Consolidated Financial Statements Analysis: Good Ltd and Man Ltd

This report provides a comprehensive analysis of consolidated financial statements for Good Ltd and its subsidiary, Man Ltd. It begins with an acquisition analysis and adjustment/elimination journal entries for consolidation at acquisition on June 30, 2010, detailing the net fair value of assets and liabilities, consideration transferred, and goodwill calculations. The report then presents adjustment/elimination journal entries for consolidated statements at June 30, 2016, including entries for goodwill impairment, intra-group sales, unrealized profit in inventory, and intra-group dividends. A consolidation worksheet is provided, along with consolidated financial statements, including income statements, balance sheets, and statements of changes in equity for the year ended June 30, 2016. Part 2 of the report discusses the effect of revaluation on goodwill in the financial statements. The report also includes references to relevant books and journals.

Consolidated Financial
Statements

Table of Contents
a) Acquisition analysis and adjustment/elimination journal entries for consolidation at
acquisition, 30 June 2010.............................................................................................................3
b)i) adjustment/elimination journal entries for consolidated statements at 30 June 2016...........4
ii) Consolidation worksheet.........................................................................................................4
Iii) Consolidated financial statements and statements of changes in equity of Good Ltd and its
controlled subsidiary for year ended 30 June 2016.....................................................................6
PART 2............................................................................................................................................8
Effect on revaluation in goodwill on the financial statements.....................................................8
REFERENCES................................................................................................................................9
2

THEORY ASPECT
The integrated reporting framework used by an entity in order to enhance their reporting
system to restrict the defaulters to enter into the system in order to break the confidentiality. The
existing reporting process needs to be strengthen by adopting different methods in improving the
existing working conditions of an entity. The primary objective of this framework is to reduces
the hidden errors lies in the internal business system. The replica of transactions are also reduces
by applying the methods of integrated reporting framework. The current principles are used by
an entity which will help in enhancing the existing quality of information by supplying truth and
fair information to other end.
The financial statements prepared by an entity in order to record their overall business
transactions in a particular year. The recorded transactions are further reflected the financial
performance of an entity in which efficiency entity will get improved by adopting each and every
principles. The electronic mode has chosen by an entity in order to convey their financial
information to all kinds of stakeholder. The Increasing impact of external business environment
imposes external pressure on the business which will be helpful for an entity in order to affect
the internal business performance.
Define- The control based approach is emphasises on imposing and placing controls in the
current system in order to control the performance of an entity in relation to the external threats.
On the other hand, inclusive approach is stresses on combing with the current system who
emphasises on all the existing transactions by reducing their weaknesses by enhancing their
ability.
Mode- The focus of the integrated reporting framework is on the external business environment
in which external market threats are taken into consideration. The market threats are observed
properly by an entity owner which can be further converted into opportunities for the business.
The higher efficiency of an entity will transform the negative reactions of the environment into
new market opportunities. The control approach focuses on protecting the interest of the business
from the external default by improving the current financial statements. On the contrary, to it the
inclusive approach emphasises on strengthening the business performance by enhancing the
internal performance of the business in relation to the external market.
3

Compliance- The control based approach stresses on complying with the rules and regulations
framed by external entity to enhance the existing business performance of the current financial
statements. The external rules will in turn improves the working conditions of an entity by
following different committees such as stock exchanges and other IFRS requirements to be
followed by an entity. The inclusive approach stresses on rectifying the existing weaknesses lies
in the current system of the business in order to deal with the external market complexities. The
stakeholder's needs and the expectations are taken into considerations. The integrity of the
business needs to be reflected by the action taken by an entity in order to please their clients in
order to maintain long term relationship with them.
CONSOLIDATION APECTS PART 1
a) Acquisition analysis and adjustment/elimination journal entries for consolidation at
acquisition, 30 June 2010
Acquisition analysis at 30 June 2010
Net fair value of assets and liabilities Man Ltd Values in $
Share capital 300000
Retained earnings 200000
Business Combination valuation reserve 100000
Inventory(33600*1-30%) 23520
Plant (40000(1-30%) 28000
Land (40000*1-30%) 28000
Plant (140000*1-30%) 98000
-Goodwill (4000*1-30%) 2800
Total assets 774720
Consideration transferred 600000
Goodwill 174720
Goodwill recorded 2800
4

Capital reserve 171920
Inventory calculation= Opening-closing= 168000-134000=33600
=33600 (1-30%)= 23520
Particular Good Ltd Man Ltd
Sales 2760000 1420000
Cost of sales 1856000 852000
Sales from Good Ltd to Man Ltd= 280000
Goods oringinally purchased= 120000
Unrealized profit
=280000-120000= 160000-134400= 25600
Cost of sales a/c Dr 25600
To Inventory 25600
Consolidated sales= 2760000+1420000 -280000=
Consolidated cost of sales= 1856000+852000+25600-280000=2453600
Particular Good Ltd Man Ltd Consolidated
statements
Sales 2760000 1420000 3900000
Cost of sales 1856000 852000 2453600
GP 904000 568000 1446400
Calculation of sales maded by Man Ltd to Good Ltd on mark up cost
=200000*25/125= 40000
Particulars Good Ltd Man Ltd Consolidated
Statements
Retained
earnings(opening)
454000 270900
-Mark up cost@25% (40000)
Balance of retained 414000 270900 684900
5

earning
1. Journal entries at the date of acquisition at the year end 30 June 2010
Date Particulars Debit (Values in $) Credit (Values in $)
30-June-2010 Share capital 300000
Retained earnings 200000
Additional cash 100000
To investments in
subsidiary
600000
Narration (Being amount eliminated in
the subsidiary ledger)
30-June-2010 Land 40000
Deferred tax liability
(40000*30%)
12000
Business combination
valuation (40000*70%)
28000
Narration (Being value of land
undervalued)
b)i) adjustment/elimination journal entries for consolidated statements at 30 June 2016
Recognizing good impairment expenses
Goodwill impairment A/c Dr 4000
To Retained earnings 4000
Eliminating intra-group sales
Revenue (Man Ltd) 280000
To Cost of sales 280000
Eliminating unrealized profit in opening inventory
Retained earning a/c Dr 48000
To Opening inventory 48000
(being unrealized profit in opening inventory)
Income tax expense A/c Dr 14400
To retained earnings(48000*30%) 14400
6

(Being income tax attributable to opening inventory)
Eliminating Unrealized profit in closing inventory
Closing stock A/c Dr(Income statements) 22000
To Inventory(Balance sheet)((280000*25%=70000-48000=22000)) 22000
Tax paid on sale of inventory
Deferred tax asset A/c Dr(22000*30%) 6600
To income tax expenses 6600
Eliminating Intra group dividend
Dividend income 453600
To Dividend paid 453600
ii) Consolidation worksheet
Consolidation worksheet Debit Credit
Final
consolidate
d
Particulars Good Ltd Man Ltd
Revenues 2760000 1420000 280000 3900000
Cost of sales 1856000 852000 280000 25600 2453600
Goodwill impairment loss 4000 4000 4000
Opening Retained earnings 454000 270900 40000 684900
Dividend paid 549600 96000 453600 192000
Retained earning closing 183800 -253100 -69300
Cash 81100 42100 600000 723200
Inventory 236900 73900 40000 270800
land 793600 510700 4000 1300300
Plant 620700 992000 140000 140000 1612700
Liabilities
7

Equity 1121800 453100 988000
Long term loan 28000 28000
Date Particulars Amount Date Particulars Amount
01/01/16
Opening
balance 454000
By Goodwill
impairment 4000
Opening
inventory 48000 By income tax 14400
Good Ltd 300000 By balance c/d 183800
balance 599800
Total 802000 Total 802000
Iii) Consolidated financial statements and statements of changes in equity of Good Ltd and its
controlled subsidiary for year ended 30 June 2016
Table 1: Consolidated income statement
Particulars Good Ltd Man Ltd
Consolidated Income
statement
Revenue 2760000 1420000 3900000
Cost of sales 1856000 852000 2453600
GP 904000 568000 1446400
Management revenue 106000 106000
Dividend revenue 297600 297600
Operating expenses
Depreciation expenses 98000 227200 98000
Management fee 106000 106000
8

Loss on sale of plant 140000 140000
Investments write
down 100000 100000
Other expenses 527600 662800 1190400
Total expenses 865600 996000 1634400
Profit before tax 442000 -428000 215600
Taxation 162600 0 195600
Net profit after tax 279400 -428000 20000
Table 2: Consolidated Balance sheet
Particulars Good Ltd Man Ltd
Consolidated
Balance sheet
Equity
Share capital 938000 200000 1168000
Retained earnings 454000 270900 684900
Total equity 1392000 470900 1852900
Current liabilities
Accounts payable 297400 1029600 1327000
Income tax payable 165200 0 165200
Dividend payable 100000 40000 44000
Total current liabilities 562600 1069600 1536200
Non current liabilities
Loans 573500 236000 753500
Deferred tax liability 21400 0 33400
9

Miscellaneous provision 927800 1183200 2659800
Total non-current liabilities 1522700 1419200 3446700
Total Equity and liabilities 3477300 2959700 6835800
Current asset
Cash 681100 42100 723200
Accounts receivable 247600 173400 421000
Allowance 10000 12400 22400
Dividends receivable 124400 124400
Inventory 196900 73900 304200
Total current assets 1260000 301800 1595200
Non-current assets
Land and buildings 753600 510700 1264300
Plant 620700 992000 140000
Accumulated depreciation 343000 555200 898200
Investment in man Ltd 500000 600000 500000
Total non current assets 2217300 2657900 5240600
Total assets 3477300 2959700 6835800
Table 3: Consolidated changes in equity
Particulars Good Ltd Man Ltd
Consolidated
changes in equity
Share capital 938000 200000 1138000
Opening retained earnings 183800 253100 436900
Total 1121800 453100 1574900
Changes in equity 0
10

Issue of share capital 300000 300000
Retained earnings 200000 200000
Income for the years -61000 -61000
Dividends 453600 453600
Balance at end 1107200 1107200
PART 2
Effect on revaluation in goodwill on the financial statements
The revaluation in the existing figure of Goodwill is possible in case of acquisition of
another company as in that case the value of goodwill will get increases over the years. The
amount of upward revaluation of goodwill will affect the cash flow in positive terms as this will
enhance the overall financing activities of the cash flow in order to take long term liability.
The current amount of goodwill which is enhanced after 12 months in the new business of Good
Ltd after acquiring man ltd will be taken into consideration as revaluation reserves.
11