Corporate Accounting Report: AASB 101 Financial Statements Analysis

This report delves into corporate accounting, specifically focusing on the financial analysis of Ben Ltd and Sam Ltd, and Heaven Ltd. It begins with an acquisition analysis to determine goodwill or capital reserve resulting from consolidation, using a tax rate assumption of 30%. The report presents worksheet entries for business combinations, including adjustments for inventory, land, equipment, and goodwill, along with pre-acquisition entries. Subsequently, it provides a statement of financial position for Heaven Ltd, detailing assets, liabilities, and equity, with supporting notes to accounts. Finally, the report presents a statement of changes in equity for Heaven Ltd, outlining changes in share capital, retained earnings, and general reserve. The report concludes by highlighting the impact of operating profits, dividends, and transfers to general reserves on the company's equity, all prepared in accordance with AASB 101.

Corporate accounting

TABLE OF CONTENTS
Question 1..................................................................................................................................3
Question 2..................................................................................................................................4
Statement of financial position as per AASB 101.................................................................4
Statement of changes in equity as per AASB 101.................................................................5

QUESTION 1
Acquisition analysis
For passing worksheet entries for consolidation, it is essential to do acquisition analysis to
determine whether Consideration transferred is higher or net worth of company acquired is
higher. It is computed to determine whether net result of consolidation is goodwill or capital
reserve (Mills and Woodford, 2015). It situation where Consideration transferred is higher
than difference amount of asset received and consideration transferred is goodwill and if the
net worth of company acquired is higher than difference amount of asset received and
consideration transferred is a capital reserve. By considering given case facts of Ben Ltd and
Sam Ltd acquisition analysis for consolidation is as follows:
Table 1: Acquisition analysis of Ben Ltd and Sam Ltd
Equity value
Share capital $100 000
Reserves $5 000
Retained earnings $10 000 $115 000
Revaluation of assets
Plant $2000(1-30%) $1 400
Land $5000(1-30%) $3 500
Inventory $4000(1-30%) $2 800
Creditors $10000(1-30%) -$7 000
Debtors $6000(1-30%) $4 200 $4 900
Net worth of Sam Ltd Equity value+ Revaluation of assets $119 900
Goodwill impairment -$5 000
Net worth $114 900
Consideration transferred ($123 500-6 000) $117 500
Goodwill (As value of Consideration transferred is higher in
comparison to Net worth of Sam Ltd)
$2 600
Note: For acquisition analysis tax rate is assumed to be 30% by considering standard rate for
the company as per Australian taxation provisions.
Net fair value of identifiable assets and liabilities $100 000 + $5 000 + $115 000

acquired $10 000 (equity)
Revaluation of assets $2000(1-30%)
+5000(1-30%)
+4000(1-30%)
$7 700
Consideration transferred $123 500
Goodwill $800
Tax is assumed to be 30%
Worksheet entries at 1 July 2013
Entries for Business combination valuation
Inventory A/c Dr $4 000
Business combination valuation reserve A/c Cr $2 800
Deferred tax liability A/c Cr $1 200
Land A/c Dr $5 000
Business combination valuation reserve A/c Cr $3 500
Deferred tax liability A/c Cr $1 500
*Accumulated depreciation - equipment A/c Dr $26 000
Business combination valuation reserve A/c Cr $1 400
Equipment A/c Cr $24 000
Deferred tax liability A/c Cr $600
Goodwill A/c Dr $2 600
Business combination valuation reserve A/c Cr $2 600
Worksheet entries at 1 July 2016
Retained earnings A/c (1/7/16) Dr $10 000
Share capital A/c Dr $100 000
Reserves A/c Dr $5 000
Business combination valuation reserve A/c Dr $2 500
Shares in Sam Ltd A/c Cr $117 500
Worksheet entries at 1 July 2017
Cost of sales Dr $4 000
Income tax Cr $1 200
Transfer from business combination
Valuation reserve Cr $2 800
Land Dr $5 000
Deferred tax liability Cr $1 500

Business combination valuation reserve Cr $3 500
Accumulated depreciation - equipment Dr $26 000
Equipment Cr $24 000
Deferred tax liability Cr $600
Business combination valuation reserve Cr $1 400
Depreciation expense Dr $200
Accumulated depreciation1 Cr $200
Deferred tax liability Dr $60
Income tax expense2 Cr $60
Goodwill Dr $2 600
Business combination valuation reserve Cr $2 600
Debtors Dr $6 000
Business combination valuation reserve Cr $6 000
Dividend payables Dr $6 000
Dividend receivable Cr $6 000
Impairment loss – goodwill Dr $7 000
Accumulated impairment losses – goodwill Cr $7 000
Pre-acquisition entries
Retained earnings (1/7/16) Dr $10 000
Share capital Dr $100 000
Reserves Dr $5 000
Business combination valuation reserve Dr $8 500
Shares in Sam Ltd Cr $123 500
General reserve Dr $3 000
Transfer to general reserve Cr $3 000
Transfer from business comb. Valuation reserve Dr $2 800
Business combination valuation reserve Cr $2 800
On the basis of above-described journal entries, consolidation statements will be prepared on
30 June 2017.
1 (10% x $2 000)
2 (30% x $200)

QUESTION 2
Statement of financial position as per AASB 101
Table 2: Statement showing financial position of Heaven Ltd
Notes
ASSETS
Current assets
Debtors 1 $590,000.00
Stock $520,000.00
Total current assets $1,110,000.00
Non-Current Assets
Plant and equipment $800,000.00
Land $600,000.00
Building $900,000.00
Goodwill $300,000.00
Total Non-Current assets $2,600,000.00
Investments
Long-Term Investments $460,000.00
Total Long-Term Investments $460,000.00
Total Assets $4,170,000.00
LIABILITIES
Current Liabilities
Creditors $400,000.00
Overdraft payable to bank $200,000.00
Income tax payable $249,000.00
Dividend payable $256,000.00
Total Current Liabilities $1,105,000.00
Non- Current Liabilities
Total Non-Current Liabilities -
Total Liabilities $1,105,000.00
Net Assets $3,065,000.00
Equity
EQUITY
Paid Up Capital $2,400,000.00
Retained Profit 2 $375,000.00
General reserve $290,000.00
Total Equity $3,065,000.00

Total Equity & Liabilities $4,170,000.00
Notes to accounts
Note 1: Debtors
Closing balance for debtors $600,000.00
Less: Impairment loss on debtors $60,000.00
Add: Others $50,000.00
Total $590,000.00
Note 2: Retained Earnings
Opening Balance $80,000.00
Add: Profit for the period $581,000.00
Less: Transfer to general reserve - $30,000.00
Less: Dividend Payable -$256,000.00
Balance C/d $ 375,000.00
In accordance with the financial position of Heaven Ltd, it can be said that net worth
of the company is $4,170,000.00 by considering all transactions and adjustments occurred in
the previous financial year (Chen, Ding and Xu, 2014). Computation of figures is supported
by notes to accounts to provide an appropriate presentation of computation through figures of
assets or liability, or equity has been derived (Accounting, Part and Plans, 2015). The
statement is prepared by considering provisions and format provided by AASB 101.
Statement of changes in equity as per AASB 101
Table 3: Statement of changes in equity of Heaven Ltd
Share capital Retained
earnings
General
Reserve Total equity
Balance at 1 July 2015 $2,400,000.00 $80,000.00 $- $ 2,480,000.00
Effect of changes in
accounting policy $ -
Restated balance $2,400,000.00 $80,000.00 $- $ 2,480,000.00
Issue of share capital $ - $-
Add: Profit for the period $ - $581,000.00
Less/Add: Transfer $(30,000.00) $30,000.00 $-
Less: Dividend Paid $ - $(256,000.0
0)
Balance at 30th June
2016 $2,400,000.00 $375,000.00 $30,000.00 $ 2,805,000.00

In accordance with the Statement of changes in equity; it can be said that there is a net change
of $325,000. Further; statement shows that there are no changes in accounting policies and
revaluation of non-current assets in a previous financial year (Dagwell, Wines and Lambert,
2015). Change in value is due to operating profits earned by the company; declaration of
dividend and transfer of retained earnings to general reserves. Each transaction is shown
separately for a better understanding of the user.

REFERENCES
Accounting, A., Part, B. and Plans, D.B., 2015. Notes to the financial statements.
Chen, C.J., Ding, Y. and Xu, B., 2014. Convergence of accounting standards and foreign
direct investment. The International Journal of Accounting, 49(1), pp.53-86.
Dagwell, R., Wines, G. and Lambert, C., 2015. Corporate accounting in Australia. Pearson
Higher Education AU.
Mills, A. and Woodford, W., 2015. Company Accounting. Pearson Higher Education AU.