ACCT209 Corporate Accounting - Consolidated Financial Statements Case

This assignment presents a case study involving Lotus Limited and its subsidiary, Troy Limited, focusing on the preparation of consolidated financial statements. The analysis includes an acquisition analysis as of January 1, 2018, business combination valuation entries, pre-acquisition entries, and consolidation worksheet journal entries for eliminating intra-group transactions as of December 31, 2018. Key aspects covered are the calculation of goodwill, the elimination of dividend revenues, service revenues, and gains on plant sales between the companies. The assignment culminates in the preparation of a consolidated statement of profit or loss and other comprehensive income for the period ended December 31, 2018, adhering to accounting standards such as AASB 10. The case study provides detailed financial information and additional context, requiring a thorough understanding of corporate accounting principles and consolidation techniques.

Consolidated Financial Statements
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Requirement-1
Acquisition analysis as at 1 January 2018
Net fair value of identifiable assets
and liabilities of Troy Limited
Equity
20000+6000 =
26000
Inventory 800*(1-30%)= 560
Total
26000+560 =
26560
Consideration transferred
40000-6000 =
34000
Goodwill
34000-26560 =
7440
Requirement-2
2. Business combination valuation entries and pre-acquisition entries
as at 1 January
2018
Debi
t
Cred
it
Retained earnings 6000
Share capital
2000
0
Business combination valuation reserve-
inventory 560
Goodwill 7440
Shares in troy Ltd
3400
0
Inventory 800
Deferred tax liability 240
Business combination valuation reserve 560
Supporting Discussion
Lotus Limited acquired troy Limited on January 01, 2018. The pre acquisition journal entries to
be made at the date of acquisition would include reversing the equity components of Troy limited being
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held by Lotus Limited. Thus, the first journal entry would be to reverse the share capital account,
retained earnings account. This reversal would be done against the investment in Troy Limited account.
Further, the revaluation of inventory would also e adjusted in the pre acquisition entry as the
revaluation was done on the date of acquisition. Thus, inventory account has been debited with $560
($240 net of deferred tax liability). The difference amount is either to be debited to goodwill or to be
credited to the business valuation combination reverse account. The difference in this case is $17440
which has been debited top the goodwill account (AASB 10, 2015).
Requirement-3
3. Business combination valuation entries and pre-acquisition at 31
December 2018
Retained earnings 6000
Share capital
2000
0
Business combination valuation reserve-
inventory 560
Goodwill 7440
Shares in troy Ltd 34000
Cost of goods sold 720
Business combination valuation reserve 504
Income tax expense 216
Inventory 80
(800*10
%)
Business combination valuation reserve 56
Deferred tax liability 24
Impairment loss 3720
Accumulated Impairment loss 3720
Requirement-4
4. Consolidation worksheet journal entries to eliminate the effects of
intragroup
transactions at 31 December 2018
Debit Credit
Dividend revenues 2000
Dividend declared 2000
Service revenue 1000
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Service expense-cost of sales 1000
Gain on plant 4000
Plant 4000
Deferred tax asset 1200
Income tax expense 1200
(4000*30%)
Accumulated depreciation 4000
Depreciation expense 4000
(40000/5*6/12)
Income tax expense 1200
Deferred tax asset 1200
(4000*30%)
Supporting Discussion:
The elimination of the intra group transactions is an important step in preparation of the
consolidated financial statements. Firstly, Lotus limited would eliminate the interim dividend received
from the subsidiary Troy limited by reversing the dividend revenues account and dividend declared
account. The intra group service provided would be eliminated by reversing the service revenues
account and cost of sales account. Further, the profit earned on the intra group sales of plant and
machinery would be eliminated by debiting gain on plant and crediting the plant account. It may be
noted that the sale of inventory by Troy limited to Lotus limited would have no accounting elimination
as there is no ending inventory remaining in the hands of Lotus limited out that sale. Further, the effect
of depreciation and deferred tax assets/ liability would also be adjusted through journal entries of
elimination (Bisogno, Santis, and Tommasetti, 2015).
Requirement-5
5. Consolidation worksheet for the preparation of the consolidated financial statements
for the period ended 31 December 2018
Adjustments Group
Lotus
Limited
Troy
Limited
Debi
t
Credi
t
Sales Revenue 50000 47200 1000 0 96200
Dividend Revenue 2000 0 2000 0 0
Gain On Sale of Property, Plant and
Equipment 2000 4000 4000 0 2000
Other Income 2000 4000 0 0 6000
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Total Income 56000 55200 7000 0
10420
0
Cost of Sales 42000 36000 0 1000 77000
Other Expenses 6000 2000 0 0 8000
Total Expenses 48000 38000 0 1000 85000
Profit Before Income Tax 8000 17200 7000
-
1000 19200
Income Tax Expense 2700 3900 1200 120 7680
Profit for the Period 5300 13300 5800
-
1120 11520
Interim Dividend Paid 5000 2000 0 0 7000
Retained earnings (31 December 2018) 12300 17300 6000 0 23600
Requirement-6
6. Consolidated statement of profit or loss and other comprehensive
income for Lotus
Limited and its subsidiary, Troy limited, at 31 December 2018
Amount
($)
Income:
Sales Revenue 96200
Other income 2000
Total 98200
Expenses:
Cost of Sales 77000
Other Expenses 8000
Total 85000
Trading profit 13200
Gains/(losses) on sale of non-current assets 2000
Profit before income tax 15200
Income tax expense 7680
Profit for the period 7520
Other items of comprehensive income 0
Comprehensive income 7520
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References
AASB 10, 2015, Consolidated Financial Statements. [Online]. Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB10_08-11.pdf [Accessed on: October 06,
2018].
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Bisogno, M., Santis, S. and Tommasetti, A., 2015. Public-Sector consolidated financial statements: An
analysis of the comment letters on IPSASB’s exposure draft no. 49. International Journal of Public
Administration, 38(4), pp.311-324
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