Consolidated Financial Statements and Journal Entries Analysis

This assignment delves into the intricacies of accounting for business combinations, specifically focusing on journal entries and the preparation of consolidated financial statements under IFRS 3 and IFRS 10. The solution addresses various acquisition scenarios, including partial and full ownership, and explains the implications for purchase accounting, goodwill, and non-controlling interests. The assignment includes detailed journal entries for different acquisition percentages, dividend transactions, and the preparation of consolidated financial statements, including statements of financial position, comprehensive income, and retained earnings. It also provides explanations for the apportionment of assets, liabilities, revenues, and expenses, ensuring a comprehensive understanding of the consolidation process. References to relevant academic literature are included to support the analysis.

FINANCIAL ACCOUNTING
JOURNAL ENTRIES AND CONSOLIDATED FINANCIAL STATEMENTS
Course:
Professor’s Name
Institution
City
Date

FINANCIAL ACCOUNTING
Purchase consideration or acquisition entails owning the interest in another company and it
can be fully or partially. If it is partial this is where the company is said to control a certain
percentage of interest in a venture. The level of control likewise dictates whether there exists
business combination or just control base. For instance, the acquisition made of 50% creates a
joint venture or an associate and there exist no captured for preparing consolidates statements
and payment or accounting for goodwill Carvalho (2016.Pg 7),
If on the other hand acquisition is made that which is more than 50% but less than 100%
there is the preparation of purchase accounting since some percentage portion of the parent
company is acquired hence the need to consolidate statement, create goodwill and account for
the non-controlling unit Zhang (2017.Pg 250.) The last means of acquisition is now that one
which the parent company acquires 100% of the shares hence no accounting for a non-
controlling unit but there are purchase consideration and goodwill accounting taking place. All
these above scenarios are guided by IFRS 3 and IFRS 10.
Question 1
(a)Rondeu acquired 15% hence of Hoi representing 1000 share, therefore the journal entry for
this transaction is;
The narration is that these two accounts are the one affected by this transaction i.e. the capital
account for Hoi is reduced by 30000 i.e. debited whereas Rondeu capital account increases with
the same figure a credit balance indeed. On the other hand, bank accounted is affected whereby
Ronda uses the money to acquire at 30000 hence crediting bank account and increasing Hoi’s
bank account value.

FINANCIAL ACCOUNTING
1st March Share Capital And Bank Accounts DR CR
Hoi Share Capital 3000
Acquired 30% Shares from Hoi 3000
1st March Bank Accounts Transactions DR CR
Hoi bank account 3000
Rondeu Investment bank account 3000
30Th
Nov 2017 Dividend Payable A/c DR CR
Dividend A/c(Rondeu) 3000
Roundel Bank A/c 3000
30Th
Nov 2017 Dividend Receivable A/c(Hoi)
Shareholders DR CR
Hoi shareholders bank account 3000
Hoi’s Dividend Payable A/c 3000

FINANCIAL ACCOUNTING
Narration,
In this case, the dividend payable a/c is debited with this amount and bank account is credited so
as to facilitate its payment the double entry happening to the other account on shareholder’s side.
Going with the purchase cost of 30000/1000 means that each share was valued at 10 at the time
of selling the share.
If Rondeu acquired 1000 shares of Hoi which represents 15% hence the total shares owned by
Hoi is 1000*85/15=5667.This is, therefore, the amount of share owned by Hoi or left to control.
Hoi Share Capital And Bank Accounts DR CR
Hoi Share Premium Capital A/c=5667*10 56670
Share capital value=5667*30 170000
Hois Bank Accounts Transactions DR CR
Share premium account 56670
Share capital account 170000

FINANCIAL ACCOUNTING
Hoi Income/Revenue A/c
DR CR
Revenue 150000
Profit or loss account 150000
Hois Bank Accounts Transactions DR CR
Share premium account 56670
Share capital account 170000
Share Capital account for Rondeu and bank account Feb 28th
DR CR
Acquired 30%shares from Hosi 30000
Sold shares at premium on Feb 28th 23000
Bank A/c 53000
NB; for part b and c, they appear similar to part a change is the accounts whereby instead of
Roundel’s bank account it’s now Casey and JBJ as well as share capital accounts. This is so
because they share the same information on capital structure and financing part.

FINANCIAL ACCOUNTING
(d)Share capital & bank a/c
DR CR
Acquired 30%shares from Hosi 60000
Sold shares at premium on Ist March 46000
Bank A/c for Merk 106000
Dividend Paid for Hoi Investment on 30th
Nov by Rondeu
DR CR
Dividend A/c 25000
Bank A/c 25000
Dividend Receivable A/c for Hoi Investment
shareholders on 30th Nov
DR CR
Hoi Shareholders Bank A/c 25000
Hoi’s Dividend A/c 25000

FINANCIAL ACCOUNTING
Hoi Share Capital A/c=2000*70/30
DR CR
Share premium a/c=4667*10 46670
Share capital value=4667*30
140000
Hoi’s Bank A/c
DR CR
Share premium a/c=4667*10 46670
Share capital value=4667*30
140000
Hoi’s Income A/c
DR CR
Revenue 150000
Profit & Loss A/c
150000
All the above journal entries have correspondence double entries with similar narration to that in
(a) above
Question 2;
Although consolidation is done it is prudent to understand that it is only allowed to the 60%
portion controlled by Victory and the rest part to the non-controlling part i.e.40%

FINANCIAL ACCOUNTING
Victory and Sauce Ltd
Consolidated Statement of Financial Position
As
Jan 2nd, 2017
Assets;
Note
s Victory Sauce Combined
Non-Curent Assets' $ $ $
Land 1 216000 207200 216000
Building 1 2240000 320000 2240000
Machinery 1 1080000 160000 1080000
Total Non-Current Assets 3536000 687200 3536000
Current Assets'
Inventory 784000 96000 784000
Account Receivable 561200 800 561200
Cash 448000 32000 448000
Total Current Assets 1793200 128800 1793200
Total Assets 5329200 816000 5329200
Sharholders Equity
Common shares 2145200 0 2145200
Retained Earnings 2112000 208000 2112000
Non-Controlling Interest 0 320000 0
Total Shareholders Equity 4257200 528000 4257200
Non-Current Liabilty
Long Term Loan Bank 240000 160000 240000
Current Liability
A/P and accrued liabilities 832000 128000 832000
Total Liabilities 1072000 288000 1072000
Total Liabilities & Shareholders’ Equity 5329200 816000 5329200
Note 1,
Victory acquires 60% of land from sauce hence 360000*0.6=216000
Sauce controls 40%=144000
Building=1200000*0.6=720000 for Victory therefore total=720000+2080000=2800000-560000
Building for Sauce-1200000*0.4=480000-160000

FINANCIAL ACCOUNTING
Depreciation portion=400000*0.6=240000
Total Depreciation for Victory=240000+320000=560000
Machinery is 1040000*0.6=624000 portion of 60% owned by victory
For sauce=1040000-624000=416000,
Depreciation=640000*0.6=384000 for victory machine=624000-384000=240000
=840000+240000=1080000, dep for sauce machinery=640000-384000=256000
NBV for Sauce machinery=416000-256000=160000
Note 2,
=800000*0.6=480000 control of share
(b)
In this case for both revenue and expense again the controlling portion has to be affected and this
time it has to be factored from the day of acquisition.
Victory and Sauce Ltd
Consolidated Statement of Financial Position As
Jan 2nd, 2017
Notes Victory Sauce Combined
$ $ $
Sales 3 20800000 4800000 20800000
Add Other Income 56000 0 56000
Add Interest Income 20000 0 20000
Add Divided Income 192000 192000
Total Income 21068000 4800000 21068000
Less Cost Of Sales 10800000 1920000 10800000
Other Operating Expenses 8432000 896000 8432000
Interest Expense 640000 1920000 640000
Total expenses 19872000 4736000 19872000
Total Comprehensive Income 1196000 64000 1196000
Note 3,Sales apportionment=8000000*0.6=4800000
=4800000+16000000=20800000

FINANCIAL ACCOUNTING
Note 2,
Interest charged=400000*0.1*0.5=20000
(c)
Victoria
Consolidated Retained Earnings
For Year End 2018
Notes Victory
$
Retained Earnings balance brought down(31st Dec 2017) 2784000
Add Net income 4 624000
Less Dividend Declared 4 288000
Total Retained Earnings Dec 2018 3120000
Note 4,
Ideally, Victory retained earning has some portion of income and expense from Sauce that has to
be included so as to calculate the retained. What stands is that we cannot portion the opening
balances with an assumption that by the time they were being reported the controlling percentage
portion is presumed to be capture Chen (2018.Pg 200)
Therefore, income for Victory has to be summed up with=1040000*0.6=62400, the same applies
to the dividend declared by =480000*0.6=288000.
The information presented and the calculation made is based on IAS 27, IFRS 3 and IFRS
10 that outlines and gives the clear framework on how each and every event is to be treated for
both accounting and reporting purpose Johansson (2016.Pg 25).
References

FINANCIAL ACCOUNTING
Chen, C.W., Collins, D.W., Kravet, T.D. and Mergenthaler, R.D., 2018. Financial statement
comparability and the efficiency of acquisition decisions. Contemporary Accounting Research,
35(1), pp.164-202.
Zhang, I.X. and Zhang, Y., 2017. Accounting discretion and purchase price allocation after
acquisitions. Journal of Accounting, Auditing & Finance, 32(2), pp.241-270.
Johansson, S.E., Hjelström, T. and Hellman, N., 2016. Accounting for goodwill under IFRS: A
critical analysis. Journal of International Accounting, Auditing and Taxation, 27, pp.13-25.
Carvalho, C., Rodrigues, A.M. and Ferreira, C., 2016. The Recognition of Goodwill and Other
Intangible Assets in Business Combinations–The Portuguese Case. Australian Accounting
Review, 26(1), pp.4-20.