Accounting: Consolidation, Treatment of Investments and Financial Statements

This article discusses consolidation, treatment of investments and financial statements in accounting. It includes calculations, journal entries, and examples. The article covers topics such as acquisition analysis, non-controlling interest, dividend adjustments, and intra sales and transfers. It also explains the criteria for an investor to have control over the investee and the types of investments and their relevant treatment.

ACCOUNTING 1
ACCOUNTING

ACCOUNTING 2
Contents
Answer 1:...................................................................................................................................3
Answer 2:...................................................................................................................................4
Answer 3:...................................................................................................................................6
Answer 4:...................................................................................................................................8
References:...............................................................................................................................11

ACCOUNTING 3
Answer 1:
The following are the desired calculations:
Part a:
When consolidation is not done
Particulars Debit Credit
01.07.201
7 Investment in Fry Ltd 50,000.00
Cash 50,000.00
01.07.201
8 Cash 24,000.00
Investment in Fry Ltd 24,000.00
01.07.201
9 Cash 4,500.00
Investment in Fry Ltd 4,500.00
01.07.201
9 Cash 3,000.00
Investment in Fry Ltd 3,000.00
Part b
When consolidation is done
Particulars Debit Credit
01.07.201
7 Share Capital 9,000.00
Retained earnings
36,000.0
0
Goodwill 5,000.00

ACCOUNTING 4
To Investment in Fry
Ltd
50,000.0
0
01.07.201
8 Cash
24,000.0
0
Profit and Loss
24,000.0
0
01.07.201
9 Cash 4,500.00
Profit and Loss 4,500.00
01.07.201
9 Cash 3,000.00
Profit and Loss 3,000.00

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Answer 2:
The following are the desired calculations:
Particulars Amounts in $ Rank
Amounts to be
paid
Secured creditors
90,00,000.0
0
2.0
0
90,00,000.0
0
Receivers cost
1,50,000.0
0
Pro
rata
33,333.3
3
Liquidators costs
6,00,000.0
0
1.0
0
6,00,000.0
0
Unsecured trade payables
24,00,000.0
0
7.0
0
24,00,000.0
0
Tax payable
10,50,000.0
0
Pro
rata
2,33,333.3
0
Local government rates
3,00,000.0
0
Pro
rata
66,666.6
7
Staff wages payable
9,00,000.0
0
3.0
0
9,00,000.0
0
Executive directors wages payable
4,50,000.0
0
5.0
0
4,50,000.0
0
Staff leave entitlements
1,50,000.0
0
4.0
0
1,50,000.0
0

ACCOUNTING 6
Executive directors leave
entitlements
1,50,000.0
0
6.0
0
1,50,000.0
0
Unsecured bank overdraft
7,50,000.0
0
Pro
rata
1,66,666.7
0
Dividend payable
4,50,000.0
0
Pro
rata
1,00,000.0
0
Total
163,50,000.0
0
142,50,000.0
0
-
Particulars
Amounts
due
Weighted
average
Amoun
t
payable
Receivers cost
1,50,000.0
0
33,333.
33 0.05556
Tax payable
10,50,000.0
0
2,33,333.
33 0.38889
Local government
rates
3,00,000.0
0
66,666.
67 0.11111
Unsecured bank
overdraft
7,50,000.0
0
1,66,666.
67 0.27778
Dividend payable 4,50,000.0 1,00,000. 0.16667

ACCOUNTING 7
0 00
Total 2700000 600000 1
(Australia debt solvers, 2018).

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Answer 3:
The following are the desired journal entries and the workings:
Acquisition analysis:
Particulars
Amounts
in $
Investment in Steven 3,06,160.00
share capital 1,37,600.00
Total investment 4,43,760
Calculation of Goodwill
Particulars
Amounts
in $
Investment in Steven 3,06,160.00
Less: share capital 1,37,600.00
Retained earnings 1,16,960.00
Goodwill 51,600.00
Pre-acquisition entries:
Particulars Debit Credit
Share capital 1,37,600.00
Retained earnings 1,16,960.00
Goodwill 51,600.00

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To Investment in steven
Ltd 3,06,160.00
Calculation of non-controlling interest:
Non-controlling interest:
Share capital 27,520.00
Retained earnings 23,392.00
Total 50,912.00
Dividend adjustments and intra sales and transfers
Transaction Particulars Debit Credit
3 Sales
31,304.0
0
To Accounts receivables 31,304.00
4 Profit and Loss
4,214.0
0
To Accounts receivables 4,214.00
5 Profit and Loss
3,371.2
0
To Accounts receivables 3,371.20
6 Profit and Loss
1,444.8
0

ACCOUNTING 10
To Accounts receivables 1,444.80
7 Impairment of Goodwill
2,580.0
0
To Goodwill 2,580.00
8 Profit and Loss
21,070.0
0
To Plant and equipment 21,070.00
9 Profit and Loss
15,953.0
0
To Management fees 15,953.00

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Answer 4:
To Bill,
XYZ Company,
DFS Street, Australia-xxxxxx
Subject: clarification on the types of investments and the relevant treatment of the same
I do understand your concern and I am very much happy to help your goodself in making the
relevant decision with regard to the accounting treatment for each one of the below stated
investment.
As per AASB 10 which deals with the consolidation of the financial statements, an investor
would have the control over the investee only when the same has been exposed or when the
investor has the rights over the variable returns from the involvement with the investee and
has the ability to affect the investee through its power.
Hence, it would be stated that an investor would have the control over the investee when the
following occurs:
 An investor has the power over the investee
 There is an exposure of rights on the variable returns from the involvement with the
investee
 There is an ability of the investor to use his power over the investee that would affect
in the amount of the returns from the investor
For an investor to have a control over the investee, there is a wide range of operating and
financing activities that effects their returns. The examples includes in the sale and purchase
of the goods and services, management of the financial assets during the lifetime of the

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assets, selection, acquisition or the disposal of the assets, research and the development of the
new products or the processes and determination of the structure of funding or obtaining of
this funding.
The examples of the rights that would be able to give an investor power over the investee
includes the rights in the form of voting rights on an investee, rights to appoint, reassign or
remove in the key management personnel of the investee, right to appoint or remove in
another entity that directs in the business activities of the business, right to direct in the
investee to enter into the transaction for the benefits of the investor or any other rights as
could have been specified in by the management (AASB, 2018).
Part a:
In the given case, NAGIL does not have say in the business operations or in the day to day
management or in any other relevant business operations of Struggle Ltd. And so, the
investment shall not be treated as that of a subsidiary. Hence, no consolidation shall be done.
Part b:
In the given case, Very Big Company Ltd shall be treated as a subsidiary and its financial
statements shall be consolidated with that of NAGIL. This is mainly due to the reason that for
the next 4 years, Very Big would be controlled in terms of the financial operations by NAGIL
and no payments shall be made without its prior approval. This means a financial interest in
the Very Big Limited.
Part c:
In the present case, MSCL will just obtain some expertise form NAGIL and there is nowhere
mentioned that NAGIL shall have a say in its day to day business operations or would control
in the same. In the absence of such an information, it cannot be stated that the MSCL is

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investee and NAGIL is an investor. And hence, no consolidation of the financial statements
shall be done.
Part d:
In the present case, NAGIL shall be stated to have a control over Tom and Marjory Legless
since it has a substantial say in the day to day functioning of the company. The company
NAGIL also has 3 seats on the board and Tom and Marjory also has keeps a close eye on the
business and the decisions takes in by NAGIL. This means that NAGIL has power over the
investee which makes it important for the company to get their financial statements
consolidated.
I hope that the above is helpful.
Regards,
ABC

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References:
Australian Debt Solvers. (2018). Who Gets Paid First When a Company Goes into
Liquidation? - Australian Debt Solvers. [online] Available at:
https://australiandebtsolvers.com.au/research-centre/gets-paid-first-company-goes-
liquidation/ [Accessed 2 Oct. 2018].
www.aasb.gov.au. (2018). https://www.aasb.gov.au/admin/file/content105/c9/AASB10_08-
11.pdf. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB10_08-11.pdf [Accessed 2 Oct.
2018].