Arthur et al. E3.7 Consolidation of two statements of financial position at acquisition date with fair value adjustment (Section 3.4.3)
Cost of acquisition
= 600 000 × $2.20 + 300 000 × $0.50 = $(1 320 000 + 150 000)
= $1 470 000
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Journal entry to record the investment in the financial database of Parramatta Ltd:
Investment in subsidiary Share capital
$1 470 000
$1 320 000 150 000
Consolidation adjustment to recognise the valuation increment of $800 000 (tax $240 000):
Fair value adjustment Deferred tax liability
Analysis of investment (amounts in thousands):
Equity acquired in net assets of subsidiary Share capital
Fair value adjustment 70% of $800 General reserve
Retained earnings
Total equity acquired Cost of investment
Consolidation adjustment to eliminate the intragroup investment and recognise goodwill:
Share capital
Fair value adjustment
General reserve
Retained earnings 1 January 20X1 Goodwill
Investment in subsidiary
$300 000 560 000 180 000 380 000
$1 470 000
Consolidation adjustment to eliminate intragroup payables and receivables of $90 000:
Payable to Bankstown Ltd $90 000 Receivable from Parramatta Ltd
$560 000 240 000
$ 300 560 180 380 ——- $1 420 1 470 ——- $ 50 ====
Preparation of consolidation worksheet (amounts in thousands):
Parramatta Ltd
450 ——- $2620
– ——- $3310 ====
$ 85 90 75
——- $ 690 ==== $2620 ====
Bankstown Ltd
380 ——- $ 860
Adjustments
Group Data
450 ——- $2620
50 ——- $3715 ====
$ 148 – 125
——- $1095 ==== $2620 ====
Shareholders’ equity Share capital
Fair value adjustment (FVA)
General reserve Retained earnings
Total shareholders’ equity
Current assets
Accounts receivable
Receivable from Parramatta Ltd
Inventory Non-current assets
300(b) 560(b)
180(b) 380(b)
Rural Commercial land
Investment in subsidiary
Goodwill Total assets
Liabilities
Current liabilities
Accounts payable
Payable to Bankstown Ltd
Income tax payable
Non-current liabilities
Term borrowings
Deferred tax liability
Total liabilities
Net Assets
– ——- $1115 ====
——- $ 255 ==== $ 860 ====
Notes to worksheet:
(a) Adjustment to recognise the revaluation increment
(b) Adjustment to eliminate the intragroup investment and recognise goodwill (c) Adjustment to eliminate the intragroup payables and receivables
________________________________________________________________
Parramatta Group
Consolidated statement of financial position as at 1 January 20X1 (amounts in thousands)
Current assets
Accounts receivable Inventories
Total current assets Non-current assets
Property, plant and equipment Intangibles
Total non-current liabilities Total assets
Liabilities
Current liabilities
Accounts payable Income tax payable
Total current liabilities Non-current liabilities
Borrowings Deferred tax
Total non-current liabilities Total liabilities
Net assets
Shareholders’ equity Share capital
General reserve Retained earnings
Total shareholders’ equity
$ 40 68 374 ——-
$3183 50 ——-
$ 148 125 ——-
$ 530 292 ——-
$1920 250 450 ——-
3233 ——- $3715 ====
822 ——- $1095 ==== $2620 ====
$2620 ====
Arthur et al. E3.9 Consolidation at reporting date with fair value adjustments for land and buildings (Section 3.4.3)
In the 2 year-period since acquisition, the accumulated depreciation on the buildings was $40 000 – 40% of $100 000. Since the depreciation is being recognised at 20% per year, the building must have had an accumulated depreciation of zero at the date of acquisition. The additional depreciation to be recognised on the buildings is $10 000 in the year ended 31 December 20X0 and $10 000 in the year ended 31 December 20X1. Deferred tax of 30% is taken into account. The deferred tax liability at 31 December 20X1 is 30% of $100 000 (land) + 30% of [($150 000 – $100 000) – 2×10 000] building = $39 000.
Consolidation adjustment to recognise the valuation increments:
Land Buildings
Accumulated depreciation—building
Fair value adjustments Depreciation expense
Income tax expense
Retained earnings 1 January 20X1
Deferred tax liability
Analysis of investment (amounts in thousands):
Equity acquired in net assets of subsidiary Share capital
Fair value adjustments General reserve Retained earnings
Total equity acquired Cost of investment
$100 000 50 000
10 000 7 000
$ 20 000 105 000
3 000 39 000
$1 000 105 400 200 ——- $1 705 1 800 ——- $ 95 ====
Consolidation adjustment to eliminate the intragroup investment and recognise goodwill:
Share capital
Fair value adjustments General reserve Retained earnings Goodwill
Investment in subsidiary
$1 000 000 105 000 400 000 200 000 95 000
$1 800 000
Consolidation adjustments to eliminate the intragroup loan and intragroup interest receivable:
Loan payable
Loan receivable
Interest revenue Interest expense
$250 000 12 000
$250 000 12 000
Consolidation adjustment to eliminate the intragroup dividend revenue and dividend paid:
Dividend revenue $100 000 Dividend paid
Consolidation adjustment to recognise the impairment of goodwill:
Retained earnings 1 January 20X1 Goodwill impairment expense
$40 000 20 000
Preparation of consolidation worksheet (amounts in thousands):
ABC Ltd Sales revenue $1080
Less Cost of goods sold
Opening inventory 400 Purchases 700 Less Closing 590
Cost of goods sold 510 Gross profit 570 Add Interest revenue 12 Add Dividend revenue 100 Less Interest expense
Less Other operating 82 expenses ____
XYZ Ltd $ 430
100 290 200
Adjustments
Group data $1510.0
500.0 990.0 790.0
700.0 810.0 – – –
12.0(c) 100.0(d)
10.0(a) 20.0(e)
7.0(a) 200.0(b) 40.0(e)
1000.0(b) 400(b) 105.0(b)
100.0(a) 50.0(a)
Profit before tax
Less Income tax expense
Profit for the year
Add Retained earnings 1 January 20X1
Less Dividend paid Retained earnings 31 December 20X1 Share capital General reserve
Shareholders’ equity
Assets Inventory
Other current assets Loan receivable Land
Less Accumulated depreciation
Investment in subsidiary
Goodwill Total assets
Liabilities
Borrowings payable Other non-current
liabilities
Deferred tax liability
Total liabilities Net assets
28 ____ 600 $ 200 170 50
20.0(a) 1800.0(b) 60.0(e)
140.0 670.0 217.0
430 $ 150 700 600
250 100 880 $ 650
$ $453.0 1053.0
6000 1000 400 ____ ____ $6880 $2050 ==== ====
$ 590 $ 200 250 820 250
4500 1400 200 100 40 40
____ ____ $7550 $2480 ==== ====
$ 250 670 180
____ ____ $ 670 $ 430 ==== ==== $6880 $2050 ==== ====
250.0 $ 1256.0 6000.0 – ____-_ $7256.0 =====
$ 790 1070 – 6000 350 (100)
35.0 $8145.0 =====
39.0 $ 889.0 ===== $7256.0 =====
Notes to worksheet:
(a) Adjustment to recognise the effects of the valuation increments at acquisition (b) Adjustment to eliminate the intragroup investment and recognise goodwill (c) Adjustment to eliminate the effects of the intragroup loan and interest
(d) Adjustments to eliminate the intragroup dividend revenue and dividend paid (e) Adjustment to recognise the impairment of goodwill
_________________________________________________________________
ABC Ltd Group
Consolidated statement of profit and loss for the year ended 31 December 20X1
(amounts in thousands)
Sales revenue
Less Cost of goods sold Gross profit
Less Operating expenses Profit before tax
Less Income tax expense Profit for the year
$1510.0 700.0
$ 810.0 140.0
$ 670.0 217.0
$ 453.0 =====
ABC Ltd Group
Consolidated statement of financial position as at 31 December 20X1 (amounts in thousands)
Current assets
Total current assets Non-current assets
Property, plant and equipment
Intangibles
Total non-current assets
Total assets
Less Non-current liabilities
Deferred tax Total liabilities Net assets
Shareholders’ equity Share capital
Retained earnings Total shareholders’ equity
$ 790 1070
$6000 1256
6285 $8145
889 $7256 ====
$7256 ====
ABC Ltd Group
Consolidated statement of the changes in equity year ended 31 December 20X1
(amounts in thousands)
Retained earnings Balances at 1 January 20X1 $1053.0 Add Profit for the year 453.0 Less Dividend paid 250.0 Balances at 31 December 20X1 $1256.0 ====
Share capital $6000
____ $6000 ====
Shareholders’ equity $7053.0 453.0 250.0 $7256.0 =====
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