Corporate Accounting Assignment: Consolidation and Analysis

This document provides a detailed solution to a corporate accounting assignment, covering key concepts such as acquisition analysis, consolidation of financial statements, and intercompany transactions. The solution includes calculations for purchase consideration, goodwill, and gain on bargain purchase, along with journal entries to illustrate the accounting treatment of various transactions. The assignment addresses scenarios involving the acquisition of a company, including payments to shareholders and debenture holders, and the preparation of consolidated financial statements. Furthermore, the solution explores intercompany sales, unrealized profits, and the elimination of intercompany effects in consolidation, including the impact of deferred tax liabilities. The document provides a comprehensive guide to understanding and solving complex corporate accounting problems, making it a valuable resource for students studying finance and accounting.

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

1CORPORATE ACCOUNTING
Table of Contents
Answer to question 1:......................................................................................................................2
Sub part (a):.................................................................................................................................2
Sub part (b):.................................................................................................................................3
Sub part (c):.................................................................................................................................4
Answer to question 2:......................................................................................................................4
Sub part (a):.................................................................................................................................5
Sub part (b):.................................................................................................................................5
Answer to question 3:......................................................................................................................6
Bibliography:...................................................................................................................................9

2CORPORATE ACCOUNTING
Answer to question 1:
Sub part (a):
Acquisition Analysis
Purchase Consideration:
Payments to the preference share holders:
6000 shareholders elect to receive cash (6000*0.80) 4,800
9000 shareholders elect to receive shares (9000*2/3*1.20) 7,200
Total payment to the preference shareholders 12,000
Payment to ordinary shareholders:
10000 shareholders elect to receive cash (10000*2.50) 25,000
60000 shareholders elect to receive shares (60000*2*1.20) 144,000
Total payment to ordinary shareholders 169,000
Payment to debenture holders:
Number of debentures outstanding (8000/100) 80
Fair value of debenture 102
Cash to be paid to the debenture holders 8,160
Cost of liquidation to be paid to Jack man Ltd 700
Total Purchase Consideration to be paid 189,860
Fair Value of Net Assets Acquired:
Equipment 72,000
Inventories 40,000
Accounts Receivable 29,000
Patents 8,000
Investments 12,000
Accounts Payable (16,000)
Net Fair Value of assets acquired 145,000
Total purchase consideration 189,860
Goodwill on acquisition of business (189860-145000) 44,860
Note:

3CORPORATE ACCOUNTING
1. The goodwill is calculated as the difference between the purchase consideration
transferred and the fair value of net identifiable assets. In the first part of this worksheet
the total purchase consideration transferred has been computed, in the next part the total
fair value of net identifiable assets have been computed, and in the last line the value of
goodwill have been computed as the difference between the purchase consideration
transferred and the value of net identifiable assets.
2. There are total 15,000 preference shares and out of which holders of 6,000 shares elected
to receive cash, hence, the holder of the remaining 9,000 shares will be paid the ordinary
shares at a rate of two for every three shares held having a fair value per share of $1.20.
Therefore, the value paid to the holders of 9,000 preference shares would be equal to
9000*2/3*$1.20.
Sub part (b):
HUGH LTD
Journal
Date Particulars Debit Credit
1-Jan-19 Equipment 72000
Inventories 40000
Accounts Receivable 29000
Patents 8000
Investments 12000
Goodwill 44860
Accounts Payable 16000
Consideration Payable 189860
(To record acquisition of assets and liabilities of
Jackman Ltd at Fair Value)
1-Jan-19 Consideration Payable 177360
Cash 26160
Ordinary Share Capital 144000
Preference Share Capital 7200
(To record issue of shares and payment of cash on the
acquisition date)

4CORPORATE ACCOUNTING
1-Jan-19 Incidental Costs 2000
Cash 2000
(To record payment of incidental acquisition expenses)
1-Jan-19 Ordinary Share Capital 200
Preference Share Capital 80
Cash 280
(To record share issue costs)
Sub part (c):
HUGH LTD
Journal
Date Particulars Debit Credit
1-Jan-20 Liquidators of Jackman Ltd 12500
Interest Expense 1250
Cash 13750
(To record the deferred payment of cash for equity
shares opted for receiving cash)
Answer to question 2:
Acquisition Analysis:
Assets: Fair Value
Share Capital 90,000
General Reserve 12,000
Retained Earnings 36,000
Dividend Payable 12,600
Fair Value Adjustment 21,000
Fair Value of Net Identifiable Assets 171,600
Fair Value of Investment in shares of Fico Ltd 153,800
Gain on bargain purchase 17,800

5CORPORATE ACCOUNTING
Sub part (a):
Consolidated Financial Statement
Amount
Liabilities and Equities:
Share Capital 130,000
General Reserve 56,500
Capital Reserve 17,800
Retained Earnings 93,500
Total Equity 297,800
Dividend payable 25,000
Other Liability 103,000
Total Liabilities 128,000
Total of Liabilities and Equities 425,800
Assets:
Cash 31,600
Receivables 45,200
Other Assets 30,000
Inventories 101,000
Plant & Equipment 325,000
Accumulated Depreciation (107,000)
Total Assets 425,800
Sub part (b):
Consolidation Woeksheet Entries
Date Particulars Debit Credit
Share Capital 90000
General Reserve 12000
Retained Earnings 36000
Dividend Payable 12600
Business Combination Valuation Reserve 3200
Shares in Fico Ltd 153800
(To eliminate intercompany investment)
Plant & Equipment 8000
Inventories 4000
Research and development expense 12000
Business Combination Valuation Reserve 24000
(To record fair value adjustments)

6CORPORATE ACCOUNTING
Business Combination Valuation Reserve 3000
Liabilities for damages 3000
(To record fair value adjustment)
Business Combination Valuation Reserve 17800
Gain on Bargain Purchase 17800
(To transfer the gain on bargain purchase)
Consolidated Worksheet
Eco
Ltd
Fico
Ltd
Adjustments Group
Dr Cr
Share Capital 130000 90000 90000 130000
General Reserve 56500 12000 12000 56500
Retained Earnings 93500 36000 36,000 93500
Business Combination Valuation Reserve 24000 24000 0
Dividend Payable 25000 12600 12600 25000
Other Liability 75000 25000 3000 103000
Gain on Bargain Purchase 17800 17800
Total 380000 175600 425800
Cash 11000 20600 31600
Receivables 25200 20000 45200
Other Assets 10000 8000 12000 30000
Shares in Fico Ltd 153800
15380
0 0
Inventories 55000 42000 4000 101000
Plant and Equipment 210000 107000 8000 325000
Accumulated Depreciation -85000 -22000
-
107000
Total 380000 175600 198600
19860
0 425800
Answer to question 3:
Kingco Ltd
Journal
Date Particulars Debit Credit
a) Sales Revenue 3000
Cost of Goods Sold 3000
(To eliminate the intercompany sales, No profit is there as it was
sold at $3000)

7CORPORATE ACCOUNTING
Retained Earnings (2000*1/2*1/2) 500
Inventory 500
(To eliminate the unrealized profit on stock held from
intercompany sales)
Deferred tax Liability 150
Retained earnings 150
(To eliminate the tax effect on above)
b) Plant and machinery 1000
Retained Earnings 1000
(To eliminate loss on intercompany sales of plant)
Retained earnings 300
Deferred tax liability 300
(To eliminate the tax effect on above)
Depreciation 50
Accumulated Depreciation (1000/10*.5) 50
(To record the increased depreciation on the actual value of assets)
Deferred tax liability 15
Retained Earnings (50*30%) 15
(Tax effect on above)
c) Retained earnings 2400
Motor Vehicle 2400
(To eliminate profit on intercompany sale of vehicle)
Deferred tax liability 720
Retained Earnings 720
(To record the tax effect on above)
Accumulated Depreciation 240
Depreciation Expense 240
(To eliminate depreciation on profit)
Retained Earnings 72
Deferred tax liability 72
(To record tax effect on above)

8CORPORATE ACCOUNTING
d) Retained Earnings 900
Inventory 900
(To eliminate profit on intercompany sale of inventory)
Deferred tax liability 270
Retained Earnings 270
(To record tax effect on above)
e) Inventory 6000
Retained Earnings 6000
(To eliminate intercompany sales)
Deferred tax liability 1800
Retained earnings 1800
(To record tax effect on unrealized profit)
f) Retained earnings 30
Inventory 30
(To eliminate unrealized profit on intercompany sales of inventory)
Deferred tax liability 9
Retained Earnings 9
(To record tax effect on above)
Accounts Payable 80
Accounts Receivable 80
(To eliminate intercompany liability)
Note: The depreciable machine was sold by Kingco Ltd to Bombee Ltd, and it was at a loss of
$6,000. Consolidation entry that loss needs to be eliminated and to give that effect, the inventory
needs to be debited by $6,000. If that loss is eliminated then the profit will increase and the tax
amount on that increased profit needs to be adjusted with deferred tax liability. As per the
concept of consolidation, the intercompany effect of unrealized profit and loss needs to be
eliminated and for doing that the entry given is right.

9CORPORATE ACCOUNTING
Bibliography:
Bhasin, M.L., 2013. Corporate accounting fraud: A case study of Satyam Computers
Limited. Open Journal of Accounting, 2, pp.26-38.
Biondi, Y. and Zambon, S. eds., 2013. Accounting and business economics: Insights from
national traditions. Routledge.
Zadek, S., Evans, R. and Pruzan, P., 2013. Building corporate accountability: Emerging practice
in social and ethical accounting and auditing. Routledge.