Corporate Accounting: Analysis of Consolidated Financial Statements

This report presents a detailed analysis of corporate accounting practices, focusing on the consolidated financial statements of Lead Beaters Ltd. The report includes a consolidated income statement and balance sheet, along with an acquisition analysis of Possum Ltd., which Lead Beaters Ltd. acquired. It provides a thorough examination of consolidation journals, a comprehensive consolidation worksheet, and a rationale for intragroup transactions. The analysis covers adjustments for inventory, income tax expenses, and retained earnings, ensuring a clear understanding of the financial reporting process. The report offers insights into the financial performance of Lead Beaters Ltd. and its subsidiary, Possum Ltd., providing a complete overview of the consolidation process and the impact of various accounting treatments. References and bibliography are included to support the analysis.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
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Author’s Note:

1CORPORATE ACCOUNTING
Table of Contents
Consolidated Income Statement:.....................................................................................................2
Consolidated Balance Sheet:...........................................................................................................3
Acquisition Analysis:.......................................................................................................................4
Consolidation Journals:...................................................................................................................5
Worksheet:.......................................................................................................................................7
Rationale of Intragroup Transaction:...............................................................................................7
Reference & Bibliography:..............................................................................................................9

2CORPORATE ACCOUNTING
Consolidated Income Statement:
Particulars Group Company
Revenue 366,000 162,000
Expenses (128,338) (48,000)
Operating Profit 237,663 114,000
Non-Operating Income/(Expenses):
Gain on Sale of Non-Current Assets 8,188 6,000
Net Profit before Tax 245,850 120,000
Tax Expenses (111,555) (52,500)
Net Profit after tax for the period 134,295 67,500
In the books of Lead Beaters Ltd.
Consolidated Income Statement
for the year ended 30th June, 2017

3CORPORATE ACCOUNTING
Consolidated Balance Sheet:
Particulars Group Company
Current Assets:
Cash 56,500 41,500
Receivables 60,000 43,500
Inventory 519,250 280,000
Total Current Assets 635,750 365,000
Non-Current Assets:
Plant 870,750 558,750
Accumulated Depreciation-Plant (481,800) (318,000)
Land 928,800 531,300
Deferred Tax Assets 1,665 0
Goodwill 6,850 0
Shares in Possum Ltd. 0 580,000
Total Non-Current Assets 1,326,265 1,352,050
TOTAL ASSETS 1,962,015 1,717,050
Current Liabilities:
Dividend Payables 15,000 15,000
Other Current Liabilities 112,050 52,050
Total Current Liabilities 127,050 67,050
Non-Current Liabilities:
Loans 210,000 150,000
Total Non-Current Liabilities 210,000 150,000
TOTAL LIABILITIES 337,050 217,050
NET ASSETS 1,624,965 1,500,000
Equity:
Share Capital 1,200,000 1,200,000
Asset Revaluation Reserve 300,000 225,000
Retained Earnings 124,965 75,000
TOTAL EQUITY 1,624,965 1,500,000
In the books of Lead Beaters Ltd.
Consolidated Balance Sheet
as on 30th June, 2017

4CORPORATE ACCOUNTING
Acquisition Analysis:
Particulars
Carrying
Amount Fair Value
Net Fair
Value Tax Rate
Net Fair Value
exclg. Tax
Share Capital 450,000 450,000 450,000
General Reserve 45,000 45,000 45,000
Asset Revaluation Reserve 45,000 45,000 45,000
Retained Earnings 15,000 15,000 15,000
Dividend Payable 15,000
Plant 220,000 227,500 7,500 30.00% 5,250
Inventory 160,000 175,000 15,000 30.00% 10,500
Contingent Liability (18,000) (18,000) 30.00% (12,600)
Net Fair Value of Identifiable Assets &
Liabilities (A)
573,150
Purchase Consideration (B) 580,000
Goodwill (B-A) 6,850
ACQUISTION ANALYSIS:

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Consolidation Journals:
Dr. Cr.
Date Amount Amount
1 Business Combination Valuation Entries:
a Gain on Sale of Non-Current Assets A/c. 2,813
Expenses A/c. (Depreciation) 938
Retained Earnings A/c. (1/7/2016) 2,625
Transfer from BCVR A/c. 5,250
Tax Expense A/c. 1,125
b Goodwill A/c. 6,850
Business Valuation Combination
Reserve A/c. 6,850
2 Pre-Acquisition Entries as on 30th June, 2017:
a Share Capital A/c. 450,000
General Reserve A/c. 45,000
Asset Revaluation Surplus A/c. 45,000
Dividend Payable A/c. 15,000
Retained Earnings A/c. (1/7/2016) 12,900
Business Valuation Combination Reserve
A/c. 12,100
Shares in Possum Ltd. A/c. 580,000
b Share Capital A/c. 45,000
General Reserve A/c. 45,000
c Transfer from BCVR A/c. 5,250
Business Valuation Combination
Reserve A/c. 5,250
3 Sale of Plant to Possum Ltd.:
Retained Earnings A/c. (1/7/2016) 4,200
Deferred Tax Assets A/c. 1,800
Plant A/c. 6,000
4 Depreciation of Plant:
a Accumulated Depreciation A/c. 1,200
Retained Earnings A/c. (1/7/2016) 600
Expenses A/c. (Depreciation) 600
b Retained Earnings A/c. (1/7/2016) 180
Tax Expense A/c. 180
Deferred Tax Assets A/c. 360
Particulars
In the books of Leadbeaters Ltd.
Consolidation Journal Entries

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5 Profit in Inventory:
Retained Earnings A/c. (1/7/2016) 525
Deferred Tax Assets A/c. 225
Inventory A/c. 750
6 Dividend Payable:
a Dividend Payable A/c. 6,000
Dividend Declared A/c. 6,000
b Revenue A/c. (Dividend Revenue) 6,000
Receivables A/c.(Dividend
Receivable) 6,000

7CORPORATE ACCOUNTING
Worksheet:
Particulars Leadbeaters Possum Dr. Cr. Group
Revenue 162,000 210,000 6.b 6,000 366,000
Expenses 48,000 80,000 1.a, 938 600 4.a 128,338
Gross Profit 114,000 130,000 237,663
Gains/(losses) on sale of non-current assets 6,000 5,000 1.a 2,813 8,188
Profit before Tax 120,000 135,000 245,850
Tax Expenses 52,500 60,000 4.b 180 1,125 1.a 111,555
Profit 67,500 75,000 134,295
Retained Earnings (1/7/16) 22,500 18,000
1.a,2.a,3,
4.b,5 35,430 600 4.a 5,670
Transfer from BCVR 2.c 5,250 5,250 1.a 0
Dividend Declared 15,000 6,000 6,000 6.a 15,000
Retained Earnings (30/6/17) 75,000 87,000 124,965
Share Capital 1,200,000 495,000 2.a,2.b 495,000 1,200,000
General Reserve 2.a 45,000 45,000 2.b 0
Business Valuation Combination Reserve 2.a 12,100 12,100 1.b,2.c 0
1,275,000 582,000 1,324,965
Asset Revaluation Surplus (1/7/16) 210,000 108,000 2.a 45,000 273,000
Gains/Losses 15,000 12,000 27,000
Asset Revaluation Surplus (30/6/17) 225,000 120,000 300,000
Total Equity 1,500,000 702,000 1,624,965
Loans 150,000 60,000 210,000
Other current liabilities 52,050 60,000 112,050
Dividend Payable 15,000 6,000 6.a 6,000 15,000
Total Liabilities 217,050 126,000 337,050
Total Equity & Liabilities 1,717,050 828,000 1,962,015
Shares in Possum Ltd. 580,000 580,000 2.a 0
Inventory 280,000 240,000 750 5 519,250
Receivables 43,500 22,500 6,000 6.b 60,000
Cash 41,500 15,000 56,500
Plant 558,750 318,000 6,000 3 870,750
Accum. Depreciation - Plant (318,000) (165,000) 4.a (1,200) (481,800)
Land 531,300 397,500 928,800
Deferred Tax Assets 3,5 2,025 360 4.b 1,665
Goodwill 1.b 6,850 6,850
Total Assets 1,717,050 828,000 1,962,015
Adjustments
CONSOLIDATION WORKSHEET:
Rationale of Intragroup Transaction:
In intra-group transactions, there is need for adjustments, as they have internal
association with the business entity and their effect of transactions is not reflected to the external

8CORPORATE ACCOUNTING
parties (Beuselinck and Deloof 2014). For Leadbeaters Limited and Possum Limited, certain
intra-group transactions are made, which are discussed below:
Inventory:
Leadbeaters Limited has stock in hand from the intra-group transactions of the past year
and recording is made at cost that takes into account unrealised profit as well. This cost of stock
to the group is lower compared to the recorded amount, which has lead to fall in value of
inventory.
Income tax expense or deferred tax assets:
If any change is observed in the carrying amount of inventory, it results in temporary
difference between the tax base associated with the asset and he carrying amount of the
concerned asset. As a result, it leads to the formation of deferred tax assets owing to the decline
in carrying amount (Haier, Molchanov and Schmutz 2016).
Retained earnings:
The transaction is carried out for the past year where Possum Limited has before tax of
$750 or earnings after tax of $525 on inventory sale, which is internal to the group. Since the sale
is carried out by not taking into account the external entities, the profit needs to be eliminated on
consolidation. Any profit on sale of inventory to the external parties does not require
consolidated adjustments, as the gains made on sale are recognised on the part of the group.

9CORPORATE ACCOUNTING
Reference & Bibliography:
Beuselinck, C. and Deloof, M., 2014. Earnings management in business groups: Tax incentives
or expropriation concealment?. The International Journal of Accounting, 49(1), pp.27-52.
Haier, A., Molchanov, I. and Schmutz, M., 2016. Intragroup transfers, intragroup diversification
and their risk assessment. Annals of finance, 12(3-4), pp.363-392.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting.
Pearson Higher Education AU.
Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015. Advanced accounting. McGraw Hill.
Khan, M., 2015. Accounting: Financial. In Encyclopedia of Public Administration and Public
Policy, Third Edition-5 Volume Set (pp. 1-6). Routledge.
Narayanaswamy, R., 2017. Financial Accounting: A Managerial Perspective. PHI Learning Pvt.
Ltd..
Trotman, K. and Carson, E., 2018. Financial accounting: an integrated approach. Cengage AU.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting. John
Wiley & Sons.