Corporate Accounting Assignment: Business Combinations and Goodwill

This corporate accounting assignment solution covers several key areas within corporate finance. It begins with journal entries and tax worksheets, including calculations for current tax and deferred tax assets and liabilities. The solution then delves into business combinations, providing acquisition analysis and journal entries related to the acquisition of shares. Further, the assignment includes a detailed goodwill calculation, illustrating the process of determining goodwill and related journal entries. The solution also presents a consolidated worksheet, demonstrating the consolidation of financial statements. Finally, the assignment addresses a bargaining purchase scenario, including journal entries and the preparation of financial statements. The solution uses examples and calculations to illustrate each concept, making it a comprehensive resource for understanding corporate accounting principles.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1CORPORATE ACCOUNTING
Table of Contents
Question 1:.......................................................................................................................................2
Journal entry:...................................................................................................................................2
Tax worksheet:.................................................................................................................................2
Net balance:.....................................................................................................................................2
Journal entries:.................................................................................................................................3
Question 2A:....................................................................................................................................3
Acquisition analysis:........................................................................................................................3
Journal entries:.................................................................................................................................4
Question 2B:....................................................................................................................................4
Question 3:.......................................................................................................................................6
Goodwill calculation:.......................................................................................................................6
Journal entries:.................................................................................................................................6
Journal entries..................................................................................................................................7
Consolidated worksheet:..................................................................................................................8
Question 4:.....................................................................................................................................12
Bargaining purchase:.....................................................................................................................12
Partial goodwill:.............................................................................................................................13
Journals:.........................................................................................................................................13
Financial statements:.....................................................................................................................16
References:....................................................................................................................................19

2CORPORATE ACCOUNTING
Question 1:
Journal entry:
Particulars Debit Credit
Income Tax demanded on a/c of
disawollance 1620
To current tax payable 1620
Tax worksheet:
Calculation of Current Tax
Add/Less Particular Amount
Profit as per books 92,550
Add carrying amount of plant sold 30,000
Less carrying amount of plant sold (tax Purpose) -26000
Add Accounting Fees not performed 4950
Add depreciation of Equipment and Plant as per books 29,500
Less depreciation of Equipment and Plant as per Tax purpose -35800
Less Insurance claim in process -41200
Add Entertainment Tax disallowed 13,200
Add Amortized development cost 15,000
Less Government Grant (exempt) -2,200
Less 125% of development Expense incurred -56250
Add Goodwill Impairment 2,000
Taxable Profit 25,750
Current Tax @ 30% 7725
Net balance:
Treatment of different item on Differed Tax Amount Tax effect DTA/DTL
Reversal of Differed Tax asset in respect to tax loss 17000 5100 DTL
Difference In Depreciation of Plant & Equipment 1890 DTL

3CORPORATE ACCOUNTING
6,300
Accounting Fees against work not performed 4950 1485 DTA
Insurance Claim under process 41200 12360 DTL
Development Cost 30000 9000 DTL
Land for Increase in FV 150000 45000 DTL
Difference in Provision for Doubtful Debt 200 60 DTA
Difference in Provision for Employees Benefit 4400 1320 DTA
Difference in Provision for Warranties 900 270 DTL
Journal entries:
Particulars Debit Credit
Deferred tax asset 7725
Income tax expense 7725
Particulars Debit Credit
Current tax
liabilities 7725
Deferred tax asset 7725
Question 2A:
Acquisition analysis:
Particulars Debit Credit
Trade receivables 46,800
Inventory 28,000
Plant
1,12,00
0
Land 35,800
Scuby snaks 10,000
Business purchase 2,26,200
Gain on bargain purchase 6,400
acquisition of shares in Scruggy Ltd

4CORPORATE ACCOUNTING
Journal entries:
Particulars Debit Credit
Artworks 18000
Profit on revaluation 18000
Question 2B:
Business combination:
According to “AASB 3 Business Combinations”, business combination could be defined
in the form of a transaction or other event where an acquirer gains control of one or more
companies (Aasb.gov.au 2019). Control could be defined as the power in governing operating
and financial policies of an organisation for deriving benefits from activities. Thus, when a
purchaser obtains control over other business through a transaction, it is termed as business
combination.
Important aspects in AASB 3’s definition of business combination:
There are three significant aspects of AASB 3’s definition related to business combination,
which are summarised as follows:
 The target organisation needs to be a business having processes and inputs, which could
be converted into those outputs that are recognisable.
 The transaction occurs at the time an acquirer is involved in transferring an amount,
which is called consideration, as equities, cash or liabilities for buying the target (Kieso,
Weygandt and Warfield 2016).

5CORPORATE ACCOUNTING
 In order to gain control of the business, the acquirer needs to have above 50% stake of
ownership in the business.
Different forms of a business combination:
In accordance with AASB 3, business combinations are of five general types and they are
elucidated briefly as follows:
 X Limited has made acquisition of all the assets of Y Limited, while Y Limited is
continuing and at present, it is involved in holding shares in X Limited.
 X Limited has made acquisition of all liabilities and assets of Y Limited and there is
eventual liquidation of Y Limited.
 Z Limited is developed for acquiring all liabilities and assets of X Limited and Y
Limited, while there has been liquidation of X Limited and Y Limited (Paugam, Astolfi
and Ramond 2015).
 X Limited has made acquisition of a sub-group of assets of Y Limited like a product line
making up a business, while there are no changes in the business operations of Y
Limited.
 Shares are purchased by X Limited in Y Limited in order to gain control over Y Limited.
However, Y Limited is involved in continuing its business operations and now, it has
been a subsidiary of X Limited.

6CORPORATE ACCOUNTING
Question 3:
Goodwill calculation:
Particulars Value
Share capital 2,00,000
General reserve 25,000
Retained earnings 45,000
Dividend payable 10,000
Provisions 2,06,500
Fair value 5,34,500
Acquisition amount 5,59,500
3,20,000
Plant (cost $300,000) 186000 190000 4000
Trademark 1,00,000 1,10,000 10000
Inventory 70,000 80,000 10000
Equipment (cost
$80,000) 50,000 53,000 3000
Land 50,000 70,000 20000
Machinery (cost $18,000) 15,000 16,000 1000
Fittings (cost $15,000) 10,000 10,000 0
Goodwill 25,000 48000
Journal entries:
Pre-acquisitions entries
Particulars Debit Credit
Asset revaluation 48000
Retained earnings 45,000
Share capital 2,00,000
General reserve 25,000
Provisions 2,06,500
Dividend payable 10,000
Goodwill 25,000

7CORPORATE ACCOUNTING
Shares in Fish Ltd 5,59,500
Particulars Debit Credit
Brands 17,000
BCV reserve 11,900
Deferred tax liability 5,100
Particulars Debit Credit
Impairment valuation 5,000
Goodwill 5,000
Particulars Debit Credit
Goodwill 25,000
BCV reserve 25,000
Journal entries
BCV entries BCV entries
Particulars Debit Credit Particulars Debit Credit
Inventory 4,000 Inventory 6,000
Income tax expense 1,200 Income tax expense 1,800
Retained earnings 2,800 Retained earnings 4,200
Transfer from BCV
reserve 5,600
Transfer from BCV
reserve 8,400
BCV entries BCV entries
Particulars Debit Credit Particulars Debit Credit
Depreciation expense 1,000 Depreciation expense 200
Sale of Plant (Gain) 5,000 Sale of furniture (Gain) 1,000
Income tax expense 1,800 Income tax expense 360

8CORPORATE ACCOUNTING
Retained earnings 2,800 Retained earnings 560
Transfer from BCV
reserve 7,000
Transfer from BCV
reserve 1,400
BCV entries
BCV entries Particulars Debit Credit
Particulars Debit Credit Inventory 9,000
Interim dividend 5,000 Income tax expense 2,700
Transfer from BCV
reserve 5,000 Retained earnings 6,300
Transfer from BCV
reserve 12,600
BCV entries
Particulars Debit Credit BCV entries
Inventory 1,800 Particulars Debit Credit
Income tax expense 540 Depreciation expense 2,000
Retained earnings 1,260 Sale of furniture (Gain) 10,000
Transfer from BCV
reserve 2,520 Income tax expense 3,600
Retained earnings 5,600
Transfer from BCV
reserve 14,000
Consolidated worksheet:
Particulars
Cat Lt
d
Fish Lt
d
Adjustments
Debit Credit Group
Revenue
$
2,20,000
.00
$
1,82,000
.00
$
1,800.00
$
19,000.00
$
4,19,200
.00
Other income
$
84,000.0
0
$
30,000.0
0
$
1,14,000
.00

9CORPORATE ACCOUNTING
Expenses
$
1,62,000
.00
$
1,28,000
.00
$
2,90,000
.00
Trading profit
$
58,000.0
0
$
54,000.0
0
$
1,29,200
.00
Gains/losses on sale of
non-current assets
$
50,000.0
0
$
80,000.0
0
$
1,30,000
.00
Profit before Tax
$
1,08,000
.00
$
1,34,000
.00
$
2,59,200
.00
Tax Expenses
$
20,000.0
0
$
18,000.0
0
$
38,000.0
0
Other expenses
$
53,000.0
0
$
31,000.0
0
$
84,000.0
0
Profit
$
88,000.0
0
$
1,16,000
.00
$
2,21,200
.00
Retained earnings
(1/7/18)
$
30,000.0
0
$
45,000.0
0
$
16,100.00
$
7,420.00
$
66,320.0
0
Transfer from BCVR
$
-
$
-
$
-
Final dividend declared
$
6,000.00
$
4,000.00
$
10,000.0
0
Interim dividend paid
$
12,000.0
0
$
5,000.00
$
17,000.0
0
T'fer to gen reserve
$
-
Retained Earnings
(30/6/19)
$
1,12,000
.00
$
1,57,000
.00
$
2,60,520
.00
Share Capital
$
3,12,000
.00
$
2,00,000
.00
$
5,12,000
.00
General reserve
$
20,000.0
0
$
25,000.0
0
$
25,000.00
$
20,000.0
0
BCVR
$
-
$
-
$
42,920.00
$
62,900.00
$
19,980.0
0

10CORPORATE ACCOUNTING
$
4,44,000
.00
$
3,82,000
.00
$
8,12,500
.00
Asset Revaluation
Surplus (1/7/18)
$
-
$
5,000.00
$
5,000.00
Gains/Losses
$
48,000.00
$ -
48,000.0
0
Asset Revaluation
Surplus (30/6/19)
$
-
$
5,000.00
$ -
43,000.0
0
Total Equity
$
4,44,000
.00
$
3,87,000
.00
$
7,69,500
.00
Provisions
$
50,000.0
0
$
1,08,500
.00
$
2,06,500.00
$ -
48,000.0
0
Final dividend payable
$
6,000.00
$
4,000.00
$
10,000.0
0
Loan from Cat Ltd
$
12,000.0
0
$
12,000.0
0
Current tax liabilities
$
8,000.00
$
2,500.00
$
10,500.0
0
Defer.tax liabilities
$
20,000.0
0
$
11,000.0
0
$
31,000.0
0
Total Liabilities
$
84,000.0
0
$
1,38,000
.00
$
15,500.0
0
Total Equity &
Liabilities
$
5,28,000
.00
$
5,25,000
.00
$
7,85,000
.00
Shares in Fish Ltd
$
3,20,000
.00
$
-
$
2,39,500.00
$
80,500.0
0
Inventory
$
23,000.0
0
$
20,000.0
0
$
43,000.0
0
Receivables
$
6,000.00
$
5,000.00
$
11,000.0
0
Cash $
9,800.00
$
43,000.0
$
52,800.0

11CORPORATE ACCOUNTING
0 0
Plant
$
2,03,000
.00
$
3,24,000
.00
$
5,27,000
.00
Equipment
$
53,000.0
0
$
80,000.0
0
$
1,33,000
.00
Land
$
25,000.0
0
$
50,000.0
0
$
75,000.0
0
Furniture
$
7,000.00
$
8,000.00
$
15,000.0
0
Trademark
$
-
$
1,00,000
.00
$
1,00,000
.00
Motor vehicle
$
10,000.0
0
$
20,000.0
0
$
30,000.0
0
Fittings
$
-
$
15,000.0
0
$
15,000.0
0
Machinery
$
15,000.0
0
$
15,000.0
0
$
30,000.0
0
Deferred tax assets
$
10,200.0
0
$
20,000.0
0
$
30,200.0
0
Accumulated
depreciation – plant
$ -
1,14,000
.00
$ -
1,38,000
.00
$ -
2,52,000
.00
Accumulated
depreciation –
Machinery
$ -
1,000.00
$ -
3,000.00
$ -
4,000.00
Accumulated
depreciation – furniture
$ -
1,000.00
$ -
2,000.00
$ -
3,000.00
Accumulated
depreciation – fittings
$
-
$
-
$
-
Accumulated
depreciation –
equipment
$ -
30,000.0
0
$ -
50,000.0
0
$ -
80,000.0
0
Accumulated
depreciation – vehicles
$ -
1,000.00
$ -
6,000.00
$ -
7,000.00
Loan to Fish Ltd
$
12,000.0
0
$
-
$
12,000.00
$
-