AASB 10 Consolidated Financial Statements Analysis

This report summarizes the consideration of AASB 10 Consolidated Financial Statements for preparing financial accounts. It discusses how AASB 10 affects accounting entries and goodwill calculation in respect of mergers and acquisitions, as well as creditor payments in liquidation. The report concludes that AASB 10 is necessary to follow in preparing consolidated financial statements.

CORPORATE
ACCOUNTING

TABLE OF CONTENTS
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INTRODUCTION
Corporate accounting is a branch that deals with preparation of books of accounts, cash
flow statements including analysis and interpretation of data and it also includes book keeping
for specific events like Amalgamation, absorption, and preparation of Consolidated Financial
Statements(Santis, Grossi and Bisogno, 2018). This report will include preparation of
Consolidated financial statements and their journal entries in accordance with Australian
Accounting Standards Board (AASB) 10. The report will also provide ranking of creditors in
respect of liquidation of any company in Australia. Calculation of goodwill, pre-acquisition
entries and calculation of Non-Controlling Interest in any organization.
QUESTION 1
(a)Journal Entries for Small Limited
Books of Small Limited for year ended 30th June 2018
Year Particulars Debit Credit
2018 Bank/ Cash a/c Dr
To Dividend Received from Fry Limited
(Being Dividend received from Fry Limited)
Working Note 2
24000
24000
Year Particulars Debit Credit
2019 Bank/ Cash a/c Dr
To Dividend Received from Fry Limited
(Being Dividend received from Fry Limited)
Working Note 3
4500
4500
Year Particulars Debit Credit
2

2020 Bank/ Cash a/c Dr
To Dividend Received from Fry Limited
(Being Dividend received from Fry Limited)
Working Note 4
3000
3000
Working Note 1-:
Calculation of Share of Small Limited in Fry Limited
On 1st July 2017 Small limited Purchased 30% share by paying $50000 in Fry Limited.
So, Small limited is holding $9000 (30000*30%) share capital in the company.
Working Note 2-:
Calculation for the year 2018
Fry Limited
Particulars Amount in $
Profit Before Tax 80000
Less Income Tax 30000
Net Profit After Tax 50000
Add Retained Earnings 120000
170000
Less Dividend Paid 80000
Net Retained Earnings 90000
Calculation of Dividend Payable to Small limited will be $24000 (80000*30%).
Working Note 3-:
Fry Limited
Calculation for 2019
Particulars Amount in $
Profit Before Tax 70000
Less Income Tax 25000
3

Particulars Amount in $
Net Profit After Tax 45000
Add C/F Retained Earnings 90000
135000
Less Dividend Paid 15000
Net Retained Earnings 120000
Calculation of Dividend Payable to small limited $4500 (15000*30%)
Working Note 4-:
Fry Limited
Calculation for 2020
Particulars Amount in $
Profit Before Tax 60000
Less Income Tax 20000
Net Profit After Tax 40000
Add C/F Retained Earnings 120000
160000
Less Dividend Paid 10000
Net Retained Earnings 150000
Calculation of Dividend payable to small limited $3000 (10000*30%).
(b)Preparation of Consolidation Worksheet of Small Limited
For the Year 2018
Year Particulars Debit Credit
2018 Bank/ Cash a/c Dr
To Dividend Received from Fry Limited
(Being Dividend received from Fry Limited)
Working Note 2
24000
24000
4

2018 P&L a/c Dr
To Retained Earnings
(Being profits of P&l account balance to
retained earnings) Working Note 1
27000
27000
For the Year 2019
Year Particulars Debit Credit
2019 Bank/ Cash a/c Dr
To Dividend Received from Fry Limited
(Being Dividend received from Fry Limited)
Working Note 2
4500
4500
2019 P&L a/c Dr
To Retained Earnings
(Being profits of P&l account balance to
retained earnings) Working Note 1
36000
36000
For the Year 2020
Year Particulars Debit Credit
2020 Bank/ Cash a/c Dr
To Dividend Received from Fry Limited
(Being Dividend received from Fry Limited)
Working Note 2
3000
3000
5

2020 P&L a/c Dr
To Retained Earnings
(Being profits of P&l account balance to
retained earnings) Working Note 1
45000
45000
Working Note 1-:
Consolidation Worksheet of Small Limited
For the year 2018
Particulars Amount in $ Amount in $
Investment in Fry Limited 9000
Share in Retained Earnings of Fry Limited 27000
Add Dividend Received 24000 51000
Working Note 2-:
For the year 2019
Particulars Amount in $ Amount in $
Investment in Fry Limited 9000
Share in Retained Earnings of Fry Limited 36000
Add Dividend Received 24000 60000
Working Note 3-:
For the year 2020
Particulars Amount in $ Amount in $
Investment in Fry Limited 9000
Share in Retained Earnings of Fry Limited 45000
Add Dividend Received 24000 69000
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QUESTION 2
Ranking for the Creditors in course of Liquidation
In case of Liquidation of companies Insolvency Law Reform Act 2016 determines that
which group of creditors will be paid first during a liquidation process(Ben‐Shahar, Sulganik and
Tsang, 2016). The Following are ranks of creditors in case of Liquidation
1. Fees and expenses of Liquidator that is appointed-: Remuneration, fees of liquidator are
first to be paid and any cost that has been incurred by them.
2. Secured Creditors-: They are mostly banks or assets based lenders that are holding title of
their business assets.
3. Priority Unsecured Creditors-: They are mostly employees and government tax that are
payable by any organization
4. Unsecured Creditors-: They are left over creditors which are paid after paying all the
liabilities.
Total Realisation of Assets by Rock Bottom Pty Limited are
Particulars Amount
Buildings 7500000
Other Assets 6750000
Total Realisation 14250000
The total liabilities of company that had to be paid are $16350000.
Payment to creditors on basis of their ranks
Ranks Particulars Amount
1 Liquidators Cost for Asset
Realization
150000
2 Liquidators Expenses 600000
3 Secured Creditors 9000000
4 Staff Wages Payable 900000
5 Executive Directors 5 directors 450000
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Ranks Particulars Amount
6 Staff Leave Entitlements 150000
7 Directors Leave Entitlements 150000
8 Tax Payable 1050000
9 Local Government Rates 300000
10 Dividend Payable 450000
11 Unsecured Bank Overdrafts 750000
12 Unsecured Creditors 300000
Total Funds Available 14250000
Interpretation-:
The Payment as per ranks are paid and leftover unsecured creditors that are $2100000 (2400000-
300000) that are bad debts to them.
QUESTION 3
Journal Entries
Journal Entries
In the Books of Blake Ltd.
Date Particulars Debit Credit
30/06/2019 Seven Ltd a/c Dr
To Sales a/c
(Being Sales to subsidiary Seven Ltd)
55900
55900
1/07/2018 Profit and loss of Blake Ltd
To Cost of Sales
(Being Unrealized Profit of inter company sales
36120-30100)
6020
6020
30/06/2019 Profit and loss of Blake Ltd 4816
To Cost of Sales
(Being Unrealized Gain of inter company sales
4816
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(28896-24080)
30/06/2019 Profit and Loss of Seven Ltd 2064
To Cost of Sales
(Being Unrealized Gain of inter company sales
(10320-8256)
2064
30/06/2019 Impairment Loss on Goodwill a/c Dr
To Accumulated Impairment Losses
(Being acquired Goodwill impaired by $2580)
2580
2580
30/06/2019 Seven Ltd A/c Dr
To Sales of Plant and Machinery
To Profit and Loss of Blake Ltd
(Being Sale of Plant to Seven Limited)
99760
69660
30100
30/06/2019 Management Fess income a/c Dr
To Seven Ltd
(Being Management fees Received from Seven Ltd)
22790
22790
Calculation of Goodwill
Particulars Amount in $
Calculation of Goodwill
Purchase Consideration 80% 306160
Non Contorting Interest 172000*20% 34400
Less Net Assets Acquired 384420
Goodwill/ Capital Reserves -112660
Calculation of Net Asset of Seven Ltd
Assets 545498
Less Liabilities
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Calculation of Net Asset of Seven Ltd
Accounts Payables 39818
Tax Payable 21500
Loans 99760
161078
Net Assets 384420
Calculation of Non Controlling interest
Particulars Amount in $
Equity fair Value 172000
Minority interest 20% 34400
Intra Group Sales and Transfer-:
Closing Stock of Blake Ltd includes inventory of $28896 that cost seven Ltd $24080
Particulars Amount in $
Net Unrealized Gain(28896-24080) 4816
Intra Group Sales and Transfer-:
Closing Stock of Seven Ltd includes inventory of $10320 that cost Blake Ltd $8256
Particulars Amount in $
Net Unrealized Gain(10320-8256) 2064
Acquisition Analysis-:
The Blake Ltd should acquire Seven Ltd as the purchase consideration is much lower as compare
d to assets and that is creating a capital reserve.
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QUESTION 4
(a)Northern Australia Global Investments Ltd had provided a loan to Struggle Ltd and that was
converted to 70 % equity shares because of non-payment of debt by them. SL Ltd is having
accumulated losses that had been consolidated with NAGIL. As because no Board of directors in
SL Ltd NAGIL cannot take part in financing and operating decisions.
AASB 10, Consolidated Financial Statements, Paragraph B36 states that shareholder's that holds
more than half of voting rights, as in this case NAGIL is holding 70%. So, Investor’s voting
rights are independent and it must provide investor who can direct organization in
determination of financing and operating policies(Bisogno, Santis and Tommasetti, 2015). But in
cases given below investor will not have power to direct for these activities if any direction is
given by government, receiver, liquidator or regulator etc. So in this case no direction is given by
in any of following stated above than NAGIL Ltd can direct SL Ltd for operating and financing
activities as they are having more than half of voting rights, even if there are no directors in
Board of Directors of SL Ltd.
(b)Very Big Company Limited (VBCL) has taken form NAGIL Ltd but as because economic
breakdown VBCL has failed to meet repayments as per loan contract. So NAGIL Ltd provided a
Bailout Package in which they will take charge for financing VBCL for coming four years.
NAGIL had no power in Board that are appointed by VBCL Shareholders.
AASB 10 Paragraph B75, states that there is no need for contractual arrangement if investor is
acting as real agent to company so all decision making rights and control over operating and
financing will be with investors in following cases(AASB 10 Consolidated Financial Statements,
2018)-:
1. any company that cannot finance without having financial support from investorInvestor
that had received its interest in company as contribution or loan from an investor. Etc.
So, in the given case as NAGIL Ltd will provide loan to VBCL Ltd as a bailout package then
automatically rights related to decision making of operating and financing activities transfers to
investor.
(c)NAGIL Ltd and Sharp Players Ltd (SP) is holding 50% each shares in Medium Sized
Company Ltd (MSCL) and board representation is also shared equally by both companies. There
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is an agreement between SPL and NAGIL that finance will be funded by NAGIL and managerial
expertise will be given by SPL. So NAGIL will get interest and SPL will take management fees
and in case of no profits' management fees will only be paid after payment of interests to NAGIL
Ltd.
AASB 10 Paragraph B39, states that if there is an contractual agreement shareholders of
company than they can agreement between them(AASB 10 Consolidated Financial Statements,
2018). So as in this case shareholding is 50-50 of both NAGIL and SPL so they can make
agreement with assent of shareholder. They both had made agreement regarding payments of
interest and management fees as they are shareholders also and they are agreed so any contract
which they had done will be valid.
(d)NAGIL Ltd had purchased 40% shares in CrocsRUs and holds three seats on board but Tom
and Majory’s who are previous owner is keeping eye for making major decisions.
AASB 10 Paragraph 38, states that investor can have power even if majority is not held by them
in the following cases(AASB 10 Consolidated Financial Statements, 2018)-:
1. there are any contractual agreements between other shareholders and investors
2. Right arising because of any other contractual agreements
3. voting rights of investors
4. Potential voting rights etc.
So as in given case Tom and Majory has no agreements of any cases stated above so they cannot
be involved in major decision process of company CrocsRus.
CONCLUSION
This report summarizes about consideration of AASB 10 consolidated Financial
Statements for preparation of financial accounts of any company. In this report it can be seen that
how AASB 10 affects accounting entries and calculation of goodwill in respect of mergers and
acquisitions of two companies. The different ranks that are provided in AASB 10 regarding
payments to creditors in respect of Liquidation are also been considered in this report. Hence, we
can conclude that AASB 10 is necessary to follow and prepare Consolidated Financial
Statements as they are recommended by Accounting Board of Australia.
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