	d)	Management Services Income	$ 3,000
		To Management Services Expense		$ 3,000
			`
	e)	Loan From Salto Limited	$ 50,000
		To Loan to Patagonia Limited		$ 50,000

		Interest Revenue	$ 1,500
		To Interest Expense		$ 1,500

		Interest Revenue	$ 1,500
		To Interest Expense		$ 1,500


	f)	Dividend Revenue	$ 1,500
		To Interim Dividend Paid		$ 1,500


	g)	Dividend Payable	$ 3,000
		To Final Dividend declared		$ 3,000

		Dividend Revenue	$ 3,000
		To Dividend Receivable		$ 3,000