Corporate Accounting Report: Acquisition Analysis and Goodwill Methods

This report delves into the intricacies of corporate accounting, using the acquisition of Davis Limited by Ethan Limited as a case study. It provides a detailed five-step analysis of the acquisition process, including the valuation of assets and liabilities at fair value. The report meticulously outlines the combination entries, non-controlling entries, and worksheet entries necessary to account for the acquisition. Furthermore, it explains the full goodwill method and its implications. The analysis includes the calculation of goodwill and non-controlling interest, offering a comprehensive understanding of the accounting procedures involved in business combinations. The report also references relevant accounting standards and provides insights into the practical application of these principles.

CORPORATE ACCOUNTING 1
CORPORATE ACCOUNTING

CORPORATE ACCOUNTING
Table of Contents
Acquisition Analysis........................................................................................................................3
Combination Entries........................................................................................................................4
Non-Controlling Entries..................................................................................................................5
Worksheet Entries............................................................................................................................6
Full Goodwill Method.....................................................................................................................7
References........................................................................................................................................8

CORPORATE ACCOUNTING
Corporate accounting is a special branch of accounting that deals with accounting procedures of
companies, preparation of their final accounts and the overall cash flow statement,
amalgamation, absorption and preparation of the consolidated statements. In this report a five
step treatment is undertaken to understand the acquisition process of Davis Limited by Ethan
Limited for 92% of the shares (Albersmann, 2017).
Acquisition Analysis
At 1st July 2019
Particulars Fair value - Carrying Value Income tax liability
Equipment (1372000-762000) $ 610,000.00
$
427,000.00
Land (1175000-653000) $ 522,000.00
$
365,400.00
Inventory (587000-326000) $ 261,000.00
$
182,700.00
Fittings (34100-32050)
$
2,050.00
$
1,435.00
Net fair value of the identifiable
assets and liabilities of Davis
Limited
Share Capital
$
762,000.00
Asset Revaluation Surplus
$
326,000.00
Retained earnings
$
261,000.00
$
1,349,000.00
Equipment
$
427,000.00
Land
$
365,400.00
Fittings
$
1,435.00
Inventory
$
182,700.00
Total $

CORPORATE ACCOUNTING
2,325,535.00
Consideration Transferred
$
2,176,000.00
NCI interest
$
186,042.80
Gain on bargain and purchase
$
36,507.80
Combination Entries
BUSINESS COMBINATION VALUATION
ENTRIES
Date Particulars Debit Credit
1st July
2019 Goodwill
D
r.
$
36,507.80
To BCVR
$
36,507.80
for goodwill recorded
1st July
2019 Inventory
D
r.
$
261,000.00
To Deferred tax liability
$
78,300.00
To BCVR
$
182,700.00
(for inventory transferred to bcvr)
1st July
2019 Accumulated depreciation
D
r.
$
152,000.00
To plant
$
45,800.00
Retained earnings
$
45,600.00
TO income tax expense
$
45,600.00
To BCVR
$
610,000.00
(for depreciation charged and adjusted
against BCVR)
1st July
2019 Land
D
r.
$
522,000.00
To deferred tax liability
$
156,600.00

CORPORATE ACCOUNTING
To BCVR
$
365,400.00
(for r and d expenses transferred)
1st July
2019 Fittings
D
r.
$
2,050.00
To Deferred tax liability
$
615.00
To BCVR
$
1,435.00
(for inventory transferred to bcvr)
Date Particulars Debit Credit
Pre-Acquisition Entries
1st July
2019 Retained earnings (1/7/18)
Dr
.
$
261,000.00
Share Capital
Dr
.
$
762,000.00
Asset revaluation reserve
Dr
.
$
326,000.00
Goodwill
$
36,507.80
BCVR
$
790,492.20
To shares in Davis Limited
$
2,176,000.00
(for consideration given to Davis
limited)
Non-Controlling Entries
Date Particulars Debit Credit
1st July
2019 Retained earnings
Dr
.
$
20,880.00
Share capital
$
60,960.00
Asset revaluation reserve
$
26,080.00
BCVR
$
104,202.80
To NCI $

CORPORATE ACCOUNTING
186,042.80
for entry of non-controlling
interest

CORPORATE ACCOUNTING
Worksheet Entries
BUSINESS COMBINATION VALUATION ENTRIES
Date Particulars Debit Credit
30th June
2020 Deferred tax liability
D
r.
$
18,300.00
To income tax
$
18,300.00
for deferred tax adjusted
30th June
2020 Cost of sales
D
r.
$
664,807.80
To income tax expense
$
18,300.00
To BCVR
$
646,507.80
for cost of sales recorded
30th June
2020 Accumulated depreciation
D
r.
$
152,000.00
To plant
$
458,000.00
Retaned earnings
$
45,600.00
TO income tax expense
$
45,600.00
To BCVR
$
610,000.00
(for depreciation charged and adjusted
against BCVR)
30th June
2020 Depreciation Expense
D
r.
$
61,000.00
Accumulated depreciation
$
61,000.00
for depreciation transferred
30th June
2020 Goodwill
D
r.
$
36,507.80
To BCVR
$
36,507.80
for goodwill recorded

CORPORATE ACCOUNTING
Full Goodwill Method
Goodwill is a brand value of nay business, and if one plans to acquire the business there are two
major ways to do so. One is the partial goodwill and the other is full goodwill method. Under the
partial goodwill when there is a measurement of the assets and liabilities but recognition of the
goodwill amount which is associated with the non-controlling interest. In case of the full
goodwill method, the non-controlling interest is inclusive of the goodwill. Since the partial
goodwill method is followed in this case, the goodwill is recognized only for Ethan’s portion,
worth $36507.80, whereas in case of the treatment of the full goodwill method, full value of NCI
is taken into consideration than the net identifiable assets are deducted from the same. At times it
becomes cumbersome to evaluate the fair value of NCI (Grathwohl & Voeller, 2016).

CORPORATE ACCOUNTING
References
Albersmann, B. T. (2017). IFRS Goodwill Impairment Test-Audit Approach, Earnings
Management, and Capital Market Perception (Doctoral dissertation, Technische
Universität).
Grathwohl, J., & Voeller, D. (2016). Full or partial goodwill recognition: An analytical
comparison/Full-Goodwill-oder Partial-Goodwill-Bilanzierung: Ein analytischer
Vergleich. Die Betriebswirtschaft, 76(2), 147.