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Prepare the Acquisition Analysis

   

Added on  2021-06-17

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For Preparation of Consolidated worksheet, the first step is to prepare the acquisition analysis.STEP-1Acquisition Analysis as on 1 July, 2016Net fair value of assets and liabilities acquiredShare capital600,000Reserves120,000Retained earnings150,000Total fair value of assets and liabilities acquired870,000Consideration paid to acquire Brothers Ltd950,000Goodwill on acquisition (950,000-870,000)80,000STEP-2Next step is to prepare the pre-acquisition entry for elimination of transaction from the parentsbooks, this is so because the parents book i.e. Sisters Ltd contains the account of Investment inBrothers Ltd which needs to be eliminated.Hence, the pre-acquisition entry as on the date of purchase i.e. 1 July, 2016 is as below:Reference No. - aShare capitalDr. $600,000 ReservesDr.$120,000 Retained earningsDr.$150,000 GoodwillDr.$80,000 To Investment in Brothers Ltd Cr.950,000STEP-3The next step is to prepare the elimination and other consolidation journal entries as on the dateof consolidation, i.e. 30 June, 2017.The first entry is to eliminate the gain on within the group sale of assets and its related taxeffects. This entry is required because gain on within the group transaction is the notional gainand hence requires to be eliminated.Reference No. – bGain on sale of vehicle *Dr. $100,000 VehicleDr.$600,000To Accumulated DepreciationCr. $700,000
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*(900000-800000)Deferred tax asset *Dr.$ 30,000 To Income tax expenseCr.$30,000*(100,000*30%)The next entry is to eliminate the excess depreciation charged due to involvement of gain onsale of asset. Hence, this excess depreciation needs to be eliminated so that the incomestatement reflects true and fair view.Reference No. – cAccumulated depreciationDr. $20,000 To Depreciation expense*Cr.$20,000*(100,000/5)Income tax expense *Dr.$6,000 To Deferred tax assetCr.$6,000*(20000*30%)The last entry is to record the impairment loss on goodwill, this is required so that the goodwill isrecorded at fair value in the books.Reference No. – dImpairment lossDr.$10,000 To Accumulated impairment lossCr. $10,000
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