Financial Accounting and Transactions

The provided assignment details two separate scenarios involving financial transactions with a company called Tassie Ltd. In the first scenario, purchases are made in Australian dollars (AUD) and subsequently converted to British pounds (GBP). This results in a foreign exchange gain. The second scenario involves purchasing plant assets from Tassie Ltd on July 15th, which is then recorded as an asset ready for use. On August 12th, the payment is made, leading to a foreign exchange loss. The assignment requires journal entries to be recorded for these transactions, highlighting key aspects of financial accounting and transactions.

Financial reporting
assignment

Table of Contents
Question 1........................................................................................................................................1
Question: 2.......................................................................................................................................3
Question 3........................................................................................................................................5

Question 1.
Parent Ltd ….............80%................. Subsidiary
Parent Ltd 80%
NCI = 20%
Acquisition analysis
1 July 2014
Net fair value of assets and liabilities of subsidiary company :
Equity: $280,000 + Land: 16000 (1-30%) + Plant: 10000 (1-30%)
: $ 280,000+ 11200 + 7000
: $ 298,200
a) Total consideration transferred: $ 224000
b) Non- controlling interest rate : $ 63,000
Total of A+B= $ 287,000.
Capital reserve: $ 287,000 - $298,200
: $-11200
Capital reserve of subsidiary company:
Fair value of subsidiary: $63000 /0.2
: $315,000
Fair value of Net income from acquisition:
: $ 298,200 - $ 315,000 = $-16800.
Capital reserve for Parent company:
Total goodwill of subsidiary company: $ 16800
Acquired goodwill: $ 11200
Total= $ 11200 - $16800 = $ -5600
Working note 1:
Equity: (Equity capital+ Retained earning + General reserve)
: $ 200,000+ $ 74,000 + $ 6000 = $280,000
Land: 16000*0.7 = $11,200
plant: 10000*0.7 = $ 7,000
Consideration transfer amount: $ 274,000*80% = $224,000
Consolidation entries as on 1 July 2017
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A. Businesses combinations valuation entries
Carrying cost of land DR. $ 16000
Income tax expenses CR $ 4800
Transfer amount as reserve CR $ 11200
(Land is revalued @ 30% tax rate)
Accumulated depreciation on plant DR. $ 110,000
Cost of plant CR. $ 100,000
Tax liability CR. $ 3,000
Transfer to business valuation reserve CR. $ 7,000
(Accumulated depreciation is charged on plant)
Depreciation on Plant Dr. $ 1000
Accumulated depreciation Cr. $ 1000
(Being depreciation is charged over plant)
Working Note:
(Depreciable amount on plant= 10000 /10 = 1000)
b. Pre-acquisition Entries:
Retained earning Dr. $ 74000
Share capital Dr. $ 200,000
General reserve Dr. $ 6000
Business revaluation reserve Dr. $ 16800
Capital reserve Dr. $ -11200
Share in parent company Cr. $ 280,200
(Total number of share held by parent company)
Transfer to general reserve Dr. $ 59200
General reserve Cr. $ 59200
(Being 80% amount transfer to general reserve)
Valuation reserve a/c Dr. $ 14800
Business combination reserve Cr. $ 14800
(Being valuation amount is transfer @ 80% of the total share held by the parent company.)
C. NCI share of equity at acquisition during the time:
Retained earning Dr 19,200
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Share capital DR 40,000
General reserve DR 4,000
Business combination reserve DR 20,000
NCI a/c CR 83,200
(Total amount of share with NCI)
d.) NCI share changes in equity portion during current period:
NCI share of profit Dr.$ 6360
NCI Cr.$ 6360
Transfer to general reserve Dr $800
To general reserve Cr $ 800
(Being rest amount transfer to reserve)
NCI DR $ 4000
Interim dividend CR $ 4000
(Being dividend paid @ 20%)
NCI DR $ 2000
To Final divided declared a/c CR $ 2000
(Total dividend declared by the company)
E) Interim dividend paid
Dividend revenue a/c DR $16,000
Interim dividend paid CR $ 16,000
(Dividend paid @ 80%)
F) Final dividend declared
Dividend revenue DR $ 8000
Dividend receivable CR $ 8000
Dividend payable DR $ 8000
Final dividend declared CR $ 8000
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Question: 2
Journal entries in the consolidation worksheet of rules Ltd as on 30 June 2017 for the
equity accounting of commercial Ltd (Hitchner, 2010.
Acquisition analysis:
Rule Ltd 25% Commercial Ltd
1 July 2015
Net fair value of assets and liabilities of subsidiary company :
Equity: $600,000 + Land: 200,000 (1-30%) + Plant: 50000 (1-30%)
: $ 600,000+ 140,000 + 35000
: $ 7,75,000
a) Total consideration transferred: $ 2,00,000
Net fair value acquired by Rules Ltd: $ 7,75,000*25%= 193,750
Goodwill : Cost of investment- Net fair value = $2,00,000- 193750
: $ 6,250
Depreciation on plant per annum after tax: 20%*35,000= $7,000.
Working Note 2:
Equity: (Equity capital+ Retained earning + General reserve)
: $ 3,30,000+ $ 2,20,000 + $ 50,000 = $6,00,000
Land: 2,00,000*0.7 = $1,40,000
plant: 50,000*0.7 = $ 35,000
Under equity method the investing company records the investment in beginning cost (Delmas
and Blass, 2010). In that case, Consolidation entries are as follows:
Movement in retained earnings: Retained earnings on 1-7-2016 – Retained Earning on 1-7-2015
: $ 14,0000-$220,000
: $ 190,000
Pre- Acquisition adjustments:
Depreciation on plant: -7000
Investor's share 25% of 193,000 = $ 48,250
Note:
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General reserve is $ 75,000. at the time of reporting period, there was a transfer to
general reserve of $ 15,000. therefore, the rest amount of general reserve was $ 60,000.
Consolidation worksheet entries as on 30 June 2017:
If, investment is done in case:
Investment in commercial Ltd Dr. $ 48,250
Retained Earnings as on 1-7-2016 Cr. $ 48,250
(Being investment is made from earnings)
Asset Revaluation Surplus:
Prior period:
Movement in asset revaluation surplus = 150,000 – 140,000 = 10,000.
Investor's share= 25%*10000= $ 2500
Current period:
Movement in assets revaluation surplus = $ 155,000-$ 150,000 = $5000
Investor's share= 25% of 5000= $1250
Entries:
Investment in commercial Ltd Dr . $ 2,500
Assets Revaluation Surplus Cr. $ 2,500
(As Investment is made after revaluation of assets)
Investment in commercial Ltd Dr. $ 1,250
Share of other comprehensive income of associate and joint venture Cr. $ 1,250
(Invested in commercial Ltd for $ 1250)
Share of other comprehensive income of associate and joint venture Dr. $ 1,250
Assets revaluation Surplus Cr. $ 1.250
(Being Income is revalued )
Current period as on 1-7-2016
Profit during the time $ 210,000
Pre-acquisition change
Total depreciation on plant = -7000
profit = 210,000-7000 = 203,000.
Investor's share 25% of 203,000 = $ 50,750.
Entries:
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Investment in commercial Ltd Dr. $ 50,750
Share of profit and loss account Cr. $ 50,750
(Investment amount is transfer to profit and loss account)
Profit from dividend Dr. $ 11,250
Investment in commercial Ltd Cr. $ 11,250
(Being Dividend is received after investment)
Working Note:
Calculation of Dividend amount = 25% of 20000+25000=11250.
Question 3
1.
Under the given case, the first two above mentioned entries are made in the assessment
year 2017 and the payment is made in assessment year 2018 (Pratt and Salimi, 2010).
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Date Particulars Debit Credit
15/03/17 Purchases A/c
To Tassie Ltd A/c
(Tassie ltd purchases goods for
£300 000. Exchange rate for 1AUD
is .37).
£810810.81
£810810.81
30/06/17 Tassie ltd A/c
To Foreign Exchange gain A/c
(At the year end, Tassie Ltd will gain
foreign exchange gain amount of
£1,13,136.40).
113136.4
1,13,136.40
14/08/17 Tassie ltd A/c
Foreign Exchange loss A/c
To Bank
(When payment is made)
697674.41
71556.36
769230.77
2.
If the assets are purchased under the same situation, then journal entry is made at the time
of making the contract and it must be ready to use for rendering economic benefits (Hale, T. and
Held, D. eds., 2011). The entry will be made on 15th July, 2017, which comes under assessment
year 2018.
15th July Plant a/c Dr. £7, 14,285. 71
2017 To Tassie ltd a/c £7, 14,285. 71
(The asset is ready to use on 15th July)
12th August Tassie ltd a/c Dr. £7, 14,285. 71
2017 To bank a/c 697674.41
To Foreign Exchange Gain a/c 16611.30

REFERENCES
Books and Journals
Hale, T. and Held, D. eds., 2011. Handbook of transnational governance. Polity.
Delmas, M. and Blass, V.D., 2010. Measuring corporate environmental performance: the trade‐
offs of sustainability ratings. Business Strategy and the Environment. 19(4). pp.245-
260.
Hitchner, J.R., 2010. Financial Valuation,+ Website: Applications and Models (Vol. 545). John
Wiley & Sons.
Pratt, J. and Salimi, A.Y., 2010. Financial accounting in an economic context. Issues in
Accounting Education. 25(1). pp.178-179.
Online
Accounting for investment in associates, 2016.[Online]. Available through:
<https://www2.deloitte.com/ng/en/pages/audit/articles/financial-reporting/accounting-
investment-associates2.html>. [Accessed on 16th September 2017].
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