King's Own Institute Corporate Accounting and Reporting Assignment

This assignment solution addresses a corporate accounting problem focused on the acquisition of Davis Limited. It provides detailed calculations and journal entries related to the acquisition, including the analysis of net fair values of identifiable assets and liabilities. The solution covers the entries for acquisition, business combination valuation, and non-controlling interest. It also includes worksheet entries and a discussion of the impact of changing from partial to full goodwill methods. The assignment incorporates accounting standards and provides relevant explanations for each step, including the treatment of goodwill and the non-controlling interest. References to relevant sources, such as PWC publications, are also included to support the analysis and conclusions presented.

Running head: CORPORATE ACCOUNTING AND REPORTING
CORPORATE ACCOUNTING AND REPORTING

Running head: CORPORATE ACCOUNTING AND REPORTING
Contents
Acquisition Analysis.............................................................................................................................3
Entries for the analysis of Acquisition...................................................................................................3
Business Combination valuation entries................................................................................................4
Entry for Non-Controlling Interest........................................................................................................5
Worksheet entries..................................................................................................................................5
Changes in step 1 to 4............................................................................................................................5

Running head: CORPORATE ACCOUNTING AND REPORTING
Acquisition Analysis
At 1st June 2019
Net fair value of the identifiable
assets and liabilities of Davis Limited
Equity $ 7,76,000.00
General reserve $ 3,33,000.00
Asset Revaluation Surplus $ 2,66,000.00
$ 13,75,000.00
Inventories $ 1,86,200.00
Land $ 3,72,400.00
Furniture $ 4,34,700.00
Total Net identifiable assets $ 23,68,300.00
Total Consideration Transferred $ 22,18,000.00
$ 2,13,147.00
Goodwill $ 62,847.00
Particulars Inventories Land Furniture
Fair value 599000 1197000 1397000
Carrying amount 333000 665000 776000
Net fair value 266000 532000 621000
Entries for the analysis of Acquisition
Acquisition
Analysis
Pre Acquisition Entries
1st July 2019 General reserve (1/7/19)
D
r.
$
13,34,151.00
Share Capital
D
r.
$
7,06,160.00
Asset Revaluation surplus
D
r.
$
2,42,060.00
BCVR
$ -
11,524.00
To gain on bargain purchase
$
52,847.00
To shares in Davis Limited
$
22,18,000.00
(for consideration given to Davis
limited)

Running head: CORPORATE ACCOUNTING AND REPORTING
30th June 2020 Transfer from valuation Reserve
D
r.
$
11,33,100.00
To General reserve
$
11,33,100.00
for transferred from BCVR to
BCVR
Capital Reserve
D
r.
$ -
11,524.00
To BCVR
$ -
11,524.00
for amount transferred to BCVR
Business Combination valuation entries
Date Particulars Debit Credit
30th June
2020 Accumulated depreciation
D
r.
$
1,55,000.0
0
Gain on Equipment
$
4,66,000.0
0
To deferred tax liability
$
46,500.00
To business combination valuation reserve
$
5,74,500.0
0
(for depreciation charged and adjusted
against BCVR)
30th June
2020 Depreciation Expense
D
r.
$
31,100.00
To accumulated Depreciation
$
31,100.00
(for depreciation transferred to
accumulated depreciation)
30th June
2020 Land
D
r.
$
5,32,000.0
0
To deferred tax liabilities
$
1,59,600.0
0
To BCVR
$
3,72,400.0
0
(For adjustments made)

Running head: CORPORATE ACCOUNTING AND REPORTING
30th June
2020 Inventories A/c
D
r.
$
2,66,000.0
0
To deferred tax liabilities
$
79,800.00
To BCVR
$
1,86,200.0
0
(For adjustments made)
30th June
2020 Goodwill
D
r.
$
62,847.00
To BCVR
$
62,847.00
For goodwill recorded
Entry for Non-Controlling Interest
Date Particulars Debit Credit
Entry of
NCI Retained Earnings (1/7/19)
D
r.
$
1,31,949.00
Share Capital
D
r.
$
69,840.00
Asset Revaluation surplus
$
23,940.00
To shares in Davis Limited
$
2,25,729.00
for entry for non-controlling assets
entry passed
Worksheet entries
Date Particulars Debit Credit
30th June
2020 Profit and loss A/c
D
r.
$
2,72,500.00
To depreciation on plant
$
31,100.00
To depreciation on fittings
$
2,000.00
to deferred tax liability
$
2,39,400.00
for recording the expenses in profit and
loss account
30th June
2020 Capital A/c
D
r.
$
44,000.00

Running head: CORPORATE ACCOUNTING AND REPORTING
To profit and loss a/c
$
44,000.00
for recording the net profit
Changes in step 1 to 4
Goodwill is an intangible asset as its impact cannot be seen but felt. Under the accounting
system, when the business has entered into the process of acquisition the goodwill is recorded
in the form of partial goodwill or full goodwill method. In step 1, the amount of the non-
controlling interest is included while calculating the goodwill. The partial goodwill method is
calculated as the difference between the purchase consideration and the share of the acquirer
of the total net identifiable assets and in step 2 the journal entry will be passed with amounts
recorded at 90%, but in full goodwill method it will be recorded at 100%. Further, the step
three involves the entry of the NCI and 4th entry involves the share of profit which will be
increased in case of full goodwill method (PWC, 2018).
The major change that will be encountered while changing the method of goodwill from
partial to full goodwill will be in case of non-controlling interest calculation. IFRS 3 provides
a choice between the recognition of full goodwill and partial goodwill. This is totally
different from the US GAAP, where the approach of full goodwill is only accepted. The
major merit of the partial goodwill is that the balance sheet is not grossed up. The step
consists of the acquisition analysis where the calculation of the goodwill is recorded and
similarly under the full goodwill method while passing the entry of NCI, the goodwill will be
recorded up till the interest kept on hold by the company. The amount of goodwill will be
changed to 100% instead of 90% (PWC, 2018).

Running head: CORPORATE ACCOUNTING AND REPORTING
References
PWC, (2018) Presenting financial performance – change on the horizon? [Online] Available
from https://www.pwc.com/im/en/publications/assets/ifrs_news_-_march_2014.pdf
[Accessed on 21st September 2019].