CORPORATE ACCOUNTING AND REPORTING

.

unning ead C T CC T TR H : ORPORA E A OUN ING AND REPOR ING
CORPORATE ACCOUNTING AND REPORTING

unning ead C T CC T TR H : ORPORA E A OUN ING AND REPOR ING
Table of Contents
Step 1: Acquisition Analysis.......................................................................................................................3
Step 2: Pre-Acquisition analysis..................................................................................................................3
Step 3: NCI entry.........................................................................................................................................4
Step 4: Business Combination entries..........................................................................................................5
Step 5: Partial Goodwill method to full goodwill Method...........................................................................6
References...................................................................................................................................................8

unning ead C T CC T TR H : ORPORA E A OUN ING AND REPOR ING
Step 1: Acquisition Analysis
Acquisition Analysis
At 1st July 2019
Net fair value of the
identifiable
Fair Value- Carrying
Value
Fair Value-
Carrying Value
assets and liabilities of
Davis Limited
Share Capital
$
516,000.00
General Reserve
$
221,000.00
Asset Revaluation
Surplus
$
171,000.00
$
908,000.00
Inventories
$
123,900.00
$
177,000.00 (398000-221000)
Land
$
247,800.00
$
354,000.00 (796000-442000)
Fittings
$
1,085.00
$
1,550.00 (23100-21550)
Machinery
$
268,100.00
$
383,000.00 (929000-546000)
Net identifiable assets
$
1,548,885.00
Consideration
Transferred
$
1,474,000.00
NCI considered
$
139,399.65
Goodwill
$
64,514.65
Step 2: Pre-Acquisition analysis
Step 2
Pre-Acquisition
Entries
1st July General Reserve Dr $

unning ead C T CC T TR H : ORPORA E A OUN ING AND REPOR ING
2019 (1/7/19) . 201,110.00
Share Capital
Dr
.
$
469,560.00
Asset Revaluation surplus
Dr
.
$
155,610.00
To BCVR
Dr
.
$
712,234.65
To gain on bargain purchase
$
64,514.65
To shares in Davis Limited
$
1,474,000.00
(for consideration given to Davis
limited)
30th June
2020 Transfer from valuation Reserve
Dr
.
$
768,880.00
To retained earnings
$
768,880.00
for transferred from BCVR to BCVR
General Reserve
$
712,234.65
To BCVR
$
712,234.65
for amount transferred to BCVR
Step 3: NCI entry
STEP 3
Entry of
NCI
General Reserve
(1/7/19)
D
r.
$
19,890.00
Share Capital
D
r.
$
46,440.00
Asset Revaluation surplus
D
r.
$
15,390.00
BCVR
D
r.
$
57,679.65
To shares in Davis Limited
$
139,399.65
for entry for non-controlling assets entry
passed

unning ead C T CC T TR H : ORPORA E A OUN ING AND REPOR ING

unning ead C T CC T TR H : ORPORA E A OUN ING AND REPOR ING
Step 4: Business Combination entries
STEP 4
Date Particulars Debit Credit
30th June
2020 Accumulated depreciation
D
r.
$
567,400.00
To Machinery (929000-619000)
$
310,000.00
To deferred tax
liability
$
170,220.00
To business combination valuation reserve
$
397,180.00
(for depreciation charged and adjusted
against BCVR)
30th June
2020 Depreciation Expense
D
r.
$
56,740.00
To accumulated Depreciation
$
56,740.00
(for depreciation transferred to accumulated
depreciation)
30th June
2020 Land
D
r.
$
354,000.00
To deferred tax liabilities
D
r.
$
106,200.00
To BCVR
$
247,800.00
(For adjustments
made)
30th June
2020 Inventories A/c
D
r.
$
177,000.00
To deferred tax liabilities
$
53,100.00
To BCVR
$
123,900.00
(For adjustments
made)
30th June
2020 Cost of sales
D
r.
$
1,098,400.0
0
To income tax
expense
$
329,520.00

unning ead C T CC T TR H : ORPORA E A OUN ING AND REPOR ING
To BCVR
$
768,880.00
(for recording the expense)
30th June
2020 Profit and loss A/c
D
r.
$
216,815.00
To depreciation on
machinery
$
56,740.00
To depreciation on fittings
$
775.00
to deferred tax
liability
$
159,300.00
for recording the expenses in profit and loss
account
30th June
2020 BCVR
D
r.
$
576,880.00
To profit and loss a/c
$
29,000.00
To general reserve
$
547,880.00
for recording the net profit
Step 5: Partial Goodwill method to full goodwill Method
When there is an acquisition of one company from the other company, the business combination
valuation entries are taken into consideration. Under the process of business valuation entries,
the treatment of the goodwill is done on the basis of either the partial goodwill method or the full
goodwill method. In this category the partial goodwill method is followed as Ethan is acquiring
only 91% shares of Davis Limited. Goodwill in simpler terms is the variance between the
consideration paid and the net identifiable assets. The treatment of goodwill in case of the full
goodwill method and partial goodwill method has only slight difference. One of the basic
difference is the amount of the goodwill exceeds in case of the partial goodwill. Also partial
goodwill method is not allowed under the US GAAP guidelines but still it is one of the options
which are used under the treatment through IFRS board .In present case the share capital,

unning ead C T CC T TR H : ORPORA E A OUN ING AND REPOR ING
reserves and the asset valuation are measured at 91% whereas in full consideration the value is
taken at 100% (ACCA, 2018). The profit also seems to be $29000 therefore; if the non-
controlling interest is inclusive it means the full goodwill method is applied in the business.

unning ead C T CC T TR H : ORPORA E A OUN ING AND REPOR ING
References
ACCA, (2018) IFRS 3 will create significant changes in accounting for business combinations,
explains Graham Holt [online] Available from
https://www.accaglobal.com/gb/en/member/discover/cpd-articles/corporate-reporting/ifrs3-
combinations.html [Accessed on 17th September 2019]