Consolidation Worksheet: Financial Accounting and Consolidation

This document presents a detailed solution to a consolidation worksheet assignment. The assignment focuses on the acquisition of Darren Ltd by Ethan Ltd. The solution includes an acquisition analysis at 30 June 2018, business combination valuation entries, and pre-acquisition entries as of 1 July 2017. It outlines the fair value of identifiable assets and liabilities, consideration transferred, and the resulting gain on bargain purchase. The solution also provides the necessary worksheet adjustment journal entries and a completed consolidation worksheet, incorporating data from both companies to derive the consolidated financial position. The tax rate of 30% is considered throughout the calculations. The assignment provides a comprehensive understanding of consolidation procedures in financial accounting.

1.Acquisition analysis At 30 June 2018:
Net fair value of identifiable assets and liabilities of Darren Ltd
= ($54000 + $36000 + $18000) (equity) + $1500 (1 – 30%) (plant) + $2000 (1 – 30%)
(inventory)
= $110450
Consideration transferred = $110000
Gain on bargain purchase = $450
1. Business combination valuation entries
Accumulated depreciation Dr 7500
Plant & machinery Cr 6000
Deferred tax liability Cr 450
Business combination valuation reserve Cr 1050
Depreciation expense Dr 300
Accumulated depreciation Cr 300
(1/5 x $1 500)
Deferred tax liability Dr 90
Income tax expense Cr 90
(30% x $300)
Cost of sales Dr 1 800
Income tax expense Cr 540
Transfer from business combination Cr 1260
valuation reserve
Inventory Dr 200
Deferred tax liability Cr 60
Business combination valuation reserve Cr 140
2. Pre-acquisition entries
At 1 July 2017:
Retained earnings (1/717) Dr 36000
Share capital Dr 54000
Asset revaluation surplus Dr 18000
combination valuation reserve Dr 2450
Gain on bargain purchase Cr 450
Shares in Darren Ltd Cr 110000

Retained earnings (1/7/17) Dr 36 000
Share capital Dr 54 000
Asset revaluation surplus Dr 18 000
Business combination valuation reserve Dr 2 450
Gain on bargain purchase Cr 450
Shares in Darren Ltd Cr 110 000
Transfer from business combination
valuation reserve Dr 1260
Business combination valuation reserve Cr 1260
General reserve Dr 3000
Transfer to general reserve Cr 3000
Worksheet
Ethan Darren Adjustments Group
Ltd Ltd Dr Cr
Profit before tax 120,000 12,500 1 300 450 2 130,850
1 800
Income tax expense 56,000 4,200 90 1 59,570
540 1
Profit 64,000 8,300 71,280
Retained earnings
(1/7/17) 80,000 36,000 2 36,000 80,000
Transfer from BCVR 0 0 2 1,260 1,260 1 0
144,000 44,300 151,280
Transfer to general
reserve 0 3,000 3,000 2 0
Retained earnings
(30/6/18) 144,000 41,300 151,280
Share capital 360,00 54,000 2 54,000 360,000
BCVR 0 0 2 2,450
1,050 1
0140 1
1,260 2
General reserve 10,000 3,000 2 3,000 10,000
514,000 98,300 521,280
Asset revaluation
surplus (1/7/17) 13,500 18,000 2 18,000 13,500
Gains 5,000 2,000 7,000

Asset revaluation
surplus (30/6/18) 18,500 20,000 20,500
532,500 118,300 541,780
Liabilities 42,500 13,000 1 90 450 1 55,920
60 1
575,000 131,300 597,700
Land 160,000 20,000 180,000
Plant & machinery 360,000 125,600 6,000 1 479,600
Accum. depreciation (110,000) (33,000) 1 7,500 300 1 (135,800)
Inventory 55,000 18,700 1 200 73,900
Shares in Darren 110,000 0 110,000 2 0
575,000 131,300 124,600 597,700