Corporate Accounting and Reporting

Corporate
Accounting and
Reporting

Contents
Introduction.................................................................................................................... 2
Solution-1...................................................................................................................... 3
(a) Meaning of goodwill............................................................................................ 3
(b) Treatment of previously recognized goodwill..............................................................3
(c) Difference between cum dividend and ex dividend.......................................................4
(d) Definition of control and identification of control.........................................................5
(e) Westfarmers income and NCI portion in 2018.............................................................5
Solution-2...................................................................................................................... 6
(a) Explanation of term significant influence and its indicators.............................................6
(b) Listing of Westfarmers associates and treatment of goodwill in these investments................8
Solution-3...................................................................................................................... 9
(a) Preparation of Acquisition analysis as on 1 July, 2020...................................................9
(b) Equity accounting entries in the books of Harvey Ltd on consolidation for the investment in
Spector Ltd for the year ended 30 June, 2021.......................................................................9
(b) Equity accounting entries in the books of Harvey Ltd on consolidation for the investment in
Spector Ltd for the year ended 30 June, 2022.....................................................................10
References................................................................................................................... 12

Introduction
The given report is about the Westfarmers acquisition of Coles Group. It lights out the major information
about the aforementioned business combination and explains few important factors. The report has three
major portions.
Solution-1 talks about the Westfarmers acquisition of Coles group alongwith explanation of goodwill and
meaning of control. Further, the net income earned and the NCI portion of Westfarmers for the year 2018
is also provided.
The solution-2 talks about significant influence and its indicators. Further, it includes the list of
Westfarmers associates and accounting of their goodwill.
The last portion, i.e. solution-3 is a case study of accounting for associates and includes the acquisition
analysis and journal entries to record the equity accounting entries in the books of Harvey Ltd. for
investment in Spector Ltd. for the financial years 2021 and 2022.

Solution-1
(a) Meaning of goodwill
Goodwill is an intangible asset which has no physical substance but has some future economic
benefits for the entity. These future economic benefits can be in the form of inflow of resource or
any other benefits accruing to the company in direct or indirect form. Generally, goodwill is
recorded at the time of acquisition of another business and represents the excess consideration
paid on business combination. In simple terms, the goodwill is the excess consideration paid over
the net book value of identifiable assets and liabilities. This net book value of assets and liabilities
represents the value of business that is being acquired. For instance, the net book value of assets
& liabilities acquired is $100 and the company has paid $110 to acquire the said company. So, the
goodwill will be $10 ($110 - $100). This goodwill needs to be recorded as an intangible asset in
the books and represents the benefits that will accrue to the company in near future. These
benefits can be monetary or non-monetary.
Para 51 of AASB 3, “Business Combinations” allows the investor company to record and
recognize the goodwill acquired in a business combination and clearly states that goodwill is the
excess of the cost of business combination over the acquirer’s interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities.
Goodwill to be recorded by Westfarmers on acquisition of Coles Group will be approx. 7.17
billion. This is calculated by dividing the acquisition cost with the premium paid on Colus shares.
The Westfarmers has paid $22 billion to acquire Colus group and paid $17 ex dividend per share.
This cost per share represents 48.4% premium. Hence, the excess consideration paid is 48.4%.So,
the goodwill is 7.17 billion.
(b) Treatment of previously recognized goodwill
The goodwill recognized in business combination is never amortised but it is tested for
impairment at every reporting period end. The para 56 of AASB 3, “Business Combinations”,
states that,