Ethan Ltd: Preparing Consolidated Financial Statements at June 30

This assignment provides a detailed solution for preparing the consolidated financial statements of Ethan Ltd as of June 30, 2018, following its acquisition of Darren Ltd on July 1, 2017. The solution includes an acquisition analysis calculating the net value of Darren Ltd's identifiable assets and liabilities, as well as the gain realized from the acquisition. It also features business combination valuation reserve (BCVR) worksheet adjustments, pre-acquisition worksheet adjustments, and the consolidation worksheet itself. Key adjustments account for inventory sales, machinery depreciation, and transfers between retained earnings and general reserves. The final consolidated financial statements reflect the combined financial position of Ethan Ltd after the acquisition, providing a comprehensive view of the group's financial performance and position.

Accounting reporting 1
Corporate Accounting and reporting
by Student Name
Class & Course
Professor
University
The City & State
Date

Accounting reporting 2
1. Acquisition Analysis as at 1 July 2017
Acquisition is analysed in two steps. The first step calculates the net value of Darren Ltd.
Identifiable assets and liabilities. The second step compares that value of assets and liabilities
(equity) with the consideration transferred.
a) Identifiable values of assets and liabilities at fair value
Items Amount ($) Amount ($)
Share Capital 54,000
Retained earnings 36,000
Surplus from Revaluation of asset 18,000
Surplus from Revaluation of
inventory
16,000 - 14,000 (1-0.3) 1,400
Surplus from Revaluation of
machinery
94,000 - 92,500 (1-0.3) 1,050
Total 110,450
Therefore, the fair value of the acquisition is $110,450.
b) Calculating the gain realised from the acquisition
The gain from the acquisition is calculated by deducting the fair value of the acquisition from
the transferred acquisition.
The gain = $110,450 -$110,000
= $450.
2. Business Combination Valuation Reserve (BCVR) worksheet adjustment
journals
The entries of business combination valuation were affected by two events that occurred
between the acquisition and 30th June 2018.
 First, sales of 90% of the inventories during the period
 Second, machinery depreciation during the period
However, the 10% inventories sold between 30th June 2018 and 30th June 2019.

Accounting reporting 3
Item Debit (Dr) ($) Credit (Cr) ($)
Cost of sales 1,800
Income tax expense 540
Transfer from BCVR 1,260
Inventories 200
Deferred tax liability 60
BCVR 140
Accumulated depreciation 7,500
Machinery 6,000
Deferred tax liability 450
BCVR 1,050
Depreciation expense 300
Accumulated depreciation (1/5* $1,500) 300
Deferred tax liability 90
Income tax expense (30% *$300) 90
3. Pre-Acquisition worksheet adjustment journals

Accounting reporting 4
June 30, 2019:
The pre-acquisition entries during this period was affected by two events.
a) The sales of 90% of the inventories which was transferred from the BCVR.
b) The transfer of $3,000 from the pre-acquisition equity to general reserve.
June 30, 2018:
The pre-acquisition entries during the period was influenced by;
a) The sales of 90% on inventories from the BCVR.
b) The transfer of pre-acquisition retained earnings to general reserve.
Item Debit (Dr) ($) Credit (Cr) ($)
Retained Earnings (1/7/2018) 36,000
Share capital 54,000
Revaluation of asset surplus 18,000
BCVR 2,450
Gain on bargain purchase 450
Shares in Darren Limited 110,000
Transfer from BCVR 1,260
BCVR 1,260
General reserve 3,000
Transfer to general reserve 3,000
4. Consolidation worksheet as at June 30 2019

Accounting reporting 5
Ethan Darren Adjustments Group
Ltd Ltd Dr Cr
Profit before tax 120,000 12,500 1 300 450 2 130,850

Accounting reporting 6
1 1,800
Income tax expense 56,000 4,200 90 1 59,570
540 1
Profit 64,000 8,300 71,280
Retained earnings (1/7/17) 80,000 36,000 2 36,000 80,000
Transfer from BCVR 2 1,260 1,260 1 0
144,000 44,300 151,280
Transfer to general reserve 0 3,000 3,000 2 0
Retained earnings
(30/6/18) 144,000 41,300 151,280
Share capital 360,000 54,000 2 54,000 360,000
BCVR 2 2,450
1,050 1
0140 1
1,260 2
General reserve 10,000 3,000 2 3,000 10,000
514,000 98,300 521,280
Asset revaluation surplus
(1/7/17) 13,500 18,000 13,500
Gains 5,000 2,000 7,000
Asset revaluation surplus
(30/6/18) 18,500 20,000 20,500
532,500 118,300 541,780
Liabilities 42,500 13,800 1 90 450 1 55,920
60 1
575,000 131,300 597,700
Land 160,000 20,000 180,000
Plant & machinery 360,000 125,600 6,000 1 479,600
Accum. depreciation -110,000 -33,000 1 7,500 300 1 -135,800
Inventory 55,000 18,700 1 200 73,900
Shares in Darren 110,000 110,000 2 0
575,000 131,300 124, 600 124,600 597,700