Preparation of Acquisition Analysis

Solution - 1
Preparation of Acquisition analysis (Partial Acquisition) as on 1 July, 2016
Particulars Amount ($)
Share Capital 160,000
General Reserve 10,000
Retained Earnings 59,000
Fair value: Inventories 2,800
Fair value: Plant 6,300
Fair value: Land 11,900
Fair value of net assets acquired in Sunshine Ltd. 250,000
Ownership percentage 80%
Equivalent fair value of assets acquired in Sunshine Ltd. 200,000
Consideration transferred for ownership 240,000
Goodwill (excess of consideration paid over fair value of net
assets acquired) 40,000
Consolidation Worksheet Entries as at 1 July, 2016
Particulars Dr./Cr. Amount ($)
Fair valuation of Plant
Accumulated Depreciation Dr. 130,000
To Plant Cr. 121,000

To Deferred tax liability Cr. 2,700
To Business Combination Valuation Reserve Cr. 6,300
Fair valuation of Inventories
Inventories Dr. 4,000
To Deferred tax liability Cr. 1,200
To Business Combination Valuation Reserve Cr. 2,800
(fair valuation of Inventory)
Fair valuation of Land
Land Dr. 17,000
To Deferred tax liability Cr. 5,100
To Business Combination Valuation Reserve Cr. 11,900
(fair valuation of Land)
Goodwill on business combination
Goodwill Dr. 40,000
To Business Combination Valuation Reserve Cr. 40,000
Pre Acquisition entry as on 1 July, 2016
Share Capital Dr. 128,000
Retained Earnings Dr. 47,200
General Reserve Dr. 8,000
Business combination valuation reserve* Dr. 56,800
To Investment in Sunshine Ltd. Cr. 240,000
(acquisition of subsidiary)
Non Controlling Interest in equity entry as on 1 July, 2016
Share Capital Dr. 32,000
Retained Earnings Dr. 11,800
General Reserve Dr. 2,000

Business combination valuation reserve Dr. 4,200
To Non Controlling Interest Cr. 50,000
*(40,000+ 21,000*80%)
Consolidation Worksheet Entries as at 30 June, 2018
Particulars Dr./Cr. Amount ($)
Fair valuation of Plant
Accumulated Depreciation Dr. 130,000
To Plant Cr. 121,000
To Deferred tax liability Cr. 2,700
To Business Combination Valuation Reserve Cr. 6,300
(fair valuation of Plant)
Depreciation expense on fair valuation of Plant
Depreciation expense Dr. 3,000
Retained earnings (1/7/17) Dr. 3,000
To Accumulated Depreciation Cr. 6,000
Income tax liability on above depreciation expense
Deferred tax liability Dr. 1,800
To Income tax expense Cr. 900
To Retained earnings (1/7/17) Cr. 900
Fair valuation of land
Land Dr. 17,000
To Deferred tax liability Cr. 5,100

To Business Combination Valuation Reserve Cr. 11,900
Goodwill on business combination
Goodwill Dr. 40,000
To Business Combination Valuation Reserve Cr. 40,000
50% sale of inventory on 30 June, 2017
Retained earnings (1/7/17) Dr. 2,000
To Retained earnings (1/7/17) Cr. 600
To Transfer from business combination valuation reserve Cr. 1,400
Transfer from BCVR to BCVR
Transfer from business combination valuation reserve Dr. 1,400
To Business combination valuation reserve Cr. 1,400
Remaining 50% sale of inventory on 30 June, 2018
Cost of sales Dr. 2,000
To Income tax expense Cr. 600
To Transfer from business combination valuation reserve Cr. 1,400
Pre Acquisition entry as on 30 June, 2018
Share Capital Dr. 128,000
Retained Earnings Dr. 48,320
General Reserve Dr. 8,000
Business combination valuation reserve Dr. 55,680
To Investment in Sunshine Ltd. Cr. 240,000
Transfer from BCVR to BCVR
Transfer from business combination valuation reserve Dr. 1,400
To Business combination valuation reserve Cr. 1,400

Non Controlling Interest in equity entries as on 30 June, 2018
Share Capital Dr. 32,000
Retained Earnings Dr. 12,080
General Reserve Dr. 2,000
Business combination valuation reserve Dr. 3,920
To Non Controlling Interest Cr. 50,000
(Non Controlling Interest share)
Dividend paid on Non Controlling Interest on 30 June, 2017
Non Controlling Interest Dr. 1,000
To Dividend paid Cr. 1,000
Dividend payable on Non Controlling Interest on 30 June, 2018
Non Controlling Interest Dr. 2,000
To Dividend payable Cr. 2,000
Non Controlling Interest share in profit - 30 June, 2017
Non Controlling Interest share of profit ** Dr. 2,580
To Non Controlling Interest Cr. 2,580
Non Controlling Interest share in profit - 30 June, 2018
Non Controlling Interest share of profit *** Dr. 3,300
To Non Controlling Interest Cr. 3,300
Elimination entries as on 30 June, 2018 for Dividend
Dividend income Dr. 4,000
To Dividend paid Cr. 4,000
Dividend payable Dr. 8,000
To Dividend receivable Cr. 8,000

**((15000-3000+900)*20%)
***((20000-3000+900-2000+600)*20%)
Solution – 2
Preparation of Acquisition analysis (Joint Venture) as on 1 July, 2016
Particulars Amount ($) Calculation basis
Share Capital 660,000
Retained Earnings 440,000
General reserve 100,000
Fair value: Plant 70,000 ((11,00,000-1,000,000)*(1-30%))
Fair value: Land 280,000 ((1,600,000-1,200,000)*(1-30%))
Fair value of net assets acquired 1,550,000
% holding in Amani Ltd. 25%
Fair value of net assets acquired 387,500
Consideration paid for shares in Amani Ltd. 400,000
Goodwill (excess of consideration paid over fair value of net assets
acquired) 12,500

Consolidation Worksheet Entries as at 30 June, 2018
Particulars
Dr./
Cr. Debit ($) Calculation basis
Recording Gain on revaluation of Land
Investment in Amani Ltd. Dr. 70,000 (400,000*(1-30%)*25%)
To Retained earnings (1/7/17) Cr. 70,000
Recording Gain on revaluation of Plant
Investment in Amani Ltd. Dr. 17,500 (100,000*(1-30%)*25%)
To Retained earnings (1/7/17) Cr. 17,500
Recording Depreciation impact on above fair valuation of Plant
Retained earnings (1/7/17) Dr. 14,000 (100,000/5*(1-30%))
Share of profit or loss of associates and joint ventures Dr. 14,000
To Investment in Amani Ltd. Cr. 28,000
Recording share in Profit of prior years
Investment in Amani Ltd. Dr. 95,000 ((820,000-440,000)*25%)
To Retained earnings (1/7/17) Cr. 95,000
Recording share in Profit of current year
Investment in Amani Ltd. Dr. 105,000 (420,000*25%)
To Share of profit or loss of associates and joint ventures Cr. 105,000
Recording Dividend received
Dividend Revenue Dr. 10,000 (40000*25%)
To Investment in Amani Ltd. Cr. 10,000

Recording share in OCI
Investment in Amani Ltd. Dr. 1,750 (10,000*(1-30%)*25%)
To Share of profit or loss of associates and joint ventures Cr. 1,750
Solution – 3
Soul Ltd.
Journal entries for the year ending 30 June 2018
Date Particulars Dr./Cr. Amount ($) Calculation basis
Sale of product
01-Feb-18 Accounts receivable Dr. 519,481 (400,000/0.77)
To sales Cr. 519,481
Receipt of 30% payment
30-Apr-18 Cash Dr. 160,000 (400,000*30%/0.75)
To Accounts receivable Cr. 155,844 (400,000*30%/0.77)
To Foreign exchange gain Cr. 4,156
Reinstate the value of AR at the end of year
30-Jun-18 Accounts receivable Dr. 36,364 ((400,000*70%)/(0.77-0.70))
To Unrealized foreign exchange gain Cr. 36,364
Receipt of 20% payment
31-Jul-18 Cash Dr. 108,108
Foreign exchange loss Dr. 6,178
To Accounts receivable Cr. 114,286 ((400,000*20%)/0.70)

Receipt of balance 50% payment
31-Aug-18 Cash Dr. 256,410
Foreign exchange loss Dr. 29,304
To Accounts receivable Cr. 285,714 ((400,000*50%)/0.70)
Transfer of amount recorded
31-Aug-18 Unrealized foreign exchange gain Dr. 36,364
To Foreign exchange gain Cr. 36,364