Memorandum and Consolidated Worksheet Entries for Palvidia Ltd

Sol-1
MEMORANDUM
DATE: 28 August 2018
TO: Jane Penfold
FROM: Accountant of Palvidia Ltd
SUBJECT: Discussion on issues relating to purchase of shares in Soletta Ltd.
This memorandum is prepared to clarify and discuss issues relating to the decision of
management to purchase majority of shares in Soletta Ltd. The explanation of the issues is
as below:
Purpose of consolidated financial statements
The consolidated financial statements are prepared by the parent company, primarily for the
use of owners, creditors or other stakeholders of the parent company. It helps them to have a
look on the complete financial status, operations or on the profitability of the company.
(Staff, 2018)
Meaning of group, a parent and a subsidiary
Group means the group of companies consisting of holding company and its subsidiary
companies.
Parent company means the company which holds the majority of shares of other companies,
i.e. subsidiary companies.
(Your Full Name) (Student ID) Page 1 of 9

Subsidiary company means the company whose majority of shares are held by the parent
company. In other words, subsidiary is owned and controlled by the parent company.
No. of parent companies in a group
A group can have unlimited number of parent companies. But the ultimate parent company
will be 1 only. For instance, A Ltd is the holding of B Ltd. and C Ltd. Similarly, Z Ltd is the
holding of A Ltd. In this case, the group has two parent companies, i.e. A Ltd. which is the
parent of B and C, and Z ltd. which is the parent of A Ltd. But the ultimate parent company
will be 1 only i.e. Z Ltd.
Requirement of Intragroup transactions
Intra group transactions are notional from a group point of view because the income of one
company is the expense of the other company having no effect on the profit and loss of the
group. Hence, these transactions are required to be eliminated from the groups consolidated
financial statements else it leads to incorrect view of the financial position of the group.
("Intra-group transactions: identifying differences | Sigma Conso", 2018)
Realisation of profit on inventories transfers within the group
On inventories transferred within the group, the profit is realised when the inventories are
sold to the external parties.
Accountant of Palvidia Ltd.
(Your Full Name) (Student ID) Page 2 of 9

Sol-2
(a
) Acquisition Analysis as at 1 July, 2019
Particulars Amount
Net fair value of assets and liabilities acquired
Share Capital $ 650,000
General Reserve $ 20,000
Retained earnings $ 250,000
Fair valuation of assets/liabilities
Fair valuation of Equipment (50000*(1-30%)) $ 35,000
Fair valuation of Contingent Liability (-40000*(1-
30%)) $ (28,000) $ 7,000
Total value $ 927,000
Consideration paid $ 1,000,000
Goodwill on acquisition $ 73,000
(b) Consolidated Worksheet Entries as at 1 July, 2019
Particulars Amount
Accumulated Depreciation $ 80,000
To Equipment $ 30,000
To Deferred tax liability $ 15,000
To Business combination valuation reserve $ 35,000
Business combination valuation reserve $ 28,000
Deferred tax liability $ 12,000
To Provision for lawsuit $ 40,000
(Your Full Name) (Student ID) Page 3 of 9