Consolidated Financial Statements: Advance Financial Accounting

This document presents a solution to an advanced financial accounting assignment involving the consolidation of Jenny Ltd. and Patricia Ltd. following Jenny Ltd.'s acquisition of Patricia Ltd.'s shares. The solution includes consolidated journal entries for the amalgamation, fair value adjustments of assets, and the elimination of inter-company transactions such as services, rent, debentures, inventory sales, machinery sales, and dividends. It also addresses the calculation of current and deferred tax liabilities, considering items like royalty revenue, goodwill amortization, entertainment expenses, depreciation, bad debts, and long service leave. The analysis incorporates acquisition details, share capital, retained earnings, general reserves, and goodwill calculations to provide a comprehensive financial consolidation.

Advance Financial Accounting
Advance Financial Accounting
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Advance Financial Accounting
Contents
Solution: 1 (a)........................................................................................................................................3
Solution: 1 (b)........................................................................................................................................4
Solution: 2.............................................................................................................................................5
References:............................................................................................................................................6
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Advance Financial Accounting
Solution: 1 (a)
When a company acquires the other company, then there are lot of adjustment is made for
accounting purpose (Kumaran, 2014). The adjustment is become necessary because there
may be chances of inter-company transactions, the effect thereof needs to be null for the
better presentation of financial statements (Putra, no date).
Sr. No. Date
270,000.00
110,000.00
10,000.00
80,000.00
470,000.00
10,000.00
40,000.00
50,000.00
470,000.00
470,000.00
Entries Amount ($)
Share Capital A/c Dr.
To Business Purchase A/c
(Being amalgamation entry passed)
General Reserve A/c Dr.
1/7/20181 Goodwill A/c Dr.
Retained Earnings A/c Dr.
To Bank A/c
(Being amount paid to Patricia Ltd. for business
purchase)
Inventory A/c Dr.
Machinery A/c Dr.
To BCVR A/c
(Being fair of assets have been recognized)
Business Purchase A/c
Consolidated Journal Entries
2 1/7/2018
3 6/30/2019
Working Note:
As on 01 July 2018
Share Capital of Patricia Ltd. 270,000.00
Retained Earnings 110,000.00
General Reserves 10,000.00
Net Assets 390,000.00
Consideration 470,000.00
Goodwill 80,000.00
1. Acquisition Analysis
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Advance Financial Accounting
Solution: 1 (b)
Sr. No. Date
18,500.00
18,500.00
55,000.00
55,000.00
60,000.00
60,000.00
2,400.00
2,400.00
2,500.00
2,500.00
4,000.00
4,000.00
16,000.00
16,000.00
22,000.00
22,000.008 1/7/2018
Dividend Expense A/c Dr.
To Dividend Payable A/c
(Being final dividend payable reversed)
7 1/7/2018
Dividend Income A/c Dr.
To Dividend Expense A/c
(Being Intereim dividend recognised and reversed)
6 1/7/2018
Machinery A/c Dr.
To Loss on sale of Machinery A/c
(Being loss on sale of machinery now reversed)
4 1/7/2018
Interest Income on Debeture A/c Dr.
To Interest Expenses on Debenture A/c
(Being Interest on debenture is recognised)
5 1/7/2018
BCVR A/c Dr.
To Inventory A/c
(Being unrealised profit on inventory reversed)
2 1/7/2018
Rent Income A/c Dr.
Rent Expenses A/c
(Being inter company transaction of rent reversed)
3 1/7/2018
8% Debenture Capital A/c Dr.
To Investment In Debenture of Patricia Ltd.
(Being investment in debenture recognised)
1 1/7/2018
Service Expenses A/c
To Service Income A/c
(Being inter company transaction of providing
service reversed)
Consolidated Journal Entries
Entries Amount ($)
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Advance Financial Accounting
Solution: 2
Journal Entries
Sr. No. Date
11,700
11,700
Entries Amount ($)
1 6/30/2019
Deferred Tax Assets Dr.
Deferred Tax Expenses Cr.
(Being Deferred tax assets
booked)
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Advance Financial Accounting
1 Calculation of current tax liabilities
Amount ($)
Accounting profit before tax 525000
Less: Royalty Revenue (not taxable) 35000
Add: Goodwill Amortised 11000
Add: Entertainment Expenses 8000
Current taxable accounting profit 509000
Tax rate is 30%
Current Tax Liability ($ 509000 * 30%) 152700
2 Calculation of Deferred tax liability
Current Accounting profit 509000
Add: Depreciation on Equipment debited to Profit & Loss Account30000
Add: Depreciation on Vehicle debited to Profit & Loss Account40000
Add: Bad Debts not written off ($ 20000 - $ 6500) 13500
Add: Long Service Leave Expenses 45000
Add: Insurance Expenses 36000
Less: Long Service Leave Paid 16000
Less: Insuarnce Paid 32000
Less: Depreciation on Equipment (10% of $ 400000) 40000
Less: Depreciation on Vehicle (25% of $ 150000) 37500
Taxable income 548000
Tax Rate 30%
tax liability ($ 548000 * 30%) 164400
Taxable income is greater than the accounting profit thus in this case deffered tax assets would arise:
Accounting Profit $509,000
Taxable Income $548,000
$39,000
Tax Rate 30%
Deffered Tax Assets ($ 39000 * 30%) $11,700
References:
Kumaran, S. (2014), 8 Steps to Finance & Accounting (F&A) Integration for a Successful
M&A [Online] Available from: https://www.invensis.net/blog/finance-and-accounting/eight-
steps-finance-accounting-integration-successful-merger-acquisition/ [Assessed 12 February
2019]
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Advance Financial Accounting
Putra, L. (no date), Accounting for business acquisition using purchase method [Online]
Available from: http://accounting-financial-tax.com/2013/01/accounting-for-business-
acquisition-using-purchase-method/ [Assessed 12 February 2019]
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