Company Accounting Report: Tax, Business Combinations, Consolidation

This report delves into key aspects of company accounting, providing a comprehensive analysis of various financial concepts. It begins with an examination of tax effect accounting, including the calculation of current and deferred tax liabilities and assets, supported by detailed working notes and journal entries. The report then explores business combinations, analyzing acquisition scenarios, purchase considerations, and goodwill calculations, along with relevant journal entries. The discussion extends to consolidation accounting, outlining the process, importance, and steps involved, including inter-company transactions and financial statement adjustments. The report also covers the consolidation of financial statements, including worksheet entries, elimination of investment, and goodwill impairment. Finally, the report addresses non-controlling interests, including goodwill calculations, journal entries, and elimination of inter-company transactions. The report uses a mix of calculations, journal entries, and explanations to cover these topics.

COMPANY
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Question 1. Tax effect accounting...............................................................................................3
Question 2. Business combination...............................................................................................5
Question 3. Consolidation............................................................................................................7
Question 4 NCI..........................................................................................................................10
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Accounting in a company is very essential because there are wide range of financial
transactions which are done due to various activities (Hsu and Pourjalali, 2015). In the absence
of proper accounting, this can be difficult for companies to manage and track their financial
transaction. The project report covers about various accounting aspects and calculations. Under
the report calculation regarding to effect of tax on accounting, business combination,
consolidation and non controlling assets is done.
MAIN BODY
Question 1. Tax effect accounting.
(a) Current tax liability – This can be defined as an amount which is owed by individuals to a tax
authority. Herein, below calculation of deferred tax liability is mentioned which is as follows:
Deferred tax liability = Income tax expenditure – Tax payable + Deferred tax assets
Question 1. (a)
Current tax liability
Income tax
expenditure
– Tax
payable +
Deferred tax
assets
293000-
91760+2250
000
Current tax liability 2451240
Working Note
Income tax expenses : 293000

Depreciation 260000
Accumulated depreciation 33000
Tax payable : 91760
Tax loss 29630
Quarterly tax liability (31750+30380) 62130
Deferred tax assets : 2250000
Tax on land (75000*30%) 2250000
(b)
Deferred tax assets and liabilities
2019 2018
Assets
Cash 80000 85000
Inventory 170000 155000
Interest receivables 40000 20000
Trade receivables 500000 480000
Provision for bad debts -55000 -40000
Other supplies 25000 22000
Land 750000 650000
Building 300000 300000
Accumulated depreciation -148000 -140000
Motor vehicles 165000 165000
Accumulated depreciation -132000 -115500
Goodwill 70000 70000
Deferred tax assets : -73000 40500
1765000 1692000
Liabilities

Trade payables 290000 260000
Provision for employee benefits 100000 75000
Rent received in advance 25000 20000
Deferred tax liabilities -21900 38100
415000 393100
(c) Journal entries
Income tax assets 2250000
To Deferred tax expenses 293000
To income tax payables 91760
To adjustment 1865240
Question 2. Business combination.
(A) Acquisition analysis :
Particulars $
Fair value of identifiable net assets 120000+1475800= 1595800 Share Capital
420000
Retained
Earning
2015800
Purchase Consideration 27702
Goodwill 1988098
(2) Journal entries:
Particulars DR CR

Retained earnings a/c 420000
Share capital 120000
Goodwill 1988098
To Shares in Wilson's limited 2528098
Dividend payable 528500
To dividend receivable 528500
(B) Consolidation process and its importance.
The term consolidation accounting can be defined as a process of aligning the financial
outcomes of companies into combined financial result of an another company (Bergmann,
Grossi, Rauskala and Fuchs, S., 2016). This consists various kind of rules and regulations which
are needed to be followed. The consolidation accounting consists various kind of steps that
should be applied. Herein, below process of consolidation is mentioned that is as follows :
 Record inter-company loans- In the consolidation process, it is important to record inter-
company loans from subsidiary company to parent company. As well as interest income
from parent to subsidiary company is also essential to record.
 Charge corporate overhead – In the case when parent company assigns all overheads to
the subsidiary company then it is important to compute allocation amount and charge this
from different subsidiary companies.
 Charge payables- If parent organisation operates consolidated payable then this is
essential to record all accounts payable during time period of charging to different
subsidiary companies.
 Charge payroll expenditures – If parent company is applying common pay system for
making payment to their staff then this is important to ensure that allocation of payroll
expenditure is done to all subsidiaries.

 Complete adjusting entries – As well as it is needed to record any kind of adjusted entries
effectively in correct time period.
 Investigation of assets, liabilities and equity account balances – This is compulsory for
accountants to verify all amount of assets, liabilities and equities of both subsidiaries and
parent companies.
 Reduce inter-company transactions – In the case when there are inter-company
transactions then it is important to reverse to parent company so that their effect over
consolidated financial statements can be minimised.
 Recording of income tax liabilities – In the case when a company earns profit then it is
essential to record these at subsidiary level.
 Review of financial statements of parent company – It is necessary for accountants to
assess the financial statements of parent company so that unusual amount can be find out.
 Close subsidiary books – In the end after complete assessment of financial transaction of
subsidiary companies, next step is to closing books of subsidiary books.
 Close parent company books – Same as the subsidiary books , parent companies' books
are also needed to be closed . The purpose of closing these books is to preventing
additional transactions in that accounting period.
 Issue of financial statements – After completing of consolidated accounting process, it is
essential to print the financial statements of parent company.
So this is the complete process of consolidated accounting which is required to be followed in
both subsidiary and parent company.
Note – In the case when subsidiary company is using different currencies in their operations then
an additional accounting step is required to convert financial statements into operating currency
of parent company.
Question 3. Consolidation
(I) Acquisition analysis at July 2016 :
Net fair value of acquired assets and liabilities = $ (100000 + 50000 + 70000)
= $ 220000
Net consideration transferred = $ (240000 – 20000)

= $ 220000
Amount of goodwill = $ (220000 – 220000)
= $ 0
Note* : The shares were acquired so Jackson limited is eligible to get amount of divided which
was declared by subsidiary.
(II) Worksheet entries as per 1st July 2016 :
All the assets and liabilities of Jackson limited companies were recorded as per fair value
on acquisition date so there are no business combination valuation entries. There will be only
pre-acquisition entries which are as follows :
Date Particulars DR CR
01/07/16 Retained earnings a/c 70000
Share capital 100000
General reserve 50000
To Shares in Laurie limited 220000
01/07/16 Dividend payable 20000
To dividend receivable 20000
(III) Worksheet entries at 30th June 2017
Same as the above case, there will not be any business combination valuation entries.
Only pre-acquisition entries will be require which are as follows :
Date Particulars DR CR
01/07/16 Retained earnings a/c 70000
Share capital 100000
General reserve 50000

To Shares in Laurie limited 220000
Note*
Herein, the pre-acquisition entries are similar as above condition. Apart from it, there are
no any pre-acquisition entries because of no change in investment accounts. In addition, the entry
of pre-acquisition dividend is not require because dividend paid in meantime. As well as post
acquisition dividends paid on 2nd of February which is not considered in pre-acquisition entries.
(V)
(1) Elimination of investment in Mason Ltd
Retained Earning Dr. 70000
Share Capital Dr. 100000
Goodwill Dr. 50000
Shares in Weiser Ltd 220000
(2) Goodwill impairment
Operating expenses(Goodwill Impairment loss) Dr. 50000
Accumulated impairment losses 50000
(3) Elimination of inter-company sales of inventory sales
Sales Dr. 4200000
Purchases 4200000
(4) Elimination of unrealised profit in closing inventory
Closing Inventory(income statement) Dr. 524000
Inventory(balance sheet) 524000

Deferred tax assets Dr. 25000
Income Tax Expense 25000
(VI)
Consolidated worksheet:
Consolidati
on
Account Johnson Ltd Block Ltd
$ $
Sales 4200000 1400000 2800000
Cost of good sold -1750000 -490000 -1260000
Other operating expenditure -210000 -105000 -105000
Other revenue 245000 87500 157500
Operating profit 2485000 8925000 -6440000
Income tax expenditure -700000 -350000 -350000
Profit after tax 1785000 542500 1242500
Retained earnings 3500000 1200000 2300000
Share capital 14000000 1750000 1750000
Assets revaluation surplus 35000 10500 24500
General reserve 900000 -900000
Total equity 18620000 4263000 14357000
Current liabilities
Trade and other payables 350000 297500
Non current liabilities
Deferred tax liability 130000 24500 105500

Loans 2100000 375000 1725000
Loan from Johnson limited 200000 -200000
Total non current liabilities 2230000 599500 1630500
Total liabilities and equity 2580000 897000 1683000
Current assets
Cash 925000 87500 837500
Trade receivable 535500 219000 316500
Impairment -10500 -6500 -4000
Stock 2100000 985000 1115000
Total current assets 3550000 1285000 2265000
Non current assets
Land 5340000 1400000 3940000
Plant 11466000 4079000 7387000
Accumulated depreciation - plant -3276000 -1944000 -1332000
Equipment 615000 207000 408000
Accumulated depreciation-
equipment -165000 -42000 -123000
Loans to Mason limited 200000
Investment 3120000
Deferred tax assets 3500000 175000 3325000
Total non current assets 17650000 3875000 13775000
Total assets 21200000 5160000 16040000
Question 4 NCI
Non controlling assets :
(I) Goodwill = 270000- 34000
= 236000
Fair value = 50000 + 220000
= 270000
(ii)

Particulars $
Fair value of identifiable net assets 150000 Share Capital
8000
Retained
Earning
158000
Fair Value purchased (75% x $158000) 118500
Purchase Consideration 126000
Goodwill 7500
(III)
Consolidation Journal Entries:
Debit Credit
$ $
(1) Elimination of investment in Anderson Ltd
Retained Earning Dr. 6000
Share Capital Dr. 112500
Goodwill Dr. 7500
Shares in Weiser Ltd 126000
(2) Goodwill impairment
Operating expenses(Goodwill Impairment loss) Dr. 1500
Accumulated impairment losses 1500
(3) Elimination of inter-company sales of inventory sales
Sales Dr. 20000
Purchases 20000