ACC567 Financial Accounting 2: Comprehensive Acquisition Analysis

This document presents a detailed solution to an acquisition analysis problem, likely for a Financial Accounting course (ACC567). It includes calculations for fair valuation of assets and liabilities, consideration transferred, and gain on bargain purchase. The solution provides consolidation worksheet entries, including adjustments for brand name recognition, vehicle valuation, depreciation, impairment loss, and inter-company transactions such as sales of equipment and debentures. The entries cover pre-acquisition adjustments, elimination of inter-company profits, and dividend transactions, offering a comprehensive guide to handling complex consolidation issues in financial accounting. The document concludes with a bibliography referencing relevant accounting resources.

Acquisition Analysis
Particulars Amount
Share Capital $ 120,000
General Reserve $ 25,000
Retained earnings
$
55,000
Fair valuation of assets and liabilities acquired:
- Land $ 21,000
- Inventories $ 5,320
- Machinery $ 2,800
- Brand Name $ 20,300
- Vehicle $ 4,200
$
53,620
Net fair value of assets acquired $ 253,620
Consideration transferred $ 250,000
Gain on Bargain Purchase
$
3,620
Consolidation worksheet entries for the year ended 30 June, 2018
1. Business Combination Valuation Reserve Entries
Brand name recognition at fair value
Brand Name
$
29,000
To Deferred tax liability $ 8,700
To Business Combination valuation reserve $ 20,300
Vehicle recognition at fair value
Accumulated depreciation
$
11,000
To Vehicle $ 5,000
To Deferred tax liability $ 1,800
To Business Combination valuation reserve $ 4,200
Additional depreciation on fair value of vehicle
Depreciation - Vehicle
$
1,000
Retained Earnings (1/7/17)
$
2,000
To Accumulated Depreciation - Vehicle $ 3,000
Deferred tax liability
$
900
To Income tax expense $ 300
To Retained Earnings (1/7/17) $ 600
Recording of Gain on bargain purchase in
BCVR
Business Combination valuation reserve $

3,620
To Gain on bargain purchase $ 3,620
Recording of impairment loss on brand name
Impairment Loss
$
2,000
To Accumulated Impairment Loss $ 2,000
Deferred tax liability
$
600
To Income tax expense $ 600
Recording of sale of machine in current period
Depreciation expense
$
250
Retained Earnings (1/7/17)
$
700
Carrying amount of machinery sold
$
2,750
To Income tax expense $ 900
To Transfer from BCVR $ 2,800
2. Pre-Acquisition Entries
Share Capital $ 140,000
Retained earnings (1/7/17) (55,000+5320+21000)
$
81,320
General Reserve
$
5,000
Business Combination valuation reserve (20300+2800+4200-
3620)
$
23,680
To Shares in Sing Song Ltd. $ 250,000
Transfer from BCVR
$
2,800
To Business Combination Valuation Reserve
$
2,800
General Reserve
$
5,000
To Transfer to general reserve
$
5,000
3. Other Consolidation Entries
Elimination of inter-company sale of equipment
Proceeds on sale of equipment $ 18,000
Equipment $ 3,000
To Carrying amount of equipment sold $ 21,000
Income tax expense $ 900
To Deferred tax liability $ 900

Elimination of depreciation on inter-company sale of
equipment
Depreciation – Equipment $ 300
To Accumulated Depreciation - Equipment $ 300
Deferred tax liability $ 90
To Income tax expense $ 90
Elimination of profit from opening inventory
Retained earnings (1/7/17) $ 560
Income tax expense $ 240
To Cost of Sales $ 800
Elimination of inter-company debenture transaction
8% Debentures $ 25,000
To Debentures in Ping Pong Ltd $ 25,000
Interest revenue $ 2,000
To Interest expense $ 2,000
Elimination of profit from ending inventory
Sales $ 18,750
To Cost of Sales $ 17,500
To Inventories $ 1,250
Deferred tax liability $ 375
To Income tax expense $ 375
Elimination of inter-company dividend transactions
Dividend revenue $ 5,000
To Dividend paid $ 5,000
Dividend revenue $ 12,000
To Dividend declared $ 12,000
Dividend Payable $ 12,000
To Dividend declared $ 12,000
Bibliography
Nickolas, S. (2018). What is the difference between carrying value and fair value?. Retrieved from
https://www.investopedia.com/ask/answers/050115/what-difference-between-carrying-value-and-fair-
value.asp
Bragg, S. (2018). Acquisition method of accounting. Retrieved from
https://www.accountingtools.com/articles/2017/5/4/acquisition-method-of-accounting