Semester 2 ACT305 Corporate Accounting: Consolidation Assignment

This document presents a detailed solution to a corporate accounting consolidation assignment, addressing several key areas. The solution begins by outlining the accounting treatment for investments in joint ventures, including journal entries for profit sharing and dividend payments, and calculating the investment value over multiple years. It then moves on to the consolidation of financial statements, including the calculation of goodwill and the reversal of investment in equity, and the allocation of funds during liquidation, detailing the distribution of assets to various stakeholders, including secured creditors, liquidators, and unsecured creditors, with a focus on preferential allocation. Furthermore, the assignment provides journal entries for consolidation, acquisition analysis, and calculation of non-controlling interest. Finally, the report analyzes a business scenario from the perspective of AASB 10, discussing the consolidation requirements for a company based on its investments and loans to other entities, and the factors influencing the decision to consolidate financial statements.

Consolidation
Consolidation
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Consolidation
Table of Contents
Solution: 1(i)................................................................................................................................................3
Solution: 1(ii)...............................................................................................................................................6
Solution: 2...................................................................................................................................................9
Solution: 3.................................................................................................................................................10
Solution: 4.................................................................................................................................................11
Reference:.................................................................................................................................................12
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Consolidation
Solution: 1(i)
Accounting for investment in joint venture is done as per regulated standards. According to
which investment value is increased by the amount of share in profit (Murray, 2018). Dividend
received from investment will reduce the investment value (CFI, no date).
Sr. No. Date
50,000.00
50,000.00
15,000.00
15,000.00
24,000.00
24,000.00
13,500.00
13,500.00
4,500.00
4,500.00
12,000.00
12,000.00
3,000.00
3,000.00
4 30/06/2019
30/06/20195
6 30/06/2020
2 30/06/2018
(Being profit share transferred to investment
3 30/06/2018
(Being dividend received)
Cash A/c Dr.
To Investment in Fry Ltd. A/c
(Being dividend received)
To Share in income of Fry Ltd. A/c
7 30/06/2020
(Being profit share transferred to investment
(Being profit share transferred to investment
Cash A/c Dr.
To Investment in Fry Ltd. A/c
(Being dividend received)
Investment in Fry Ltd. A/c Dr.
Amount ($)
1 01/07/2017
Investment in Fry Ltd. A/c Dr.
To Cash A/c
(Being investment made in Fry Ltd.)
Investment in Fry Ltd. A/c Dr.
To Share in income of Fry Ltd. A/c
Cash A/c Dr.
To Investment in Fry Ltd. A/c
Entries
Investment in Fry Ltd. A/c Dr.
To Share in income of Fry Ltd. A/c
Value of Investment as on 01.07.2017 50,000.00
Add: Share in profit 15,000.00
Less: Dividend Received (30%) -24,000.00
Value of Investment as on 30.06.2018 41,000.00
Add: Share in profit 13,500.00
Less: Dividend Received (30%) -4,500.00
Value of Investment as on 30.06.2019 50,000.00
Add: Share in profit 12,000.00
Less: Dividend Received (30%) -3,000.00
Value of Investment as on 30.06.2020 59,000.00
Calculation of Value of Investment (Amount $)
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Consolidation
Year 2018
Profit before tax 80,000.00
Less: Income Tax 30,000.00
Profit after tax 50,000.00
Share in Profit @ 30% 15,000.00
Year 2019
Profit before tax 70,000.00
Less: Income Tax 25,000.00
Profit after tax 45,000.00
Share in Profit @ 30% 13,500.00
Year 2020
Profit before tax 60,000.00
Less: Income Tax 20,000.00
Profit after tax 40,000.00
Share in Profit @ 30% 12,000.00
Calculation of Share in Profit (Amount $)
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Consolidation
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Consolidation
Solution: 1(ii)
Sr. No. Date
45,000.00
5,000.00
50,000.00
24,000.00
24,000.00
9,000.00
27,000.00
36,000.00
Share Capital of Fry Ltd. A/c Dr. 21,000.00
63,000.00
84,000.00
4,500.00
4,500.00
9,000.00
36,000.00
45,000.00
Share Capital of Fry Ltd. A/c Dr. 21,000.00
84,000.00
105,000.00
3,000.00
3,000.00
9,000.00
45,000.00
54,000.00
Share Capital of Fry Ltd. A/c Dr. 21,000.00
105,000.00
126,000.00
9 30/06/2020
10 30/06/2020
Share Capital A/c Dr.
Retained Earnings A/c Dr.
To Share in equity of Fry Ltd. A/c
(Being investment in Fly Ltd. reversed)
To Share in equity of Fry Ltd. A/c
To Minority Interest A/c7 30/06/2019
Retained Earnings of Fry Ltd. A/c Dr.
(Being share capital transferred to minority
interest)
8 30/06/2020
Goodwill A/c Dr.
To Minority Interest A/c
(Being share capital transferred to minority
interest)
Share Capital A/c Dr.
Retained Earnings A/c Dr.
To Share in equity of Fry Ltd. A/c
(Being investment in Fly Ltd. reversed)
Retained Earnings of Fry Ltd. A/c Dr.
(Being divident of Small Ltd. reversed)
To Minority Interest A/c
3 30/06/2018
2 30/06/2018
Dividend Income A/c Dr.
To Dividend Expense A/c
4 30/06/2018
Retained Earnings of Fry Ltd. A/c Dr.
(Being share capital transferred to minority
interest)
Entries
Dividend Income A/c Dr.
To Dividend Expense A/c
(Being divident of Small Ltd. reversed)
5 30/06/2019
Dividend Income A/c Dr.
To Dividend Expense A/c
(Being divident of Small Ltd. reversed)
6 30/06/2019
Share Capital A/c Dr.
Retained Earnings A/c Dr.
(Being investment in Fly Ltd. reversed)
Journal Entries
Amount ($)
1 01/07/2017
Shares in equity of Fry Ltd. A/c Dr.
To Cash A/c
(Being investment in Fly Ltd. recognized)
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Consolidation
Sales Consideration 50,000.00
Less:
Share in share capital 9,000.00
Share in retained earning 36,000.00
45,000.00
Goodwill 5,000.00
Calculation of Goodwill (Amount $)
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Consolidation
Calculation of amount of investment to be reversed
Year 2018
Profit before tax 80,000.00
Less: Income Tax 30,000.00
Profit after tax 50,000.00
Add: Retained Earning 120,000.00
Less: Dividend Paid 80,000.00
Retained Earning at year end (A) 90,000.00
Share Capital (B) 30,000.00
Total Equity (A + B) 120,000.00
Shares in equity to be reversed @ 30 % 9,000.00
Year 2019
Profit before tax 70,000.00
Less: Income Tax 25,000.00
Profit after tax 45,000.00
Add: Retained Earning 90,000.00
Less: Dividend Paid 15,000.00
Retained Earning at year end (A) 120,000.00
Share Capital (B) 30,000.00
Total Equity (A + B) 150,000.00
Shares in equity to be reversed @ 30 % 45,000.00
Year 2020
Profit before tax 60,000.00
Less: Income Tax 20,000.00
Profit after tax 40,000.00
Add: Retained Earning 120,000.00
Less: Dividend Paid 10,000.00
Retained Earning at year end (A) 150,000.00
Share Capital (B) 30,000.00
Total Equity (A + B) 180,000.00
Shares in equity to be reversed @ 30 % 54,000.00
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Consolidation
Solution: 2
At the time liquidation of any company, the realization of the assets is allocated to the secured
creditors, liquidators etc. and the balance shall be distributed proportionately (AccountingTool,
2018). In the liquidation process tax liabilities and government rates are also given priority than
others (Swayamjit, no date).
Realisation from Assets 14,250,000.00
Secured Land and Buildings 7,500,000.00
Other Assets 6,750,000.00
Preferential Allocation of Expenses 11,100,000.00
Liquidator Expenses 600,000.00
Receiver cost on realising secured assets 150,000.00
Secured Creditor 9,000,000.00
Tax Payable 1,050,000.00
Local Government Rates 300,000.00
Net amount available to unsecured
liabilities subject to proportionate
distribution
3,150,000.00
Unsecured bank overdraft 450,000.00
Unsecured trade payables 1,440,000.00
Staff wages payable 540,000.00
Staff leave entitlement 90,000.00
Executive's director wages payable 270,000.00
Executive's director leave entitlement 90,000.00
Dividend Payable 270,000.00
Net available to contributories NIL
Calculation of allocation of fund realised on liquidation (Amount in $)
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Consolidation
Payable Percentage
Distributable
Amount
Proportionate
Amount
Unsecured bank overdraft 750,000.00 0.142857143 3,150,000.00 450,000.00
Unsecured trade payables 2,400,000.00 0.457142857 3,150,000.00 1,440,000.00
Staff wages payable 900,000.00 0.171428571 3,150,000.00 540,000.00
Staff leave entitlement 150,000.00 0.028571429 3,150,000.00 90,000.00
Executive's director wages payable 450,000.00 0.085714286 3,150,000.00 270,000.00
Executive's director leave entitlement 150,000.00 0.028571429 3,150,000.00 90,000.00
Dividend Payable 450,000.00 0.085714286 3,150,000.00 270,000.00
Total unsecured portion 5,250,000.00 3,150,000.00
Calculation of proportion of unsecured options (Amount in $)
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Consolidation
Solution: 3
Sr. No. Date
137,600.00
169,936.00
306,160.00
1,376.00
34,400.00
42,484.00
76,884.00
-
63,984.00
63,984.00
11,180.00
11,180.00
6,020.00
6,020.00
4,816.00
4,816.00
2,064.00
2,064.00
30,100.00
30,100.00
22,790.00
22,790.00
4 30/06/2019
Entries Amount ($)
1 30/06/2019
Share Capital A/c Dr.
To BCVR A/c
(Being effect of holding in investment and equity
eliminated)
(Being unrealized profit portion in inventory
Sales A/c Dr.
To Inventory A/c
(Being unrealized profit portion in inventory
Sales A/c Dr.
To Inventory A/c
Sales A/c Dr.
To BCVR A/c
(Being unrealised profit on opening inventory
transferred to BCVR)
To Investment in Seven Ltd. A/c
Retained Earnings A/c Dr.
To Dividend Exp. A/c
(Being adjustment entry passed for dividend)
Seven Ltd. A/c Dr.
To BCVR A/c
(Being difference of $ 55,900 less $ 44,720 has
been recognized in BCVR reserve)
Share Capital A/c Dr.
Retained Earnings A/c Dr.
To Non-Controlling Interest A/c
(Being non controlling interest recognized)
Dividend Income A/c Dr.
9 30/06/2019
Management fees income A/c Dr.
To Management fees expense A/c
(Being unrealised profit on sale of plant reversed)
Consolidated Journal Entries
8 30/06/2019
Gain on Plant A/c Dr.
To Plant A/c
(Being unrealised profit on sale of plant reversed)
5 30/06/2019
6 30/06/2019
7 30/06/2019
2 30/06/2019
3 30/06/2019
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Consolidation
As on 01 July 2010
Share Capital of Seven Ltd. 172,000.00
Retained Earnings 146,200.00
Net Assets 318,200.00
Less: Value of Investment 306,160.00
Goodwill 12,040.00
1. Acquisition Analysis
2. Calculation of Non Controlling Interest
As on 30 June 2019
Share Capital of Seven Ltd. 172000
Retained Earnings 212420
Net Assets 384420
Non Controlling Interest @ 20% 76884
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