Consolidated Financial Statements: Case Study and Analysis - BAP32

This project focuses on the preparation of consolidated financial statements, encompassing a detailed analysis of business combinations and the associated accounting procedures. The report meticulously outlines the consolidation process, including the creation and utilization of combination worksheet entries to prevent double-counting and ensure a coherent presentation of financial data. It examines the journal entries required when one business acquires another, specifically addressing pre-acquisition entries and business combination valuation entries. The analysis includes a case study involving Erik Ltd and Finn Ltd, demonstrating the calculation of goodwill, the preparation of a consolidated statement of financial position, and the impact of subsequent events. The project also explores a second case study involving Bob Ltd's acquisition of Jack Ltd, highlighting the recording of assets, liabilities, and goodwill, along with the relevant journal entries in the books of Bob Ltd. Furthermore, the report elucidates the purposes of pre-acquisition and business combination valuation entries in the context of consolidated financial statements, emphasizing their role in accurate financial reporting and the elimination of potential errors.

PREPARATION OF CONSOLIDATED FINANCIAL STATETEMENTS 1
UNIVERSITY NAME
STUDENT NAME
COURSE
DATE

PREPARATION OF CONSOLIDATED FINANCIAL STATETEMENTS 2
EXECUTIVE SUMMARY
The purpose of this report is to prepare the consolidated financial statements of a company
after combining or joining operations with another business. This report therefore will
highlight and show various elements that are affected when two businesses are combined to
carry out operations as though they are one single entity (Tsalavoutas & Evans, 2010, pg.
826). various changes are carried out and captured under various worksheet normally referred
as combination worksheet entries. This entry helps to avoid double counting of various
elements during consolidation process and enhances coherence and smooth flow of
presentation of consolidated financial statement.
This report also helps prepare various journal entries effected when a business entity is
acquired by the other.

PREPARATION OF CONSOLIDATED FINANCIAL STATETEMENTS 3
Table of Contents
INTRODUCTION.................................................................................................................................4
CONSOLIDATION..............................................................................................................................4
ANALYSIS...........................................................................................................................................4
ENTRIES..............................................................................................................................................5
BUSINESS COMBINATION VALUATION ENTRIES......................................................................5
PRE-ACQUISITION ENTRIES............................................................................................................6
STATEMENT OF FINANCIAL POSITION........................................................................................8
CASE 2..................................................................................................................................................15
ACQUISITION BY THE ACQUIRER...............................................................................................15
PART A. JOURNALS ENTRIES IN THE BOOKS OF BOB LIMITED.........................................................15
PART B: JOURNAL ENTRIES TO EFFECT THE CHANGES.....................................................................16
PART C: JOURNALS ENTRIES TO EFFECT THE CHANGES...................................................................17
PURPOSES OF THE PRE-ACQUISITION ENTRIES IN THE PREPARATION OF
CONSOLIDATED FINANCIAL STATEMENTS..............................................................................17
PURPOSE OF THE BUSINESS COMBINATION VALUATION ENTRIES IN THE
PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS............................................18
CONCLUSION...................................................................................................................................19
REFERENCES....................................................................................................................................20

PREPARATION OF CONSOLIDATED FINANCIAL STATETEMENTS 4
INTRODUCTION
An analysis of various items should be prepared and various items of the balance sheet must
be captured and prepared based on their fair values as this is the value that is recognized in
the balance sheet. Goodwill consideration on acquisition is determined and relevant entry is
made in the consolidated statement of financial position
CONSOLIDATION.
ERIK LIMITED CONSOLIDATED FINANCIAL STATETEMENT 1ST JULY 2015.
ANALYSIS
(NB:all values are in $)
FINN LIMITED NET FV OF ASSETS = (90,000 + 12,000 +36,000)
+ (43,000 – 35,000) (1 – 30%) (business c. – plant)
+ (46,000 – 42,000) (1 – 30%) (business.c –stock
+ 12,000 (1 – 30%) (business c – RD)
– 3,000 (1 – 30%) (business c. – claims)
= 152,700
Resultant consideration =151 000 – 12,600 (payments of dividends)
= 138,400
Earlier acquired interest = 15,400
Goodwill = (138,400 + 15,400) –152,700
= 1,100
*the resultant consideration moved plus FV of interests that was held earlier gives us the
amount of shares in the FINN LIMITED (153,800) which is gotten after Lessing 100% of

PREPARATION OF CONSOLIDATED FINANCIAL STATETEMENTS 5
dividends which was announced. however, the 10% of dividends announced in the subsidiary
was not affected.
ENTRIES.
WORKSHEET ENTRIES 1ST JULY 2015
BUSINESS COMBINATION VALUATION ENTRIES.
A) BCVR
At acquisition date, we identify the following.
 FV of plant and stock.
 Research & dev cost at FV
 FV of Liability(contingent).
 Goodwill.
Acc.dep DR. 11,000
Plant CR. 3,000
Tax c/d CR. 2,400
BCVR CR. 5,600
STOCK DR. 4,000
TAX B/D CR. 1,200
BCVR CR. 2,800
Delayed research &dev DR. 12,000
TAX B/D CR 3,600
BCVR CR. 8,400

PREPARATION OF CONSOLIDATED FINANCIAL STATETEMENTS 6
BCVR DR. 2,100
TAX C/D DR 900
Claim value provided CR. 3,000
Goodwill DR. 1,100
BCVR CR. 1,100
PRE-ACQUISITION ENTRIES
R/E (1ST JULY 2015) DR. 36,000
Share capital A/C DR. 90,000
General R.A/C DR. 12,000
BCVR DR. 15,800
Amount of equity stock in Finn limited CR. 153,800
Payment of dividends DR. 12,600*
Receipts of dividends CR. 12,600
*we have to bring this item here so that we can eradicate dividends that was announced in
subsidiary before it was acquired and the wholly taken care off (100) by parent. This is
because it is among the pre-acquisition entries (Barton, 2009, pg. 233).
CONSOLIDATING OF THE WORKSHEET 1st JULY 2015
ERIK
LIMITED
FINN
LIMITED
CHANGES GROUP
A/C
DR. CR.
Cash 11,000 20,600 31,600
Receivables 25,200 20,000 12,600 2 32,600

PREPARATION OF CONSOLIDATED FINANCIAL STATETEMENTS 7
Other C.assets 10,000 8,000 1
1
1
12,000
900
1,100
32,000
stock 55,000 42,000 1 4,000 101,000
Shares (Finn
limited)
153,800 0 153,800 2 0
Plant 210,000 107,000 3,000 1 314,000
Acc.dep (85,000) (22,000) 1 11,000 (96,000)
380,000 175,600 415,200
Payment of
dividends
25,000 12,600 2 12,600 25,000
Other c.liability 75,000 25,000 3,000
2,400
1,200
3,600
1
1
1
1
110,200
Share capital A/C 130,000 90,000 90,000 130,000
R/E 93,500 36,000 36,000 93,500
G.reserve 56,500 12,000 12,000 56,500
BCVR - - 1
2
2,100
15,800
5,600
2,800
8,400
1,100
1
1
1
1
0

PREPARATION OF CONSOLIDATED FINANCIAL STATETEMENTS 8
380,000 175,600 197,500 197,500 415,200
CONSOLIDATED FINANCIAL STATEMENTS AT 1ST JULY 2015.
We can only present a consolidated balance sheet as at 1st July 2015.
STATEMENT OF FINANCIAL POSITION
FINN LTD
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 1 JULY 2015
C.ASSET ($)
Cash and cash equivalents 31,600
Receivables 32,600
stock 101,000
TOTAL C.ASSETS 165,200
LONG TERM ASSETS
Plant & equipment 314,000
Acc.dep (96,000)
218,000
Other long-term assets 32,000
TOTAL LONG TERM ASSETS 250,000
TOTAL ASSETS 415,200
EQUITIES

PREPARATION OF CONSOLIDATED FINANCIAL STATETEMENTS 9
Share capital 130,000
R/E 93,500
G. reserve 56,500
TOTAL EQUITIES. 280,000
CURRENT LIABILITIES:
Payment of dividends 25,000
Other c. liabilities 110,200
TOTAL LIABILITIES 135,200
TOTAL EQUITIES AND LIABILITIES 415,200
CONSOLIDATING WORKSHEET ENTRIES AS AT 30TH JUNE 2016
(1) BCVR
Affected as follows. This are activities that happened on acquisition until June 30th
1. Depreciation(current).
2. Disposal of stock(current).
3. Amortisation (research &dev, current)
4. Payment of liability(contingent).
Nothing affected goodwill and therefore it is repeated.
ACC.DEP.DR. 11,000
PLANT CR 3,000
TAX B/D CR. 2,400
BCVR CR. 5,600

PREPARATION OF CONSOLIDATED FINANCIAL STATETEMENTS 10
DEP.EXP DR 2,000
ACC.DEP CR. 2,000
(0.25X 8,000)
TAX B/D DR. 600
TAXES ON INCOME CR. 600
COGS DR. 4,000
TAX ON INCOME CR. 1,200
BCVR CR 2,800
DEV’T COST B/D DR 12,000
TAXES CR 3,600
BVCR CR 8,400
AMORTISATION DR 1,200
ACC. AMORT COST. CR 1,200
TAX LIABILITY DR 360
INCOME TAX EXPENSE CR 360

PREPARATION OF CONSOLIDATED FINANCIAL STATETEMENTS 11
BCVR DR 2,100
TAX ON INCOME DR 900
DAMAGES EXPENSE CR 2,800
GAINS (FROM CLAIMS) CR 200
GOODWILL DR 1,100
BVCR CR 1,100
PRE-ACQUISITION ENTRIES.
First of this items are the same since it is there first accounting period.
R/E (1st JULY,2015) DR. 36,000
Share capital DR. 90,000
G/R DR. 12,000
BCVR DR. 15,800
Shares (Finn Ltd). CR. 153,800

PREPARATION OF CONSOLIDATED FINANCIAL STATETEMENTS 12
BCVR Transfers. DR. 2,800
BCVR CR 2,800
BCVR DR 2,100
BCVR transfer CR 2,100
CONSOLIDATION WORKSHEET ENTRIES AS AT 30TH JUNE 2016
BVCR
ACC.DEP. DR. 11,000
PLANT CR 3,000
TAX B/D CR. 2,400
BCVR CR. 5,600
DEP.EXP DR 2,000
ACC.DEP CR. 2,000
(0.25X 8,000)
TAX B/D DR. 600
TAXES ON INCOME CR. 600