AASB 3 Accounting Standard for Business Combinations

This assignment focuses on understanding the AASB 3 accounting standard, specifically addressing business combinations. It delves into key concepts like acquisition accounting, identifying net assets, and calculating non-controlling interests. The questions require application of AASB 3 principles to various scenarios.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student:
Name of the University:
Author Note:

2CORPORATE ACCOUNTING
Table of Contents
Answer to Question 1:................................................................................................................2
First Investment Relationship....................................................................................................2
Fifth Investment Relationship....................................................................................................5
Question 2..................................................................................................................................5
Question 3..................................................................................................................................9
Question 4................................................................................................................................12
Question 5................................................................................................................................14
References................................................................................................................................20

3CORPORATE ACCOUNTING
Answer to Question 1:
First Investment Relationship
According to the given situation, LBX Pty Limited primarily had different shareholders that
had around 25% of shares that was essentially assumed by Millionaires Club along with Pty
Limited whilst the left over shares are possessed by the founder of the company LBX Pty
Limited. Additionally, it is significant to allow for all the evidences as well as situations for
assessing control over financiers. However, Millionaires Club has three different seats in the
Board and has authority to put forward views in some of the central activities that occur
within the business concern. As per the stipulations mentioned under paragraph B-19 of the
standard AASB 10, a financier has the authority to exercise control over the process directing
diverse functionalities of the business concern (Aasb.gov.au, 2017).
Second Investment Relationship
In this case it is imperative to take into consideration that Millionaires Club have the need to
engage in the process of assessment of the rights for the purpose of determination of
consolidation necessities that manage all of the actions. However, the actions that controlled
by a financier necessarily have the protecting rights at the time when they engage in
particular events or else situations. It can be hereby observed that financial exercises of BBT
are essentially controlled by different officials of Millionaires Club for a time period of
around 5 years. Thus, it can be said that the controls primarily remain in the hands of the
officials of Millionaires Club who are responsible to look after diverse financial operations of
the company. In a way, it can be hereby forecasted that consolidation is not required and
cannot be undertaken at the time when different associates of Millionaires Club do not have
position in the Board (Carnegie & O’Connell, 2014).

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Third Investment Relationship
According to the given state of affairs, it can be said that CTL has two different financiers in
which Millionaires Club reflects accountability in delivering loan and BJL for managing the
managerial actions. However, when there are two different financiers engaged in any dealing,
then diverse actions of CTL have the need to be focussed or else controlled by the two
investors collectively and then designed jointly (Carnegie & O’Connell, 2014). In this case,
both the financiers have the need to be in agreement to a specific solution to any difficulty
encountered by the business concern, or else it might prove to be very complicated.
Nonetheless, CTL cannot be properly controlled by a single individual financier. Again, the
concern in CTL can be analysed from specific joint arrangement according to stipulations of
AASB 11 (Aasb.gov.au, 2017).
Fourth Investment Relationship
Analysis of this investment situation reveals that there are three different financiers that are
present in the case. In this case, each of the financiers has identical share of around 33.3%.
However, it can again be observed from this case that daily functionalities of PGH Pty
Limited are directed appropriately by Millionaires Club since they have no more than one
seat in the company’s Board. However, the two shareholders referred to as CCL as well as
GJL possess barely one seat out of the total seats of three existent in the Board, However,
they are considered as passive financiers. Again, it is evidently stipulated in the Paragraph B-
19 of the regulation standard AASB 10 that at the time when a financier demonstrates passive
interest towards corporation, then they predominantly have certain unique association with
the financier (Schaltegger et al., 2017). However, it can be hereby mentioned that
Millionaires Club has ample authority to exercise control over PGH Pty Limited where these
financiers are permitted for certain rights and reflects additional passive concern towards the

5CORPORATE ACCOUNTING
business concern. Thus, engagement of Millionaires Club in actions on a daily basis activities
led to exerting certain control with huge exposure on inconsistency in return (Beekes et al.,
2015).

6CORPORATE ACCOUNTING
Fifth Investment Relationship
Analysis of the present situation helps in understanding the fact that Millionaires Club is the
possessor of approximately 75% of shares of the company JB Hi-Fi. However, Millionaires
Club does not hold any seat in the Board of the company. Therefore, they are not responsible
for management or else any type of decision making process that is associated to finance as
well as operations. Again, it can be hereby observed that there had taken place consolidation
of company’s assets owing to insufficiency on top of continuous poor as well as unsteady
performance (Henderson et al., 2015). Again, it can be hereby noted that Millionaires Club in
real possesses major fraction of shares of the company JB Hi-Fi in which they do not even
have voting authority. Essentially, it is the authority of a financier to exert control though
they do not possess voting authority according to B-38 of the regulation standard AASB 10.
Again, there had been adequate control that is undertaken by the financiers at the time when
they get involved in the process of management of pertinent actions and maintenance of
contractual necessities. Again, it can be stated that JB Hi-Fi is not involved in the process of
direction of actions that occur in business and therefore control cannot be exerted.
Question 2

7CORPORATE ACCOUNTING
Dr. Cr.
Date Amount Amount
1
1.a Accumulated Depreciation A/c. $270,000
Property,Plant & Equipment A/c. $100,000
Deferred Tax Liability A/c. $51,000
Business Combination Valuation
Reserve A/c. $119,000
1.b Profit after Tax A/c. $17,000
Accumulated Depreciation A/c. $17,000
1.c Deferred Tax Liability A/c. $5,100
Profit after Tax A/c. $5,100
1.d Goodwill A/c. $100,000
Business Combination Valuation
Reserve A/c. $100,000
2 Pre-Acquisition Entries:
30/7/2018 Share Capital A/c. $500,000
Retained Earnings (30/7/2018)
A/c. $200,000
Business Combination Valuation
Reserve A/c. $200,000
Investment in Beach Ltd. A/c. $900,000
3 Goodwill Impairment:
Profit after Tax A/c. $40,000
Accumulated Impairment Loss-
Goodwill A/c. $40,000
4 Interim Dividend:
Profit after Tax A/c. $28,000
Deferred Tax Assets A/c. $12,000
Interim Dividend A/c. $40,000
Particulars
Business Combination Valuation Entries:
In the books of ChallengeMe Pty. Ltd.
Journal Entries

8CORPORATE ACCOUNTING
5 Final Dividend:
5.a Profit after Tax A/c. $35,000
Deferred Tax Assets A/c. $15,000
Final Dividend A/c. $50,000
5.b Dividend Payable A/c. $50,000
Accounts Receivable A/c. $50,000
Particulars
ChallengeMe
Pty. Ltd.
TakeItEasy
Ltd. Debit Credit Group
Profit after Tax $400,000 $190,000
1.b,3.4,5.
a $120,000 $5,100 1.c $475,100
Retained Earnings - 30 June,2018 $300,000 $200,000 2 $200,000 $300,000
Interim Dividend ($90,000) ($40,000) ($40,000) 4 ($90,000)
Final Dividend ($110,000) ($50,000) ($50,000) 5.a ($110,000)
Retained Earnings - 30 June,2019 $500,000 $300,000 $575,100
Share Capital $1,000,000 $500,000 2 $500,000 $1,000,000
Business Combination Valuation Reserve 2 $200,000 $219,000 1.a,1.d $19,000
Total Shareholders' equity $1,500,000 $800,000 $1,594,100
Accounts Payable $100,000 $10,000 $110,000
Dividends Payable $100,000 $50,000 5.b $50,000 $100,000
Deferred Tax Liability 1.c $5,100 $51,000 1.a $45,900
Loan $670,000 $140,000 $810,000
Total Liabilities & equity $2,370,000 $1,000,000 $2,660,000
Cash $80,000 $40,000 $120,000
Accounts Receivable $50,000 $50,000 $50,000 5.b $50,000
Inventory $140,000 $123,000 $263,000
Deferred Tax Assets 4,5.a $27,000 $27,000
Goodwill 1.d $100,000 $100,000
Accumulated Impairment Loss ($40,000) 3 ($40,000)
Land $600,000 $400,000 $1,000,000
Property,Plant & Equipment $900,000 $700,000 $100,000 1.a $1,500,000
Accumulated Depreciation ($300,000) ($313,000) 1.a ($270,000) ($17,000) 1.b ($360,000)
Investment in Beach Ltd. $900,000 $900,000 2 $0
Total Assets $2,370,000 $1,000,000 $2,660,000
Adjustment
Consolidation Worksheet:

9CORPORATE ACCOUNTING
Particulars Amount
Current Assets:
Cash $120,000
Accounts Receivable $50,000
Inventory $263,000
Deferred Tax Assets $27,000
Total Current Assets $460,000
Non-Current Assets:
Goodwill $100,000
Accumulated Impairment Loss ($40,000)
Land $1,000,000
Property,Plant & Equipment $1,500,000
Accumulated Depreciation ($360,000)
Investment in Beach Ltd. $0
Total Non-Current Assets $2,200,000
TOTAL ASSETS $2,660,000
Current Liabilities:
Accounts Payable $110,000
Dividends Payable $100,000
Deferred Tax Liability $45,900
Total Current Liabilities $255,900
Non-Current Liabilities:
Loan $810,000
Total Non-Current Liabilities $810,000
TOTAL LIABILITIES $1,065,900
Shareholder's Equity:
Share Capital $1,000,000
Retained Earnings $575,100
Business Combination Valuation Reserve $19,000
Total Shareholder's Equity $1,594,100
TOTAL LIABILITIES & EQUITY $2,660,000
In the books of ChallengeMe Pty. Ltd.
Balance Sheet
as on 31st June, 2019

10CORPORATE ACCOUNTING
Question 3
Particulars Carrying Amount Tax Base Taxable
Temp’y
Diffs
Deductible
Temp’y Diffs
$ $ $ $
Assets
Cash $20,000 $20,000
Inventories $100,000 $100,000
Accounts Receivable $100,000 $100,000 $0
Prepaid Insurance $10,000 $10,000
Plant-at Cost $400,000 $400,000
Accumulated Depreciation ($80,000) ($100,000) ($20,000)
Liabilities
Accounts Payable $80,000 $80,000
Provision for Warranties $20,000 $20,000
Provision for Long Service
Leave expenses
$20,000 $20,000
Loan Payable $200,000 $200,000
Total Temporary
differences
$10,000 $20,000
Deferred tax liability (30%) $3,000
Deferred tax asset (30%) $6,000
Deferred Tax Worksheet:

11CORPORATE ACCOUNTING
Dr. Cr.
Date Amount Amount
30/06/2017 Income Tax Expense A/c. Dr. $93,000
Income Tax Refundable A/c. Dr. $126,000
To, Advance Tax Paid A/c. $219,000
Deferred Tax Assets A/c. Dr. $6,000
To, Deferred Tax Liability A/c. $3,000
To, Income Tax Expense A/c. $3,000
Profit & loss A/c. $90,000
To, Income Tax Expense A/c. $90,000
(Being income tax expense transferred to P/L A/c.)
In the books of I Love Corporate Accounting Ltd.
Journal Entries
Particulars
(Being Income tax expenses adjusterd with advance tax paid and
income tax refundable recorded)
(Being deferred tax assets and deferred tax liabilities recorded)
Workings

12CORPORATE ACCOUNTING
Particulars Amount Amount
Accounting profit before tax $300,000
Add:
Long Service Leave $20,000
Warranty Expenses $30,000
Insurance $20,000
Depreciation Expense for accounting
purpose
$80,000
$150,000
$450,000
Less:
Actual Warranty Expense paid $10,000
Prepaid Insuarnce $30,000
Depreciation Expense for Tax Purpose $100,000 $140,000
Taxable income $310,000
Tax on taxable income @30% $93,000
Less: 30% Tax paid on Gross Profit $219,000
Income Tax Refundable ($126,000)
Worksheet for Curret Tax Liability/(Refundable):

13CORPORATE ACCOUNTING
Particulars Accounting Tax
Plant-at Cost $400,000 $400,000
Useful Life (in years) 5 4
Depreciation Expenses p.a. $80,000 $100,000
Period of Utilization (in years) 1 1
Accumulated Depreciation $80,000 $100,000
Equipment (net Value) $320,000 $300,000
Base
Question 4
Requirement A
According to the present state of affairs, equity interest is said to be properly shared by the
firm Wiley Plus Limited along with Wiley & Sons Australia Limited. In this case, 70% of the
total shares of the company Wiley Plus Limited are acquired by the firm Wiley & Sons
Australia Limited. Moreover, it is observed that goodwill can be enumerated from the date of
acquisition after taking into consideration the interest of different acquirer of equity by
utilizing equity interest (Chaibi et al., 2014). In essence, there are various techniques of
valuation that can be utilized for enumerating the value of equity interest of acquirer. Thus,
the goodwill value can be reflected as below:

14CORPORATE ACCOUNTING
Requirement B
As per the present requirement, it can be hereby observed that determination of the amount
can be registered as the specific amount that stems from the loss incurred from impairment
that again get deducted from the goodwill from specifically acquisition date (Roy, 2015).
Essentially, the amount of goodwill would remain the same as it is the case mentioned above
since the overall fair value of different identifiable assets along with liabilities are not
presened in the given case
Requirement C
Implication of goodwill
As per the stipulations mentioned under the regulation standard AASB 3, it can
hereby be supposed that any kind of non-controlling interest in the acquirer is enumerated at
fair value. However, this can be considered as one of the alternatives in which goodwill has
the requirement to be accounted on particular consolidation. Essentially, the insinuation of
goodwill helps in determination of the date of acquisition when a particular acquire can detect
independently from goodwill as well as acquirement of identifiable assets/resources. Lee
(2016) asserts that it is appropriately stated in the paragraphs B 41 to 45 that enumeration of
the fair value of explicit identifiable assets in addition to identifiable assets can be carried out

15CORPORATE ACCOUNTING
by a specific acquiree. Fundamentally, it mainly recognizes different kinds of identifiable
assets along with liabilities that consider Standard in which it renders restricted exceptions to
particular principle measurement (Franks, 2014).
As per the regulations stated under AASB 3, it can be said that any type of non-
controlling interest that can be seen in the acquirer can be appropriately enumerated as the
balanced share of acquiree on diverse matters associated to identifiable net assets (Floyd &
List, 2016). As per paragraphs B 23 to 24, there is non-controlling interest of a particular
acquiree that undertakes a specific amount of retained earnings along with other equity
interests.
Question 5
Particulars
Carrying
Amount Fair Value
Net Fair
Value
Share Capital $0 $200,000 $200,000
Retained Earnings $0 $180,000 $180,000
Net Fair Value of Identifiable
Assets & Liabilities A $380,000
Purchase Consideration B $356,000
Gain on Bargain Purchase C=B-A ($24,000)
Acquisition Analysis:

16CORPORATE ACCOUNTING
Dr. Cr.
Date Amount Amount
1 Pre-Acquisition Entry (1/7/14):
1.a Share Capital A/c. $200,000
Retained Earnings (30/6/2018) $180,000
Investment in Solution Ltd. A/c. $356,000
Gain on Bargain Purchase A/c. $24,000
1.b Gain on Bargain Purchase A/c. $24,000
Deferred Tax Liability A/c. $7,200
Retained Earnings (30/6/2018) $16,800
2 Intergroup Sales in Current Year:
Sales Revenue A/c. $110,000
Cost of Goods Sold A/c. $110,000
In the books of FinalHeadache Ltd.
Journal Entries
Particulars

17CORPORATE ACCOUNTING
3 Profit in Opening Inventory:
Retained Earnings (30/6/18) A/c. $7,000
Income Tax Expenses A/c. $3,000
Cost of Sales A/c. $10,000
4 Sales & Profit in Closing Inventory:
4.a Sales Revenue A/c. $45,000
Cost of Goods Sold A/c. $38,000
Inventory A/c. $7,000
4.b Deferred Tax Assets A/c. $2,100
Income Tax expenses A/c. $2,100
5 Sale of Plant:
5.a Gain on Sale of Plant A/c. $35,000
Plant A/c. $35,000
5.b Deferred Tax Assets A/c. $630
Income Tax expenses A/c. $630
5.c
Accumulated Depreciation - Plant
A/c. $5,833
Depreciation expense A/c. $5,833
5.d Income Tax expense A/c. $1,750
Deferred Tax Assets A/c. $1,750
6 Management Fee:
Management Fee Revenue A/c. $26,500
Management Fee expenses A/c. $26,500
7 Dividend Paid:
dividends Received from Solutions
Ltd. A/c. $93,000
Dividends Paid A/c. $93,000

18CORPORATE ACCOUNTING
Particulars
FinalHeadache
Ltd. Solutions Ltd. Debit Credit Group
Sales Revenue $671,400 $540,000 2,4.a $155,000 $1,056,400
Cost of Goods Sold ($464,000) ($238,000) ($158,000) 2,3,4.a ($544,000)
Gross Profit $207,400 $302,000 $512,400
Dividends Received from Solutions Ltd.$93,000 $7 $93,000 $0
Management fee Revenue $26,500 $6 $26,500 $0
Gain on Sale of Plant $40,000 $35,000 5.a $35,000 $40,000
Gain on Bargain Purchase 1.b $24,000 $24,000 1.a $0
Expenses:
Administrative expenses ($30,800) ($38,700) ($69,500)
Depreciation ($29,500) ($56,800) ($5,833) 5.c ($80,467)
Management Fee Expenses ($26,500) ($26,500) $6 $0
Other Expenses ($101,100) ($72,000) ($173,100)
Profit before Tax $205,500 $143,000 $229,333
Tax Expense ($61,500) ($42,200) 3,5.d ($4,750) ($2,730) 4.b,5.b ($105,720)
Profit for the year $144,000 $100,800 $123,613
Reatined Earnings- 30/6/18 $319,400 $239,200 1.a,3 $187,000 $16,800 1.b $388,400
$463,400 $340,000 $512,013
Dividends Paid ($137,400) ($93,000) ($93,000) $7 ($137,400)
Retained Earnings - 30/6/19 $326,000 $247,000 $374,613
Share Capital $350,000 $200,000 1.a $200,000 $350,000
Total equity $676,000 $447,000 $724,613
Accounts Payable $54,700 $46,300 $101,000
Tax Payable $41,300 $25,000 $66,300
Deferred Tax Liability $7,200 1.b $7,200
Loans $173,500 $116,000 $289,500
Total Equity & Liabilities $945,500 $634,300 $1,188,613
Accounts Receivable $59,400 $62,300 $121,700
Inventory $92,000 $29,000 $7,000 4.a $114,000
Deferred Tax Assets 4.b,5.b $2,730 $1,750 5.d $980
Land & Buildings $224,000 $326,000 $550,000
Plant-At Cost $299,850 $355,800 $35,000 5.a $620,650
Accumulated Depreciation -
Plant ($85,750) ($138,800) 5.c ($5,833) ($218,717)
Investment in Solutions Ltd. $356,000 $356,000 1.a $0
Total Assets $945,500 $634,300 $1,188,613
Consolidation Worksheet:
Adjustment

19CORPORATE ACCOUNTING
Particulars Amount
Sales Revenue $1,056,400
Cost of Goods Sold ($544,000)
Gross Profit $512,400
Gain on Sale of Plant $40,000
Expenses:
Administrative expenses ($69,500)
Depreciation ($80,467)
Other Expenses ($173,100)
Profit before Tax $229,333
Tax Expense ($105,720)
Profit for the year $123,613
In the books of FinalHeadache Ltd.
Consolidated Income Statement
for the period ended 30/6/19

20CORPORATE ACCOUNTING
Particulars Amount
Current Assets:
Accounts Receivable $121,700
Inventory $114,000
Deferred Tax Assets $980
Total Current Assets $236,680
Non-Current Assets:
Land & Buildings $550,000
Plant-At Cost $620,650
Accumulated Depreciation -
Plant ($218,717)
Total Non-Current Assets $951,933
TOTAL ASSETS $1,188,613
Current Liabilities:
Accounts Payable $101,000
Tax Payable $66,300
Deferred Tax Liability $7,200
Total Current Liabilities $174,500
Non-Current Liabilities:
Loan $289,500
Total Non-Current Liabilities $289,500
TOTAL LIABILITIES $464,000
Shareholders' Equity:
Share Capital $350,000
Retained earnings $374,613
Total Shareholders' Equity $724,613
TOTAL LIABILITIES & EQUITY $1,188,613
Consolidated Balance Sheet
as on 30/6/19
In the books of FinalHeadache Ltd.

21CORPORATE ACCOUNTING
References
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Aasb.gov.au. (2017). [online] Available at:
http://www.aasb.gov.au/admin/file/content105/c9/AASB3_03-08_COMPoct10_01-
11.pdf [Retrieved 8 Oct. 2017].
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