Corporate Accounting and Financial Reporting

This assignment delves into the complexities of corporate accounting and financial reporting. It analyzes how accounting choices influence reported financial information and considers the broader implications for stakeholders. The discussion encompasses topics such as disclosure requirements, goodwill impairment, development stage enterprises, and social responsibility in accounting.

Running head: CORPORATE ACCOUNTING
Corporate accounting
Name of the University
Name of the student
Authors note

1CORPORATE ACCOUNTING

2CORPORATE ACCOUNTING
Answer to question 1:
1st investment relationship-
LBX Pty limited has two shareholders and 25% of shares are held by Millionaires Club
and Pty limited and the remaining shares are held by founder of LBX. It is required to take into
consideration all the facts and circumstances while assessing investor’s control. MC has been
provided three seats in the board of directors and they have say in all relevant activities of
organization. According to paragraph, B-19 of AASB 10, an investor can has the power if it is
involved in directing activities of organization and they can consequently exercise control over
them (El Dahrawet al. 2015).
.2nd investment relationship-
It is essential for MC to make the assessment of rights for determining consolidation
requirement and where the control rests. Activities of investee changes fundamentally if the
investors are having protective rights and they are applied in some special events or
circumstances. In this scenario, financial operations of BBT are controlled by Mc executive over
the period of five years. Therefore, control rests in MC hand only for the financial aspects of
business. Consolidation is not required and cannot be done as the members of MC does not have
any seats in board of directors (Maxfield 2013).
3rd investment relationship-
In this relationship, CTL has two investors that are MC who is responsible for supplying
loan and BJL that is responsible for handling the management. In event of two investors of any
organization, if the relevant activities of CTL are directed by both the investors together, then

3CORPORATE ACCOUNTING
only control can be exercised by such investors. Activities of such entity cannot be directed
without each other’s cooperation. Therefore, CTL cannot be controlled by individual investors
and the interest in CTL would be accounted from joint arrangement in accordance with AASB
11 (Özkol et al. 2014).
4th investment relationship-
In this particular investor relationship, there are three investors of PGH Pty limited and
all having equal shares that is 33.3% of each shareholders. Daily activities of PGH Pty limited
are handled by MC and they have one seat in board of directors. While the remaining two
shareholders that is CCL and GJL have one seat out of three in board of directors and they are
passive investors. If an investor has more than passive interest then they might have some special
relation with investee according to paragraph B-19 of AASB 10 (Aasb.gov.au 2017). It can be
examined from the given scenario that MC has sufficient power to exercise control on PGH Pty
limited as they are entitled to some other rights and have more than passive interest. Large
exposure of variability in return and MC’s involvement in day-to-day activities of its investee’s
business has led to exercise some control.
5th investment relationship-
In this scenario, MC is owner of 75% of shares of JB-Hi Fi, however they do not have
any seats in the board of directors and are not responsible for managing and handling any
financial and operating decisions JB-Hi Fi. There has been consolidation of assets due to
deficiency and continuous poor and unhealthy performance. Nonetheless, MC is holding major
shares of JB-Hi Fi, they do not provided with any voting rights. An investor is capable of
exercising control over investee even if they do not posses any voting rights according to

4CORPORATE ACCOUNTING
paragraph, B-38 of AASB 10 (Aasb.gov.au 2017). Sufficient control can be exercised by
investors if they are involved in managing relevant activities and have any contractual agreement
with them. It can be assessed for the situation that MC is only a passive invest of JB-Hi Fi that
does not have any involvement in directing some relevant activities of business. Therefore, it can
be said that control cannot be exercised (Kaya 2017).
Answer to question 2a:
Acquisition Analysis:
Particulars
Carrying
Amount
Fair
Value
Net Fair
Value
Share Capital $0
$500,00
0
$500,00
0
Retained Earnings $0
$200,00
0
$200,00
0
Property, Plant & Equipment
$430,00
0
$530,00
0
$100,00
0
Net Fair Value of Identifiable
Assets & Liabilities A
$800,00
0
Purchase Consideration B
$900,00
0
Goodwill C=B-A
$100,00
0
In the books of ChallengeMe Pty. Ltd.
Journal Entries
Dr. Cr.
Date Particulars
Amo
unt
Amo
unt

5CORPORATE ACCOUNTING
1 Business Combination Valuation Entries:
1.a Accumulated Depreciation A/c.
$27
0,00
0
Property, Plant &
Equipment A/c.
$10
0,00
0
Deferred Tax
Liability A/c.
$51,
000
Business
Combination
Valuation Reserve
A/c.
$11
9,00
0
1.b Profit after Tax A/c.
$17,
000
Accumulated
Depreciation A/c.
$17,
000
1.c Deferred Tax Liability A/c.
$5,1
00
Profit after Tax A/c.
$5,1
00
1.d Goodwill A/c.
$10
0,00
0
Business
Combination
Valuation Reserve
A/c.
$10
0,00
0
2 Pre-Acquisition Entries:
30/7/2018 Share Capital A/c.
$50
0,00
0
Retained Earnings (30/7/2018) A/c.
$20
0,00
0
Business Combination Valuation
Reserve A/c.
$20
0,00
0

6CORPORATE ACCOUNTING
Investment in
Beach Ltd. A/c.
$90
0,00
0
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
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
Answer to question 2b:
Consolidation Worksheet:
Particulars
ChallengeM
e Pty. Ltd.
TakeItEasy
Ltd.

7CORPORATE ACCOUNTING
Profit after Tax $400,000 $190,000 1.b,3.4,5.a
Retained Earnings - 30 June,2018 $300,000 $200,000 2
Interim Dividend ($90,000) ($40,000)
Final Dividend ($110,000) ($50,000)
Retained Earnings - 30 June,2019 $500,000 $300,000
Share Capital $1,000,000 $500,000 2
Business Combination Valuation
Reserve 2
Total Shareholders' equity $1,500,000 $800,000
Accounts Payable $100,000 $10,000
Dividends Payable $100,000 $50,000 5.b
Deferred Tax Liability 1.c
Loan $670,000 $140,000
Total Liabilities & equity $2,370,000 $1,000,000
Cash $80,000 $40,000
Accounts Receivable $50,000 $50,000
Inventory $140,000 $123,000
Deferred Tax Assets 4,5.a
Goodwill 1.d
Accumulated Impairment Loss
Land $600,000 $400,000
Property,Plant & Equipment $900,000 $700,000
Accumulated Depreciation ($300,000) ($313,000) 1.a
Investment in Beach Ltd. $900,000
Total Assets $2,370,000 $1,000,000
In the books of ChallengeMe Pty. Ltd.
Balance Sheet
as on 31st June, 2018
Particulars Amount

8CORPORATE ACCOUNTING
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

9CORPORATE ACCOUNTING
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

10CORPORATE ACCOUNTING
Business Combination Valuation Reserve $19,000
Total Shareholder's Equity $1,594,100
TOTAL LIABILITIES & EQUITY $2,660,000
Answer to question 3:
Deferred Tax Worksheet:
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

11CORPORATE ACCOUNTING
Deferred tax liability
(30%)
$3,000
Deferred tax asset (30%) $6,000
In the books of I Love Corporate Accounting Ltd.
Journal Entries
Dr. Cr.
Date Particulars Amount Amount
30/06/201
7 Income Tax Expense A/c. Dr. $93,000
Income Tax Refundable A/c. Dr.
$126,00
0
To, Advance Tax Paid A/c.
$219,00
0
(Being Income tax expenses adjusted with advance tax paid
and income tax refundable recorded)
Deferred Tax Assets A/c. Dr. $6,000
To, Deferred Tax Liability A/c. $3,000
To, Income Tax Expense A/c. $3,000
(Being deferred tax assets and deferred tax liabilities
recorded)
Profit & loss A/c. $90,000
To, Income Tax Expense A/c. $90,000
(Being income tax expense transferred to P/L A/c.)
Workings-
Worksheet for Current Tax Liability/(Refundable):

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 Insurance $30,000
Depreciation Expense for Tax
Purpose
$100,00
0
$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)
Base
Particulars Accounting Tax
Plant-at Cost $400,000 $400,000
Useful Life (in years) 5 4
Depreciation Expenses p.a. $80,000 $100,000

13CORPORATE ACCOUNTING
Period of Utilization (in years) 1 1
Accumulated Depreciation $80,000 $100,000
Equipment (net Value) $320,000 $300,000
Answer to question 4:
Requirement a:
In this particular scenario, equity interest are shared by Wiley Plus Ltd and Wiley and
Sons Australia Ltd. 70% of shares of Wiley Plus Ltd are acquired by Wiley and Sons Australia
Ltd. Goodwill can be determined at the date of acquisition by suing the acquiree’s interest of
equity in spite of using the transferred equity interest. Valuation technique can be used for
determining the acquirer’s equity interest value (Binkow 2015). The value of the goodwill would
be as follows:
Total Equity Capital : $10 million
Less: Non-Controlling Interest: $3 million
Acquired Capital: $7 million
Purchase Consideration: $10 million
Goodwill: $ 3 million
Requirement b:
Determination of goodwill amount, amount resulting from loss of impairment is
deducted from goodwill amount that is recognized at date of acquisition (Guthrie and Pang

14CORPORATE ACCOUNTING
2013). The amount of goodwill would be same as the above as the net fair value of the
identifiable assets and liabilities has not been mentioned in the case study.
Requirement c:
In event of any acquisition, goodwill can de determined by two possible ways. In first
option, goodwill value is obtained as the difference between total fair value of organization and
net identifiable assets fair value. In second option, goodwill calculation is done as the difference
between acquirer’s share of net identifiable assets fair value and purchase consideration (Walker
2015).
Answer to question 5:
Answer to question 5a:
Acquisition Analysis:
Particulars
Carryin
g
Amoun
t
Fair
Value
Net Fair
Value
Share Capital $0
$200,00
0
$200,00
0
Retained Earnings $0
$180,00
0
$180,00
0
Net Fair Value of
Identifiable Assets &
Liabilities A
$380,00
0
Purchase Consideration B
$356,00
0

15CORPORATE ACCOUNTING
Gain on Bargain Purchase C=B-A
($24,000
)
In the books of FinalHeadache Ltd.
Journal Entries
Dr. Cr.
Date Particulars 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
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

16CORPORATE ACCOUNTING
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

17CORPORATE ACCOUNTING
Answer to question 5b:
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
In the books of FinalHeadache Ltd.
Consolidated Income Statement
for the period ended 30/6/18

18CORPORATE 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 Balance Sheet
as on 30/6/18
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

19CORPORATE ACCOUNTING
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

20CORPORATE ACCOUNTING
References & Bibliography:
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http://www.aasb.gov.au/admin/file/content105/c9/AASB3_03-08_COMPoct10_01-11.pdf
[Accessed 29 Sep. 2017].
AASB, C.A.S., 2014. Business Combinations. Disclosure, 66, p.77.
Aasb.gov.au. (2017). [online] Available at:
http://www.aasb.gov.au/admin/file/content105/c9/AASB3_03-08_COMPoct10_01-11.pdf
[Accessed 26 Sep. 2017].
Atanasov, B. and Black, B., 2015. Shock-based inference in corporate finance and accounting
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Binkow, P., 2015. The Impact of Self‐Service Applications on Corporate Accounting and Its
Customers. Journal of Corporate Accounting & Finance, 26(6), pp.81-85.
El Dahrawy, K.E.D.M., El Ghany, M.M.A. and Mohamed, O.M.F., 2015, January. THE
EFFECT OF ACCOUNTING INFORMATION AND CORPORATE GOVERNANCE
MECHANISMS ON DEBT COVENANTS-AN APPLIED STUDY ON FIRMS LISTED IN
THE EGYPTIAN STOCK MARKET. In Global Conference on Business & Finance Proceedings
(Vol. 10, No. 1, p. 59). Institute for Business & Finance Research.
Guthrie, J. and Pang, T.T., 2013. Disclosure of Goodwill Impairment under AASB 136 from
2005–2010. Australian Accounting Review, 23(3), pp.216-231.
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