Consolidated Worksheet and Financial Statements for Jonathan Ltd. and Thomas Ltd.
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This report presents the acquisition analysis and preparation of consolidated financial statements for Jonathan Ltd. and Thomas Ltd. The report includes a consolidated worksheet, financial statements, and entries on 30 June 2020. The assets and liabilities are identified and adjustments are made for the acquisition process.
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CONSOLIDATED WORKSHEET AND FINANCIAL STATEMENTS
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Contents INTRODUCTION...........................................................................................................................3 TASK A...........................................................................................................................................3 Calculation of Acquisition Analysis............................................................................................3 TASK B...........................................................................................................................................5 Worksheet Entries on 30 June 2020............................................................................................5 TASK C...........................................................................................................................................6 Consolidated Worksheet as on 30thJune 2020............................................................................6 TASK D...........................................................................................................................................7 Consolidated Financial Statements..............................................................................................7 CONCLUSION................................................................................................................................9 REFERENCES..............................................................................................................................10
INTRODUCTION The consolidated financial statements are defined as the aggregated statements of an entity with multiple divisions or companies, aiming towards fulfilment of a unified objective or goal. Many a times, the business entities use the term “consolidated” for defining the aggregate reporting, including every official aspect of the company. According to the Generally Accepted Accounting Principles, the private companies have to abide by few requirements, as compared to the public companies. Also, if any kind of company chooses to report internationally, it must comply with the International Financial Reporting standards (Maliki, 2018). The following report will present Jonathan Ltd. who has acquired Thomas Ltd., by following acquisition method and calculation of acquisition analysis in preparation of consolidated financial statements, through this method the company will be able to recognize the assets and liabilities at fair value. Furthermore, the determination of whether the entity has acquired goodwill or gain purchase has occurred, is also performed and is defined as the end result of the acquisition analysis. By analysing and examining the consolidated financial statements of the company, the users, whether internal or external will be able to identify the position and status of the newly formed entity. TASK A Calculation of Acquisition Analysis During the acquisition process the company tends to follow certain specifically drafted steps to calculate the amount of goodwill or the amount which is generated by acquisition of one company by the another. Here the amount will be determined by ascertaining the total assets and total liabilities existing at the time of acquisition, along with the preparation of consolidated financial statements and journal entries. The analysis is crucial for every type of company, irrespective of its size, nature of business and profit orientation, while also providing significant information to the outsiders about how much the companies involved, are advantaged by the acquisition decision (Bodnar, 2019). The assets and liabilities identifiable of Thomas Ltd., are as follows: ParticularsCarrying amountFair value Plant (cost $230000) (Sold on 1stJanuary 2022 for $155000) $ 200000$ 210000 Land (Sold on 1stFeb at $150000) $ 100000$ 120000
Inventories (Sold by 30thJune 2020) $ 30000$ 38000 Also, Thomas Ltd. has recorded following additional details: Dividend Payable$7000 Goodwill(excluding impairment losses of $13000) $5000 Intangible Assets or Internally generated brands (Fair Value) $12000 ContingentLiability(Fair Value) $15000 Damages of Court Case$16000 Share Capital$130000 General Reserve (T/F $20000 to Retained Earnings on 1 July 2020and$15000onFeb. 2022) $50000 Retained Earnings$40500 Calculation of Acquisition Analysis The Net Fair Value= (130000 + 50000 + 40500) (Equity) + (210000 – 200000) X 0.70 (Plant) + (120000 – 100000) X 0.70 (Land) + (38000 – 30000) X 0.70 (Inventory) - (15000 X 0.70) (Contingent Liability) + (12000 X 0.70) (Intangible assets) - 5000 (Goodwill recorded) =$240000 Consideration Transferred=$246000 Goodwill= 246000 - 240000=$6000 Unrecorded Goodwill= 6000-5000 = $1000
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TASK B Worksheet Entries on 30 June 2020 The business combination valuation entries on 30 June 2020, are affected by the assets and liabilities for which the acquisition analysis will be considered. The inventories were sold by 30 June 2020, that is prior to the current period, henceforth no business combination valuation entry has to done. The inventory value which has been increased will be used in the retained earnings of the subsidiary, due to the fact that the subsidiary realised this increment through the sale. (Yılmaz, 2020) Accumulated Depreciation (Plant) Plant account Deferred Tax Liability BusinessCombinationValuation Reserve Dr Cr Cr Cr $30000 $20000 $3000 $7000 Retained Earnings Share Capital General Reserve BusinessCombinationValuation Reserve Shares of Thomas Ltd. Dr Dr Dr Dr Dr $40500 $130000 $50000 $25500 $246000 Dividend Payable Dividend Receivable Dr Cr $7000 $7000 General Reserve Retained Earnings Dr Cr. $20000 $20000 The business combination valuation entries on 30 June 2020, are affected by the assets and liabilities for which the acquisition analysis will be considered. The inventories were sold by 30 June 2020, that is prior to the current period, henceforth no business combination valuation entry has to done. The inventory value which has been increased will be used in the retained earnings of the subsidiary, due to the fact that the subsidiary realised this increment through the sale. (Yılmaz, 2020)
Furthermore, the pre-acquisition entries will also be recorded, so as to give effect to all of the changes and transactions made before the acquisition process. Following is the adjustment provided for the beginning of the period ended 30 June: Retained Earnings (40500 + 5600) Share Capital General Reserve Business Combination Valuation Reserve (25500-5600) Shares of Thomas Ltd. Dr Dr Dr Dr Cr 46100 130000 50000 19900 246000 TASK C Consolidated Worksheet as on 30thJune 2020 ParticularsJonathan Ltd.Thomas LtdAdjustmentsGroup DrCr Revenue9000064000--154000 Expenses3400042000--(76000) Trading Profit5600022000--78000 Gains80008000--16000 Profit before tax6400030000--94000 Income Tax Expense120005000--(17000) Profit for the period520002500077000 RetainedEarnings(1June 2021) 10300055000--158000 TransferfromGeneral Reserve 3000015000-1500060000 Retained Earnings (30 June 2022) 16500095000--218000 Share Capital150000130000246000-526000 General Reserve100002000015000-15000 Other Components of Equity2500018000--43000 Total Equity350000263000--584000
Deferred Tax Liability1800010000--28000 Payables4000010000--50000 Other Liabilities250000230000--480000 Total Liabilities308000250000--558000 Total Equity and Liabilities658000513000--1437000 Plants430000320000--750000 Depreciation(182000)(220000)--(402000) Land15000020000--170000 Shares in Thomas Ltd.246000---246000 Financial Assets110000107000--217000 Inventory4000030000--70000 Cash100005000--15000 Impairment Losses-(13000)-(13000)(13000) Goodwill20000180001000-39000 Total Assets658000513000--1092000 TASK D Consolidated Financial Statements As previously discussed, the consolidated financial statements are documents prepared for the management of transactions which belong to both the companies involved in acquisition, also the statements are supposed to include the adjustments made for during the whole process and henceforthrequireseparatecolumnstodefinethesame(NationalCollegiateAthletic Association, 2019). THOMAS LTD Consolidated Statements of Profit and Loss and Other Comprehensive Income For the year ended 30 June 2020 Profit for the Period Other Comprehensive Income Total Comprehensive Income $77000 - $77000
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Consolidated Statement of Changes in Equity For the year ended 30 June 2022 ParticularsAmount in $ Comprehensive Income77000 Retained Earning218000 Share Capital526000 General Reserve30000 Other Components of Equity43000 Consolidated Balance Sheet For the year ended 30 June 2022 ParticularsAmount in $ EQUITY AND LIABILITIES: Equity: Share Capital Reserve and Surplus Other components of equity Retained Earnings Total equity Non-current Liabilities: Other 526000 15000 43000 218000 802000 480000 TOTAL1282000 ASSETS Non-current assets: Plant Accumulated Depreciation Land Financial Assets Inventory Cash 750000 (402000) 170000 217000 70000 2000
Goodwill Shares in Thomas Ltd. 39000 246000 TOTAL1282000 CONCLUSION The following report lays down the assessment and treatment of the assets and liabilities, which are identified at the time of acquisition (Brusca, 2018). Through proper procedures and methods, the companies will be able to examine the position of its business items while keeping track of all the additional adjustments made towards such acquisition procedure. Furthermore, the consolidated worksheet and relevant statements are also prepared to understand the whole procedure in a better and systematic way. Generally, the transactions are defined as the pre and post-acquisition truncations, which helps divide the adjustments and create effective changes.
REFERENCES Books and Journals Bodnar,A.,Andreeva,A.,Medvedev,M.andMedvedev,N.,2019,July.Information architecture of the data analysis and management using fuzzy logic tools. InAIP Conference Proceedings(Vol. 2116, No. 1, p. 430020). AIP Publishing LLC. Brusca, I., Grossi, G. and Manes-Rossi, F., 2018. Setting consolidated reporting standards for local government.Public Money & Management,38(7), pp.483-492. Maliki, A.L.M.K.A., 2018. The application of local accounting rule NO.(6) in the consolidated accounting system has been applied.Managerial Studies Journal,10(21). National Collegiate Athletic Association, 2019. Consolidated financial statements: August 31, 2019 and 2018. Yılmaz, M.K., Aksoy, M. and Çelik, T.T., 2020. Market reaction to regulatory policy changes in financial statements filings: evidence from Turkey.Eurasian Economic Review,10(4), pp.567-605.