Calculation of Goodwill of Serene Limited

This document provides a detailed calculation of the goodwill of Serene Limited. It includes step-by-step instructions and examples for determining the net fair valuation of identifiable assets and liabilities. The document also covers journal entries for consolidation and pre-acquisition entries. Additionally, it explores the NCI share of equity and changes in equity. The financial statements and movements in fair valuation are also discussed.

QUESTION 1 TOPIC 3
At 1 July 2016:
Serene Limited:Goodwill $22,000
Accumulated Impairment losses ($16,000 - $4,000) $12,000
$10,000
Net fair valuation of identifiable assets,
liabilities and contingent liabilities
of Serene Limited = $300,000 + $30,000 + $10,000 + $20,000
+ $10,000*(1 – 30%) (Business Combination
Valuation Reserve – Inventory)
+ $5,000*(1 – 30%) (Business Combination
Valuation Reserve – Machine)
- $7,000 (1 – 30%) (Business Combination
Valuation Reserve – provision)
+ $12,000 (1 – 30%) (Business Combination
Valuation Reserve – equip. design)
- $10,000 (Residual Goodwill)
= $364,000
(a) Consideration = $305,600
(b) Non-controlling interest (NCI) = $75,000
Total of (a) and (b) = $380,600
Net Goodwill = $16,600
Calculation of Goodwill of Serene
Limited:
Fair valuation of Serene Limited = $75,000/20%
= $375,000
Net fair valuation of identifiable assets
and
liabilities of Serene Limited = $364,000
Goodwill of Serene Limited = $11,000
Recorded goodwill = $10,000
Unrecorded goodwill = $1,000
Goodwill of Peaceful Limited:
Goodwill acquired = $16,600
Goodwill of Serene Limited = $11,000
Goodwill of Peaceful Limited = $5,600
JOURNAL ENTRIES FOR CONSOLIDATION
1. Business combination entries
Equipment design
Deferred tax liability (DTL)
Dr
Cr
12,000
3,600
Business combination valuation reserve Cr 8,400
Amortizations expense Dr 1,200

Retained earnings
Accumulated amortization
(1/10 x $12 000 p.a. for 3 years)
Dr
Cr
2,400
3,600
Deferred tax liability (DTL) Dr 1,080
Income tax expense Cr 360
Retained earnings Cr 720
Depreciation Dr 750
Gain on sale of machinery Dr 2,250
Income tax expense
Retained earnings
Transfer from business combination
valuation reserve
Cr
Dr
Cr
1,400
900
3,500
(Depreciation is 1/5 x $5,000 p.a.)
Accumulated impairment losses – goodwill
Goodwill
Dr
Cr
12,000 12,000
Goodwill
Business combination valuation reserve
Dr
Cr
1,000 1,000
2. Pre-acquisition entries
At 1 July 2016:
Retained earnings (1/7/16) Dr 16,000
Share capital Dr 240,000
Other reserves (1/7/16) Dr 24,000
Other components of equity (1/7/16) Dr 8,000
Business combination valuation reserve Dr 12,000
Goodwill Dr 5,600
Shares in Serene Limited Cr 305,600
At 30 June 2019:
Retained earnings Dr 15,280
Share capital Dr 240,000
Other reserves Dr 26,400
Other components of equity Dr 8,000
Business combination valuation reserve Dr 10,320
Goodwill Dr 5,600
Shares in Serene Limited Cr 305,600
Retained Earnings [RE] - 80%[$20,000 + $7,000 (BCVR – inv) - $4,900 (BCVR –prov)
- $3,000 (transfer to other reserves)]
Other reserves[OR] - 80% ($30,000 + 3,000)
BCVR - 80%($3,500 + $8,400 + $1,000)
Share capital
Other reserves: bonus issue
Dr
Cr
24,000
24,000

(Bonus issue: 80% x $30 000)
Transfer from other reserves [RE] Transfer
to retained earnings [OR]
Dr
Cr
1,600 1,600
(80% x $2 000)

Transfer from business combination
valuation reserve Dr 2,800
Business combination valuation reserve Cr 2,800
(80% x $3500)
3. NCI share of equity at acquisition date 1/7/16
Retained earnings Dr 4,000
Share capital Dr 60,000
Other reserves Dr 6,000
Other components of equity Dr 2,000
Business combination valuation reserve * Dr 3,000
NCI Cr 75,000
(20% of balances)
* 20% x ($7,000 inventory + $3,500 machinary - $4,900 liabilities. + $8,400 eq design + $1000 goodwill)
4. NCI share of changes in equity from 1/7/16 to 30/6/18
Other reserves Dr 600
Other components of equity Dr 12,400
Retained earnings Cr 1,416
Business combination valuation reserve Cr 420
NCI Cr 11,164
RE: 20% [$16 000 - $20 000 - $1 400 – ($2 400 - $720)]
BCVR: 20% ($7 000 - $4 900)
Other reserves: 20% ($33 000 - $30 000)
Other components: 20% ($72 000 - $10 000)
5. NCI share of changes in equity from 1/7/18 to 30/6/19
NCI share of profit
NCI
Dr
Cr
9 ,412
9 ,412
(20% [$50 000 – ($1 200 - $360) – ($750 + $2 250 - $900)]
NCI
Dividend paid
(20% x $6 000)
Dr
Cr
1, 200 1 ,200
NCI
Dividend declared
(20% x $4 000)
Dr
Cr
8,00 8,00
Transfer from other reserves [RE] Transfer
to retained earnings [OR]
(20% x $2 000)
Dr
Cr
4,00 4,,00
Share capital
Other reserves: bonus issue
Dr
Cr
6 ,000 6, 000
(20% x $30 000)

Movements in fair valuation [OCE] Dr 1 ,600
NCI Cr 1, 600
(20% x $8 000)
Transfer from business combination
valuation reserve Dr 7,00
Business combination valuation reserve Cr 7,00
(20% x $3 500)
6. Dividend paid
Dividend revenue Dr 4 ,800
Dividend paid Cr 4, 800
(80% x $6 000)
7. Dividend declared
Dividend revenue
Dividend declared
Dr
Cr
3 ,,200
3, 200
(80% x $4 000)
Dividend payable
Dividend receivable
Dr Cr 3, 200 3 ,200
8. Sale of plant: Serene Limited to Peaceful Limited
Retained earnings Dr 2 ,800
Deferred tax asset Dr 1 ,200
Plant Cr 4 ,000
9. NCI effect
NCI Dr 5,60
Retained earnings Cr 5,60
(20% x $2 800)
10. Depreciation
Accumulated depreciation Dr 8,00
Retained earnings Cr 4,00
Depreciation expense
(10% x $4 000 p.a.)
Cr 4,00
Income tax expense Dr 1,20
Retained earnings
Deferred tax asset
Dr
Cr
1,20
2,40
11. NCI effect
NCI share of profit Dr 56
Retained earnings Dr 56
NCI Cr 1,12

12. Profit in opening inventory
Retained earnings Dr 3,50
Income tax expense Dr 1,50
Cost of sales Cr 5,00
13 NCI effect
NCI share of profit Dr 70
Retained earnings Cr 70
14. Sales of inventory: current period Peaceful Limited to Serene Limited
Sales Dr 12, 000
Cost of sales Cr 11, 500
Inventory Cr 5,00
Deferred tax asset Dr 1,50
Income tax expense Cr 1,50

Financial
Statements
Peaceful
Limited
Serene
Limited
Group NCI Parent
Ref
No.
Dr Cr Ref
No.
Ref
No.
Dr Cr Ref
No.
Sales revenue 2,00, 000 1,40 000 14 12 000 328 ,000
Other revenue 40 ,000 25, 000 6
7
4 800
3 200
57 ,000
240 000 165 000 385 ,,00
0
Cost of sales ,120 ,,000 70, 000 500
11 500
12
14
178 ,000
Other expenses 50,000 10 ,000 1
1
1 200
750
400 10 61, 550
170 000 80 ,000 239, 550
Trading profit 70, 000 85 ,,000 145, 450
Gains on non-
current
assets
10,, 000 5 000 1 2 250 12 750
Profit before
tax
80, 000 90 ,000 158 200
Tax expense 35, 000 4,,0 000 10
12
120
150
360
900
150
1
1
14
73 ,,860
Profit 45, 000 50 ,,000 84 340 5
11
13
9,, 412
56
70
74 ,802
Ret. earnings 45 ,000 16 ,000 1
1
2
8
10
12
2 ,400
1 400
15, 280
2,, 800
120
350
720
400
1
10
39, 770 3
11
4 ,000
56
1 416
560
70
4
9
13
37 ,760
Transfer from
BCVR
0 0 2 2 800 3 500 1 700 5 700 0
Transfer from
other reserves
0 2 000 2 1 600 400 5 400 0
90 000 68,, 000 125 210 112 562
Dividend paid 14, 000 6 ,000 4 800 6 15, 200 1 200 5 14, 000
Div. declared 20 ,000 4 ,000 3 200 7 20 ,800 800 5 20 ,000
34,, 000 10, 000 36 ,000 34 000
Ret. earnings 56, 000 58, 000 89 ,210 78 562
Share capital 800, 000 330, 000 2
2
240 ,000
24 ,000
866 ,000 3 60 ,000
6 ,000
800 ,000
BCVR 0 0 2 10 320 8 400
1 000
2 800
1
1
2
1 880 3 3 000 420
700
4
5
0
856 000 388 000 957 090 878 562
Other
reserves
35, 000 33, 000 2 26 ,40
0
41 ,600 3
4
6 ,000
600
35 ,000
Transfer
to/from RE
15, 000 (2 ,000) 1 600 2 14 ,,600 400 5 15 ,000
Bonus issue 0 (30, 000) 24 000 2 (6 000) 6 000 0
Other
reserves
50 ,000 1 ,000 50 ,200 50 ,000

OCE 90 ,000 72 ,000 2 8, 000 154 ,000 3
4
2 ,000
12 ,400
139, 600
Movements 10, 000 8 ,000 18, 000 5 1, 600 16, 400
OCE 100, 000 80, 000 172 000 156 000
Total equity:
parent
1 084 562
Total equity: 5 1 200 75, 000 3 94 ,728
NCI 5 800 11, 164 4
9 560 9, 412 5
1 ,,600 5
112 11
Total equity 100,600
0
469, 000 1179290 108 854 108 854 1 179 290
Dividend
payable
10, 000 4, 000 7 3 ,200 10 800
Other current 38 ,700 35, 000 73 ,700
Deferred tax
liabilities
20, 000 12, 000 1 1, 080 3,, 600 1 34 ,520
Debentures 70 ,000 20 ,000 90 ,000
Total liabilities 138, 700 71 ,000 209 ,020
Total equity
and liabilities
1144,700 540 ,000 1388,31
0
Shares in
Serene
Limited
305 ,600 0 305, 600 2 0
Plant 452, 100 303 ,000 4 ,000 8 751 ,100
Accumulated
depreciation
(212 000 (110 000) 10 800 (321 200
Equipment
design
0 18, 000 1 12 ,000 30 ,000
Accumulated
amortisation
0 (4 000) 3 600 1 (7 600)
Land 144, 200 42 ,000 186 ,,20
0
Deferred tax
assets
15, 800 8 000 8
14
1 200
150
240 10 24 910
Inventory 180 ,000 60 000 500 14 239, 500
Financial assets 229 ,000 215,,
000
444 ,000
Receivables 10 ,000 2 000 3 ,200 7 8 ,800
Goodwill 20 ,000 22 ,000 1
2
1, 000
5 600
12 000 1 36 600
Accumulated
impairment
losses
0 (16 000) 1 12 ,,000 (4 000)
Total assets 1144,700 540, 000 396, 970 396, 970 1388310

PEACEFUL LIMITED
Consolidated Statement of Profit or Loss and Other Comprehensive Income
for the financial year ended 30 June 2019
Revenue:
Sales $328 ,000
Other 57 ,000
Total revenue 385, 000
Expenses:
Cost of sales 178, 000
Other 61, 550
239,, 550
Profit from trading 145 450
Gains from sale of non-current assets 12 ,750
Profit before tax 158 ,200
Income tax expense 73 ,860
Profit for the period $84, 340
Other comprehensive income:
Movements in fair valuation of financial assets 18, 000
Comprehensive income for the period $102, 340
Profit for the period attributable
to: Parent entity interest $74 ,802
Non-controlling interest $9 ,538
Comprehensive income for the period attributable to:
Parent interest $91, 202
Non-controlling interest $11 ,138

PEACEFUL LIMITED
Consolidated Statement of Changes in Equity
for the financial year ended 30 June 2019
Comprehensive income for the period
Group
$102 ,340
Parent
$91 202
Retained earnings:
Balance at 1 July 2016 $39,, 770 $37 ,760
Profit for the period 84 ,340 74, 802
Transfer from BCVR 700 0
Transfer from other reserves 400 0
Dividend paid (15 ,200) (14, 000)
Dividend declared (20, 800) (20, 000)
Balance at 30 June 2019 $89 ,210 $78, 562
Other reserves:
Balance at 1 July 2016 $41 ,600 $35 ,000
Transfers to/from retained earnings 14 ,600 15, 000
Bonus issue of shares (6 ,000) 0
Balance at 30 June 2019 $50 ,200 $50, 000
Business combination valuation reserve
Balance at 1 July 2016 $2 ,550 0
Balance at 30 June 2019 $1 ,880 0
Other components of equity:
Balance at 1 July 2016 $154, 000 $139 ,600
Gains/Losses 18 ,000 $16 ,400

PEACEFUL LIMITED
Consolidated Statement of Financial Position
as at 30 June 2019
Current Assets
Inventories $239, 500
Receivables 8,, 800
Financial assets 444,000
692, 300
Non-current Assets
Property, plant and equipment
Plant 751, 100
Accumulated depreciation (321, 200)
Equipment design 30, 000
Accumulated amortization (7,, 600)
Land 186,200
Tax assets: Deferred tax asset 24, 910
Goodwill 36, 600
Accumulated impairment losses (4, 000)
Total Non-current Assets 696 ,010
Total Assets $1 388, 310
Equity and liabilities
Equity attributable to equity holders of the parent
Share capital $800 ,000
Reserves: Other reserves 50, 000
Other components of equity 156, 000
Retained earnings 78 ,562
Parent Entity Interest 1 08,4 562
Non-controlling Interest 94 ,728
Total Equity 1 179, 290
Current Liabilities
Payables: Dividend payable 10 8,00
Other 73 7,00
Total Current Liabilities 84 5,00
Non-current Liabilities
Interest-bearing liabilities: Debentures 90 ,000
Tax liabilities: Deferred tax liability (DTL) 34, 520
Total Non-current Liabilities 124 ,520
Total Liabilities 209 ,020
Total Equity and Liabilities $1 38,8 310

QUESTION 2
Topic 4 : Investment in Assocciates
PART 1
Acquistion Analysis
Particular $
Ordinary Shares
2
5
0
0
0
0
Retained Earnings
1
7
5
0
0
0
Total
4
2
5
0
0
0
30% Value
1
2
7
5
0
0
Business Consideration
1
6
0
0
0
0
Goodwill
3
2
5
0
0
Calculation of investment in associates (Equity Method)
Book value of investment
Less : Unrealised Profit
Profit Earned During the year
Dividend
received
Closing value
Investment in Associates

Journal Entries PART 2
Consolidate PL A/c Dr
To Stock A/C
To Investment in
(Being Unrealised profit Cancelled)
Bank A/c Dr
To Statement of Profit and loss
(Being Dividend Received Recorded)
Deferred Tax Asset A/c Dr
To Statement of PL
Investment A/c..Dr
To Statement of P & L
Transaction A
Transaction A
(i) Bristol A/c Dr
263898.
7
To sales
A/c
263898.
7
(Being Sales Recorded)
(ii) Bank A/c Dr
254582.
5
Exchange difference
9316.17
8
To Bristol A/c
263898.
7
(being money received)
(iii) Statement of Profit and Loss
9316.17
8
To Exchange Difference
9316.17
8

Transaction B
(i) Bank A/c Dr
45836
5.2
To loan
A/c
45836
5.2
(Being Loan Taken)
30-06-2018 Interest Payable A/c Dr
54590.
57
To Loan
A/c
54590.
57
(Being Interest Payable Due)
Statement of PL A/c (Exchange Difference ) Dr
37912.
75
To Loan
A/c
37912.
75
(Being Exchange Difference on loan transfer to PL)
30-06-2019 Interest Payable A/c Dr
57641.
38
To Loan
A/c
57641.
38
(Being Interest Payable Due)
Loan A/c DR
22494.
48
To Statement of PL A/c (Exchange Difference )
22494.
48
(Being Exchange Difference on loan transfer to PL)
Computation of Amount
1
Booked Value of
Loan
51295
5.7
2
Value on Closing
Date
55086
8.5
3 Differential
-
37912.
8
Computation of Amount
1
Booked Value of
Loan
55391
9.3
2
Value on Closing
Date
57641
3.8
3 Differential
-
22494.
5