ACCT20073 Company Accounting: Analysis of Accounting Issues

This document is a company accounting report that includes a memorandum discussing the purpose of preparing consolidated financial statements, definitions of group, parent, and subsidiary companies, and necessary adjustments to intragroup transactions. It also provides solutions to accounting problems, including acquisition analysis and consolidation worksheet entries for Paldivia Ltd. and Patagonia Ltd., addressing issues like profit in opening inventory, sale of tractor, management fees, loans, interest, and dividend payments. The report concludes with a depreciation schedule and references.

Running head: COMPANY ACCOUNTING
Company Accounting
Name of the Student
Name of the University
Authors Note
Course ID

1COMPANY ACCOUNTING
Table of Contents
Memorandum.............................................................................................................................2
Answer to question 2:.................................................................................................................3
Answer to A:..........................................................................................................................3
Answer to B:..........................................................................................................................3
Answer to question 3:.................................................................................................................4
References:.................................................................................................................................6

2COMPANY ACCOUNTING
Memorandum
Date: 4th September 2018
To Jane Penfold
From: ALC Executive
Subject: Accounting Issues
Purpose of Preparing consolidated Financial Statement:
The purpose of preparing the “consolidated financial statements” is to lay down,
particularly for the owners benefit and creditors of the parent regarding the outcomes of
business processes and parent company monetary situation (Deegan, 2013). The consolidated
fiscal report is prepared for all the subsidiaries of the parental company given the
consolidated group are the single economic company.
Definition of Group, parent and subsidiary:
A corporate group can be referred as the collection of parent and subsidiary company
that operates as the single economic entity with the help of common control source. A
subsidiary company can be defined as company which is owned or controlled by another firm
(Khan, 2015). A parent company refers to the company that has sufficient voting power in
another company so that it can implement control and elects the board of directors.
Number of parents a group can have:
A group of company can only have one parent company. A justification for the
answer can be provided by stating that the parent company owns sufficient voting stock in the
other firm so that it can control its management and operations by influencing or choosing its
board of directors (Maynard, 2017).
Necessary adjustment to intragroup transactions:
The consolidated financial statement represents the report of the group, financial
entity comprising of the parental company and subsidiaries. The consolidated fiscal report
can only have incomes, assets and liabilities which is related to the parties that are outside to
the group (Hoskin et al., 2014). Adjustment should be made for the transactions of intragroup
since they are interior to the financial entity and does not reveal the transaction effects with

3COMPANY ACCOUNTING
the external parties. The transactions between these parties should be adjusted completely
since both the parties are inside the economic entity.
Profit realisation while transferring inventories:
Realisation occurs on the involvement of outside entity, particularly when there is a
sale of inventory to the entity which is not the affiliate of group.
Thanking You
ALC Executive
Answer to question 2:
Answer to A:
Acquisition Analysis:
Particulars Amount
Purchase Consideration $10,00,000
Net Fair Value:
Share Capital $6,50,000
General Reserve $20,000
Retained Earnings $2,50,000
Equipment $50,000
Contingent Liability -$40,000
Net Fair Value of Identifiable Assets & Liabilities $9,30,000
Goodwill Acquired $70,000
Answer to B:
In the books of Paldivia Ltd.
Consolidation Worksheet Entries
Dr. Cr.
Date Particulars Amount Amount
01-07-2019 Accumulated Depreciation $80,000
Equipment $30,000
Business Combination Valuation Reserve $50,000

4COMPANY ACCOUNTING
Goodwill $70,000
Business Combination Valuation Reserve $70,000
Share Capital $6,50,000
General Reserve $20,000
Retained Earnings $2,50,000
Business Combination Valuation Reserve $1,20,000
Contingent Liability $40,000
Shares in Soletta Ltd. $10,00,000
Answer to question 3:
In the books of Patagonia Ltd.
Consolidation Worksheet Entries
Dr. Cr.
Date Particulars Amount Amount
a) Profit in Opening Inventory:
30-06-2019 Retained Earnings (1/7/18) $175
Income Tax Expenses $75
Cost of Sales $250
b) Sale of Tractor:
30-07-2020 Retained Earnings (1/7/19) $2,800
Deferred Tax Assets $1,200
Tractor $4,000
Accumulated Depreciation $922
Retained Earnings (1/7/19) $580
Depreciation Expense $342
Retained Earnings (1/7/19) $174
Income Tax Expense $103
Deferred Tax Assets $277
c) Profit on Opening & Closing Inventory:
30-06-2019 Sales Revenue $400
Cost of Sales $300
Inventory $100
Deferred Tax Asset $30
Income Tax Expense $30

5COMPANY ACCOUNTING
Accounts Payable $100
Accounts Receivable $100
30-06-2020 Retained Earnings (1/7/18) $70
Income Tax Expenses $30
Cost of Sales $100
d) Management Fees Paid:
30-06-2020 Management Service Revenue $3,000
Management Fees $3,000
Accounts Payable $3,000
Accounts Receivable $3,000
e) Loan & Interest:
30-06-2019 Loan from Salto Ltd. $50,000
Loan from Patagonia Ltd. $50,000
Interest Revenue $3,000
Interest Expense $3,000
f) Interim Dividend Paid:
30-06-2020 Dividend Revenue $1,500
Dividend Expense $1,500
h) Dividend Declared:
30-06-2020 Dividend Revenue $3,000
Dividend Expense $3,000
Dividend Receivable $3,000
Dividend Payable $3,000
Depreciation Schedule:
Profit on Sale
Depreciation
p.a. Period
Depreciation
charged Tax
$4,000 $400 0.5 $200 $60
$3,800 $380 1 $380 $114
$3,420 $342 1 $342 $103

6COMPANY ACCOUNTING
References:
Deegan, C. (2013). Financial accounting theory. McGraw-Hill Education Australia.
Hoskin, R. E., Fizzell, M. R., & Cherry, D. C. (2014). Financial Accounting: a user
perspective. Wiley Global Education.
Khan, M. (2015). Accounting: Financial. In Encyclopedia of Public Administration and
Public Policy, Third Edition-5 Volume Set (pp. 1-6). Routledge.
Maynard, J. (2017). Financial accounting, reporting, and analysis. Oxford University Press.