Advantages of adjustment entries in consolidation of accounts

Running head: CONSOLIDATION OF ACCOUNTS
CONSOLIDATION OF ACCOUNTS
Name of the University
Name of the student
Author notes

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CONSOLIDATION OF ACCOUNTS
Advantages of adjustment entries in consolidation of accounts
The consolidation is the process of combining the financial outcome of various
subsidiary companies in to a consolidated financial statement of the acquiring company
which is taking control of the minor company. this method is used when the acquiring
company acquire more than 50% of the shares of the minor company. in this case four ltd is
going to acquire the entire shares of D ltd by paying an amount OF $900000, on 1st July 2014.
Adjustment for land
The adjustment entries for the assets are made to eliminate the difference in
deprecation and to make adjustment of the unrealised profit of the land. The adjustment entry
is made as the fair value is higher than the carrying amount for which it is essential to
calculate the deferred tax liability. From this adjustment entry it will be possible to prepare
the revaluation surplus after giving the effect of tax (Harris and Dilling 2017).
Adjustment entries for plant and equipment
The plant value is undervalued by $50000 which is to be increased and bring back to
the original value which will help in calculating the goodwill. In addition to that the
adjustment entry is to be passed to recognise the deferred tax. The revaluation reserve is
created to record the original value of the land (Trifan 2018).
Contingent liability
Adjustment entry for contingent liability is to be made to find the deferred tax assets,
since no payment in relation to unsettled legal claim is made so the tax base is zero. This
adjustment entry is made to record the provision for legal claim and to recognise the effect of