Corporate Accounting and Reporting - Davis Ltd Acquisition Analysis

This assignment provides a comprehensive analysis of the acquisition of Davis Ltd. It includes detailed calculations of net fair value, goodwill, and pre-acquisition entries. The solution presents journal entries for the acquisition, including adjustments for asset revaluation, non-controlling interest (NCI), and consolidation worksheet entries. The assignment also discusses the impact of using the full goodwill method versus the partial goodwill method, referencing Australian Accounting Standards Board 3 Business Combinations. The solution incorporates accounting standards, and relevant explanations. It covers the treatment of land, inventories, and depreciation, as well as the recording of profit and loss adjustments. The assignment is a practical application of corporate accounting principles related to business combinations.

Running Head: corporate accounting and reporting 1
Corporate accounting and reporting

Running Head: corporate accounting and reporting
Acquisition Analysis
Acquisition Analysis
At 1st June 2019
Net fair value of the identifiable
assets and liabilities of Davis Limited
Equity $ 159,000.00
Retained earnings $ 68,000.00
Asset Revaluation Surplus $ 54,000.00
$ 281,000.00
Inventories $ 37,800.00
Land $ 76,300.00
Machinery $ 88,900.00
Net identifiable assets $ 484,000.00
Consideration Transferred $ 454,000.00
$ 43,560.00
Goodwill $ 13,560.00
Pre-Acquisition and BCVR entries
Pre-Acquisition
Entries
1st July 2019 Retained earnings (1/7/19)
Dr
.
$
241,395.70
Share Capital
Dr
.
$
144,690.00
Asset Revaluation surplus
Dr
.
$
49,140.00
Capital reserve
Dr
.
$
32,334.30
To gain on bargain purchase
$
13,560.00
To shares in Davis Limited
$
454,000.00
(for consideration given to Davis limited)
30th June
2020 Transfer from valuation Reserve
Dr
.
$
197,270.00

Running Head: corporate accounting and reporting
To retained earnings
$
197,270.00
for transferred from BCVR to BCVR
Retained Earnings
$
32,334.30
To capital reserve
$
32,334.30
for amount transferred to capital reserve
Journal Entry of NCI
Entry of
NCI Retained earnings (1/7/19)
Dr
.
$
23,874.30
Share Capital
Dr
.
$
14,310.00
Asset Revaluation surplus
$
4,860.00
To shares in Davis Limited
$
43,044.30
for entry for non- controlling assets entry
passed
Consolidation worksheet entries
Date Particulars Debit Credit
30th June
2020 Accumulated depreciation
Dr
.
$
32,000.00
Gain on sale of
machinery
$
95,000.00
To deferred tax
liability
$
9,600.00
To business combination valuation reserve
$
117,400.00
(for depreciation charged and adjusted against
BCVR)
30th June
2020
Depreciation
Expense
Dr
.
$
31,750.00
To accumulated Depreciation
$
31,750.00
(for depreciation transferred to accumulated
depreciation)

Running Head: corporate accounting and reporting
30th June
2020 Land
Dr
.
$
76,300.00
To deferred tax liabilities
Dr
.
$
22,890.00
To BCVR
$
53,410.00
(For adjustments
made)
30th June
2020 Inventories A/c
Dr
.
$
37,800.00
To deferred tax liabilities
$
11,340.00
To BCVR
$
26,460.00
(For adjustments
made)
30th June
2020 Profit and loss A/c
Dr
.
$
69,980.00
To depreciation on
plant
$
31,750.00
To depreciation on fittings
$
4,000.00
to deferred tax
liability
$
34,230.00
for recording the expenses in profit and loss
account
30th June
2020 Capital A/c
Dr
. 9000
To profit and loss a/c 9000
for recording the net profit
Changes in step 1 to 4
If the full goodwill method is used instead of the partial goodwill method then, the balance of the
retained earnings will be recorded at 100% instead of 91%. Further the partial goodwill method
lets the entity pass the entry of the non-controlling asset where the entity measure the assets and
liabilities but it allows the recognition of the goodwill is supervised in case of the NCI of the

Running Head: corporate accounting and reporting
relevant company such as Davis limited in the present case, whereas in the method of full
goodwill, just it does include the value of the goodwill (CAAA, 2019). These methods are best
demonstrated by the examples with the help of Australian Accounting Standards Board 3
Business Combinations. AASB 3 reflects that in measuring and recognizing the goodwill or the
profit that has been incurred due to the bargaining method; the goodwill must be recognized by
the acquirer.
The amount is generally transferred and recorded mostly at fair value along with the addition of
non-controlling interest is with Davis limited. In the present case study the same calculation has
been made while acquisition analysis has been taken in (Roca-Riu, Estrada and Fernández,
2016). Hence it can be said that the partial goodwill method will create the non-controlling
interest is also known as minority interest wherein the range of the ownership is less than 50%
(CAAA, 2019).

Running Head: corporate accounting and reporting
References
CAAA, (2019) CHOOSE YOUR METHOD OF ACCOUNTING FOR GOODWILL IN A
COMBINATION [Online] Available from https://www.caaa.biz/choose-method-accounting-
goodwill-combination/ [Accessed on 15th September 2019].
Roca-Riu, M., Estrada, M. and Fernández, E., 2016. An evaluation of urban consolidation
centers through continuous analysis with non-equal market share companies. Transportation
Research Procedia, 12, pp.370-382.