Corporate Accounting: Tax, Acquisition, Deferred Tax Liability

This report covers various topics in corporate accounting including tax, acquisition, deferred tax liability, and more. It provides explanations, calculations, and necessary journal entries for each topic. Learn about non-controlling interests and how intra-group transactions affect them.

Corporate Accounting

Contents
INTRODUCTION.......................................................................................................................................4
QUESTION 1..............................................................................................................................................4
(a) Company’s taxable profit and hence its tax payable for 2017?..........................................................4
(b) Determine the deferred tax liability and tax assets that will result?....................................................4
(c) Prepare the necessary journal entries on 30 June 2017.......................................................................5
QUESTION 2..............................................................................................................................................6
(a) Necessary journal entry to record the acquisition...............................................................................6
(b) Amount of goodwill (or bargain purchase) arising out of the acquisition..........................................6
(c) Necessary consolidation entry to eliminate the subsidiary by the parent company............................7
(d) Determine the amount of goodwill.....................................................................................................7
QUESTION 3..............................................................................................................................................8
Provide the necessary Journal entries......................................................................................................8
QUESTION 4..............................................................................................................................................9
(a) Evaluate the portion of the intra-group transactions between the parent entity and the subsidiary
entity will need to be eliminated on consolidation...................................................................................9
(b) What is a non-controlling interest, and how should it be disclosed....................................................9
(c) How are non-controlling interests affected by intra-group transactions?..........................................10
(d) What are the three steps we use to calculate total non-controlling interest?.....................................10
QUESTION 5............................................................................................................................................11
(a) (1) Discuss whether the entries suggested by Li Chen are correct, explaining on a line-by-line basis
the correct adjustment entry...................................................................................................................11
(a) (2) Determine the consolidation worksheet entries in the following year, assuming the inventory has
been –sold, and explain the adjustments on a line-by-line basis............................................................12
(b) Necessary entries on 30 June 2017 and 30 June 2018 to eliminate the intra-group transfer of
equipment..............................................................................................................................................12
QUESTION 6............................................................................................................................................13
(a). Calculate the amount of goodwill at the date of acquisition............................................................13
(b). Prepare the journal entries for the year ending 30 June 2015..........................................................13
(c). Prepare the journal entries for the year ending 30 June 2016..........................................................14
CONCLUSION.........................................................................................................................................14

INTRODUCTION
Corporate Accounting is a specialized reporting division that interacts with businesses'
reporting, preparing the accounting records and statement of cash flow, reviewing and evaluating
the financial reports of businesses, and financial reporting for particular events such as merging,
acquisition, integrated balance sheet planning. Keeping a comprehensive and detailed record of
every transaction and examination of the financial condition of a company are the main goals of
finance. Every person or organisation is keen to know the effects of financial statements and
assessing their effects via the financial accounting. This report based on the different corporate
accounting questions that related with the tax, acquisition, deferred tax liability and many others.
QUESTION 1
(a) Company’s taxable profit and hence its tax payable for 2017?
Particulars Amount
Profit Before Tax $ 600,000
Less: Entertainment expenses ($ 60,000)
Salary due ($ 80,000)
$ 460,000
Depreciation @ 64,000 for 4 year by using SLM method ($ 256,000)
Taxable Income $ 204,000
Tax @ 30% $ 61,200
Net profit after tax $ 142,800
(b) Determine the deferred tax liability and tax assets that will result?
(1) Cost of machine = $640000
Expected life = 5 years

Thus, depreciation of machine = $640000/5 = 128000
(2) Cost of machine = $640000
ATO allow to company for depreciation = 4 years
So Depreciation mount = $640000/4 = 160000
Difference between both depreciation = $160000 - $128000
= $32000
Tax on depreciation = $32000*30% = 9600
This amount consider as Deferred Tax assets because at the end of financial period this amount
shown in the assets side
(c) Prepare the necessary journal entries on 30 June 2017
Date Particular Dr. ($) Cr. ($)
30/June/2017 Jaguar Ltd account 6,00,000
To Profit before tax 600,000
30/June/2017 Entertainment Expense account 60,000
To Bank account 60,000
30/June/2017 Salary Expanses account 80,000
To Bank account 80,000
30/June/2017 Bank account 70,000
To Interest received 7,000
30/June/2017 Depreciation account 256,000
To Machinery account 256,000
30/June/2017 Income tax expanses account 61,200

To Bank account 61,200
Total 1127,200 1127,200
QUESTION 2
(a) Necessary journal entry to record the acquisition
S. No Particular Dr. ($) Cr. ($)
1 Fair value of Assets 2,640,000
Fair value of Retain earning 1,120,000
To Fair value of Liabilities 720,000
To Cash 1,000,000
To Shares holder’s equity 800,000
To Shares 1200,000
To Goodwill 40,000
(b) Amount of goodwill (or bargain purchase) arising out of the acquisition
Purchase Price = 2200,000
Fair value of identifiable assets = 2240,000
Goodwill -40,000
*Working Notes:
Purchase Price = Cash + Share value
= 1000,000 + 1200,000 (800,000 @ 1.50)
= 2200,000

Fair value of identifiable assets = Total assets value – liabilities
= (Assets + Retain earning) – (Liabilities + Shareholder’s equity)
= (2,640,000 + 1,120,000) – (720,000 + 800,000)
= 3760,000 – 1520,000
= 2240,000
(c) Necessary consolidation entry to eliminate the subsidiary by the parent company
The parent company will have note deferred revenue and the subsidiary a note repaid
whenever the parent business makes a mortgage to a subsidiary. The mortgage is only a
movement of money whenever the different firms are merged or integrated, so that both the
payable and receivables notes are removed.
Particular Debit Credit
Cost of sales $1000,000
Profit and loss a/c $120000
To retained earnings $1120000
(d) Determine the amount of goodwill
Purchase Price = 1600,000
Fair value of identifiable assets = 2240,000
Goodwill -640,000
Amount of goodwill will be negative 640,000 if the purchase consideration paid was $
1,000,000 in cash and 400,000 shares and each valued at $ 1.50.
*Working Notes:
Purchase Price = Cash + Share value
= 1000,000 + 600,000 (400,000 @ 1.50)
= 1600,000

Fair value of identifiable assets = Total assets value – liabilities
= (Assets + Retain earning) – (Liabilities + Shareholder’s equity)
= (2,640,000 + 1,120,000) – (720,000 + 800,000)
= 3760,000 – 1520,000
= 2240,000
QUESTION 3
Provide the necessary Journal entries
Date Particular Debit Credit
July 2019 Bank a/c Dr
To Share application a/c
(Application money being
received for 36 million shares @
$1 each)
36000000 36000000
15-08-2019 Share application a/c Dr
To Share capital a/c
To share allotment
(Being transfer of application
money into share capital a/c)
36000000
6000000
30000000
20-09-2019 Share allotment a/c Dr
To Share capital
( Allotment money due already 6
million received from application
money)
24000000
24000000
20-09-2019 Cash a/c Dr
Calls in arrears a/c Dr
To share allotment a/c
To Share capital a/c
18000000
6000000
6000000
18000000

(Being allotment money received
(24-6=18) and 6 million shares
failed to pay allotment money)
30-09-2019 Share capital a/c Dr
To forfeited shares a/c
To Class in arrears a/c
(Being 6 million shares get
forfeited)
12000000
7200000
4800000
QUESTION 4
(a) Evaluate the portion of the intra-group transactions between the parent entity and the
subsidiary entity will need to be eliminated on consolidation
Unless the parent company holds less than 100 shares in its subsidiary, the company's
balance sheet may have a separate group covering noncontrolling interest, that, in addition to the
parent company, refers to the owners ’ equity interests. For instance , if a company acquires 90%
of a subsidiaries at a market value of $450,000, the non-controlling interest is 10% or $50,000
[$450,000*(10/90)]. The aggregate balance sheet offers a summary of an investment in
subsidiary accounts of $450,000 and a non-controlling interest of $50,000 in this case. Financial
accounts also should represent a non-controlling interest change. The non-controlling element
must be deducted from the net benefit or liability if the investor does not really own 100 percent
of the branch.
(b) What is a non-controlling interest, and how should it be disclosed
A non-controlling interest (NCI) is a far less than 50 percent business forms in a business,
where even the view taken provides no power or no power to the shareholder to decide how well
the business is managed. Non-controlling interests shall be interpreted in relation to the
corresponding net asset value of organisations that included shareholders besides the majority
owner. Because once evaluating an NCI, potential right to vote are put into account. Minority
shareholder is yet another term with such a type of financing. In regard to subsidiary businesses,

a non-controlling interest is often explicitly used to refer to the ownership interest owned by
other shareholders instead of the parent company.
(c) How are non-controlling interests affected by intra-group transactions?
Consolidation changes for intergroup transactions are not impacted by the NCI, since the
full results of the intra - group payment are modified for restructuring. The transactions are put
together through complete in a full consolidation (100 percent) and the ladder matches /
modifications are made in total (100 percent). Nevertheless, if a majority owned subsidiary
reports benefit that is unrealized to the company, An improvement is also provided to the NCI
share of profit as changes have been made for intra - group payments, in which these exchanges
represent changes for unrealized subsidiary gain.
Calculation of Non-Controlling Interest, these are as follow:
 Unrealised profits in closing inventory after tax that relate to subsidiary sales
Reduce NCI equity balance (Dr)…… XXX
To Reduce NCI share of profit (Cr) …….XXX
 Unrealised profits in opening inventory after tax that relate to subsidiary sales
Increase NCI share of profit (Dr)…… XXX
To Reduce NCI share of opening retained profits (Cr)…. XXX
(No effect on NCI equity balance)
 Unrealised gain after tax from subsidiary transfer of non-current asset
Reduce NCI equity balance (Dr)….. XXX
To Reduce NCI share of profit (Cr)…..XXX
 Excess depreciation after tax for plant transferred by subsidiary
Increase NCI share of profit (Dr)….. XXX
To Increase NCI equity balance (Cr)…… XXX
(d) What are the three steps we use to calculate total non-controlling interest?
Three steps for non controlling interest

 Determine the fair value (market price of the dividends) of the non-controlling interest.
This is the price in which you'd fairly expect your customer base to be sold. For instance,
if Company M holds an 80% interest in Company X, the rest 20% is the noncontrolling
stake in capitol University Let 's say 10 million dollars is the market price of the
liabilities.
 Allow any changes of equal value, including for goodwill. For example, if the fair value
of non-controlling assets is 10 million, for goodwill and any other fair value changes, you
would want to add $1 million, making the total $11 million.
 Add prorated profits attributable to the stake in non-controlling equity. If the business had
a revenue of $5 million at the time of sale, so the prorated capita income for non-
controlling interest would be 20 percent of 5 million = $1 million. Adding this revenue,
i.e. $11 million + $1 million = $12 million, to the fair value.
QUESTION 5
(a) (1) Discuss whether the entries suggested by Li Chen are correct, explaining on a line-by-line
basis the correct adjustment entry.
Cost of sold inventory = $15000
Purchase inventory = $12000
Profit = $3000
Tax = 30000*30%
= 600
Correct adjustment entries
Particular Debit Credit
Sales a/c
To cost of sales
To Profit & loss a/c
$15000
$12000
$3000
Deferred tax assets a/c
To Income tax expenses a/c
$600
$600

(a) (2) Determine the consolidation worksheet entries in the following year, assuming the
inventory has been –sold, and explain the adjustments on a line-by-line basis.
Particular Dr. Cr Explain the adjustment
Sales 15,000 Item sold in $ 15,000 that is why it sales
account debit.
Cost of sales 12,00
0
It is already mentioned in the given
information that cost of item is 12,000 and it
is credited in the account.
Inventory 3,000 Sold inventory mentioned in the credit
column with $ 3000.
Deferred Tax Asset 600 Amount of deferred tax assets is 600 that is
calculated by using @ 30% tax rate.
Income Tax Expense 600 Same amount credited as expenses of income
tax.
(b) Necessary entries on 30 June 2017 and 30 June 2018 to eliminate the intra-group transfer of
equipment.
Given Information
Item of plant $450000
Carrying value of Plant $600000
Actual cost $900000
Accumulated depreciation $300000
Remaining useful life 5 years
Tax rate 30%
Particular Debit Credit

Cash at bank a/c
Profit & loss a/c
To Machinery a/c
$450000
$150000
$600000
Deferred tax assets a/c
To Income tax expenses a/c
$45000
$45000
Working notes:
Deferred tax assets = 150000*30% = 45000
QUESTION 6
(a). Calculate the amount of goodwill at the date of acquisition
Purchase Price (Cash consideration) = $ 360,000
Less: Fair value of identifiable assets = ($ 210,000)
Goodwill = $ 570,000
Amount of goodwill will be negative $ 570,000 if the purchase consideration paid was $
360,000 in cash and fair value of identifiable assets is negative $ 210,000.
*Working Notes:
Fair value of identifiable assets = Total assets value – liabilities
= $ 240,000 - $ 450,000
= -$ 210,000
(b). Prepare the journal entries for the year ending 30 June 2015
S. No Particular Dr. Cr
1 Retained earning $ 30,000
To Dividend paid $ 30,000

(Paid dividend @ $ 30,000 at the year-end of 30th
June 2015)
$ 30,000 $ 30,000
(c). Prepare the journal entries for the year ending 30 June 2016
S. No Particular Dr. Cr
1 Retained earning $ 150,000
To Dividend paid $ 150,000
(Paid dividend @ $ 150,000 at the year-end of
30th June 2016)
$ 150,000 $ 150,000
CONCLUSION
As per the above report it has been concluded that it is an accounting process that is
devoted to a specific operational business. The financial manager only associates himself with
the financial reports of one company in this form of record keeping. Most precisely, the
accounting reports on the organisation which has recruited accountant.