Report on Company Accounting

Company accounting

TABLE OF CONTENTS
Question...........................................................................................................................................3
Worksheet entries at 1 July 2013.................................................................................................3
Worksheet entries at 1 July 2016.................................................................................................3
Worksheet entries at 1 July 2017.................................................................................................3
Question 3.5.....................................................................................................................................5
Journal Entry in books of EF Ltd................................................................................................5
References........................................................................................................................................7
References........................................................................................................................................8

QUESTION
Worksheet entries at 1 July 2013
Entries for Business combination valuation
Inventory A/c Dr 30 000
Business combination valuation reserve A/c Cr $9 000
Deferred tax liability A/c Cr $21 0000
*Accumulated depreciation – equipment A/c Dr $530 000
Business combination valuation reserve A/c Cr $280 000
Equipment A/c Cr $130 000
Deferred tax liability A/c Cr $120 000
Trademark A/c Dr $2 100 000
Business combination valuation reserve A/c Cr $1 470 000
Deferred tax liability A/c Cr $630 000
Business combination valuation reserve A/c Dr $560 000
Deferred tax liability A/c Dr $240 000
Payment to be made to employees Cr $800 000
Business combination valuation reserve A/c Dr $385 000
Deferred tax liability A/c Dr $165 000
Payment to be made to employees Cr $550 000
Goodwill A/c Dr $815 000
Business combination valuation reserve A/c Cr $815000
Worksheet entries at 1 July 2016
Retained earnings A/c (1/7/16) Dr $6 359 000
Share capital A/c Dr $10 000 000
Shares in Blue Ply Ltd A/c Cr $16 359 000
Worksheet entries at 1 July 2017
Cost of sales Dr $30 000
Income tax Cr $9 000
Transfer from business combination
Valuation reserve Cr $21 000
Accumulated depreciation – equipment A/c Dr $530 000

Business combination valuation reserve A/c Cr $280 000
Equipment A/c Cr $130 000
Deferred tax liability A/c Cr $120 000
Depreciation expense Dr $315 000
Accumulated depreciation Cr $315 000
Deferred tax liability Dr $94 500
Income tax expense Cr $94 500
Table 1: Acquisition analysis
Equity value
Share capital $10 00 000
Retained earnings $6 359 000 $16 359 000
Revaluation of assets
Inventory $30 000(1-30%) $21 000
Plant $400 000(1-30%) $280 000
Trademark $2 100 000(1-
30%)
$1 470 000
Payment to be made to
employees
$800 000(1-30%) -$560 000
Estimated damages $550 000(1-30%) -$385 000
Net worth of Blue Ply
Ltd
$17 185 000
Consideration transferred ($123 500-6 000) $18 000 000
Goodwill (it is because value of Consideration transferred is
comparatively higher than Net worth) (Amel, Meeks & Meeks,
2016)
$815 000

QUESTION 3.5
Journal Entry in books of EF Ltd
Journal Entry
Date Particular Amount in $000 Amount in $ 000
1.10.2010 Investment A/c Dr 3000
Cash A/c Cr. 1500
GH Ltd Cr. 1500
(Being all issued shares of Gh Ltd
acquired and half amount paid in
cash)
150
30.09.2011 Interest Expense A/c Dr 1500
GH Ltd A/c Dr 1650
Cash A/c Cr
(Being remaining amount paid to GH
Ltd with interest)
(a) Analysis of acquisition of EF Ltd investment in GH Ltd
Book value of all the shares at the date of acquisition
= Issued capital + Retained earnings (Bull, 2014)
= $1200000+ $1400000
= $2600000
Amount paid by EF Ltd

= $3000000
The difference between book value and the actual amount paid, i.e. $400000 ($3000000-
2600000) will be recorded as payment relating to goodwill of GH Ltd.
(b) Adjustment in PPE account
Consolidation adjustments will be required to be done in respect of GH Ltd’s plant and
equipment in case the consolidated financial statements are prepared for the year ended 30
September 20X0, as Plant, property and equipment are required to be recorded at replacement
cost (Amel-Zadeh, Meeks & Meeks, 2016); the adjustment in value of PPE will be made to
ascertain the appropriate amount of goodwill.

REFERENCES
Books and Journal
Amel-Zadeh, A., Meeks, G., & Meeks, J. G. (2016). Historical perspectives on accounting for
M&A. Accounting and Business Research, 46(5), 501-524.
Bull, R. J. (2014). Accounting in business. Butterworth-Heinemann.
Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.