Corporate Accounting Project: 200109 Corporate Accounting Spring 2019

This project analyzes the acquisition of a subsidiary and the subsequent consolidation of financial statements, focusing on the case of Sunnybank Ltd acquiring Sunnybank Hills Ltd. It involves preparing consolidation elimination journals, addressing the fair valuation of assets, and discussing business combinations. The solution references relevant accounting standards like AASB 112 and AASB 10, explaining how deferred tax liabilities and assets are treated, and how tax losses of a subsidiary can be utilized by the parent company. The project covers aspects like share capital, retained earnings, and revaluation surplus, with a detailed explanation of the financial implications of the acquisition, including the adjustment of deferred tax liabilities and assets, and the utilization of tax losses. The solution presents a comprehensive understanding of corporate accounting principles, including the impact of mergers and acquisitions on financial reporting, and the application of relevant accounting standards.

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

Table of Contents
Part A:........................................................................................................................................3
Part B:.........................................................................................................................................6
References and bibliography:.....................................................................................................7

Part A:

Part B:
Merger and acquisition is an indirect way of growing business through the acquisition
of an already established business organisation. Based on the nature of such acquisition and
objectives of such acquisition, merger and acquisition can be classified into various
classifications. Reverse merger is such a concept, where a profit making company acquires a
loss making company to offset the loss of the subsidiary against the profit of the acquiring
company. After a company is merged up with another company, financial statements are
required to be consolidated and presented jointly. Hence, the financial performance and
financial position of the company is presented in a consolidated figure. In this process, the
loss of a subsidiary is automatically adjusted with the profit of the parent company (Bond,
Govendir and Wells 2016).
In the given case study, it can be observed that, the subsidiary is having a tax loss
while the parent company is having a taxable income. As per accounting standard AASB 112
issued by the Australian Accounting Standard Board, the deferred tax liability can e adjusted
with the deferred tax assets and also the tax loss of a company can be adjusted with the
taxable income of the group. Deferred tax liability is the tax consequence on increased
income that has not yet been accounted for and on the other hand, deferred tax asset is the tax
consequence on the decreased income that has not yet been considered for accounting. In the
same way, if a subsidiary is having a loss in their income statement, then there will be no tax
liability rather the advantage can be taken by the parent company to set off such losses with
the taxable profit of the parent company. Hence, as per the accounting standard AASB 112
and AASB 10, tax loss of a subsidiary can be utilised by a parent company. Therefore, the
Board’s decision in the given case study is feasible as per the respective accounting standards
(Loyeung and Matolcsy 2015).