Corporate Accounting: Investment, Liquidation & Consolidation Analysis

This assignment solution delves into various aspects of corporate accounting, providing detailed explanations and journal entries for investment in joint ventures, allocation to beneficiaries in liquidation scenarios, and consolidation analysis. It includes calculations for the value of investment, share in profit, goodwill, and the proportion of unsecured options in liquidation. The document also presents consolidated journal entries, addressing share capital, retained earnings, and non-controlling interests. Furthermore, it offers a business report analyzing the requirements for consolidating financial statements according to AASB 10, considering factors such as control, power, and influence over investee entities like Struggle Ltd., VBCL, and MSCL. This comprehensive resource helps in understanding complex accounting procedures and standards.

Corporate Accounting
Corporate Accounting
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Corporate Accounting
Contents
Solution1: Accounting for Investment in Joint Ventures.......................................................................3
Solution 2: Allocation to beneficiaries in case of Liquidation................................................................8
Solution 3: Journal Entries in Consolidation........................................................................................10
Solution 4: Consolidation Analysis.......................................................................................................12
References:..........................................................................................................................................14
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Corporate Accounting
Solution1: Accounting for Investment in Joint Ventures
i) Journal Entries without consolidation:
In the joint venture accounting value of the investment is increased by the share in
profit and decreased by the share in dividend (CFI, no date).
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Working Note:
Calculation of Value of Investment (Amount $)
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 Share in Profit (Amount $)
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

Corporate Accounting
Journal Entries
Sr.
No. Date Entries Amount ($)
1 01-07-
2017
Investment in Fry Ltd. A/c Dr. 50,000.00
To Cash A/c 50,000.00
(Being investment made in Fry Ltd.)
2 30-06-
2018
Investment in Fry Ltd. A/c Dr. 15,000.00
To Share in income of Fry Ltd. A/c 15,000.00
(Being profit share transferred to investment
account)
3 30-06-
2018
Cash A/c Dr. 24,000.00
To Investment in Fry Ltd. A/c 24,000.00
(Being dividend received)
4 30-06-
2019
Investment in Fry Ltd. A/c Dr. 13,500.00
To Share in income of Fry Ltd. A/c 13,500.00
(Being profit share transferred to investment
account)
5 30-06-
2019
Cash A/c Dr. 4,500.00
To Investment in Fry Ltd. A/c 4,500.00
(Being dividend received)
6 30-06-
2020
Investment in Fry Ltd. A/c Dr. 12,000.00
To Share in income of Fry Ltd. A/c 12,000.00
(Being profit share transferred to investment
account)
7 30-06-
2020
Cash A/c Dr. 3,000.00
To Investment in Fry Ltd. A/c 3,000.00
(Being dividend received)
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Corporate Accounting
ii) Journal entries in consolidation:
Working Note:
Calculation of Goodwill (Amount $)
Sales Consideration 50,000.00
Less:
Share in share capital 9,000.00
Share in retained earning 36,000.00
45,000.00
Goodwill 5,000.00
Calculation of amount of investment to be reversed
Year 2018
Profit before tax 80,000.00
Less: Income Tax 30,000.00
Profit after tax 50,000.00
Add: Retained Earning 1,20,000.00
Less: Dividend Paid 80,000.00
Retained Earnings at year end (A) 90,000.00
Share Capital (B) 30,000.00
Total Equity (A + B) 1,20,000.00
Shares in equity to be reversed @ 30 % 9,000.00
Year 2019
Profit before tax 70,000.00
Less: Income Tax 25,000.00
Profit after tax 45,000.00
Add: Retained Earning 90,000.00
Less: Dividend Paid 15,000.00
Retained Earnings at year end (A) 1,20,000.00
Share Capital (B) 30,000.00
Total Equity (A + B) 1,50,000.00
Shares in equity to be reversed @ 30 % 45,000.00
Year 2020
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Corporate Accounting
Profit before tax 60,000.00
Less: Income Tax 20,000.00
Profit after tax 40,000.00
Add: Retained Earning 1,20,000.00
Less: Dividend Paid 10,000.00
Retained Earnings at year end (A) 1,50,000.00
Share Capital (B) 30,000.00
Total Equity (A + B) 1,80,000.00
Shares in equity to be reversed @ 30 % 54,000.00
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Corporate Accounting
Journal Entries
Sr.
No. Date Entries Amount ($)
1 01-07-
2017
Shares in equity of Fry Ltd. A/c Dr. 45,000.00
Goodwill A/c Dr. 5,000.00
To Cash A/c 50,000.00
(Being investment in Fly Ltd. recognized)
2 30-06-
2018
Dividend Income A/c Dr. 24,000.00
To Dividend Expense A/c 24,000.00
(Being dividend of Small Ltd. reversed)
3 30-06-
2018
Share Capital A/c Dr. 9,000.00
Retained Earnings A/c Dr. 27,000.00
To Share in equity of Fry Ltd. A/c 36,000.00
(Being investment in Fly Ltd. reversed)
4 30-06-
2018
Share Capital of Fry Ltd. A/c Dr. 21,000.00
Retained Earnings of Fry Ltd. A/c Dr. 63,000.00
To Minority Interest A/c 84,000.00
(Being share capital transferred to minority
interest)
5 30-06-
2019
Dividend Income A/c Dr. 4,500.00
To Dividend Expense A/c 4,500.00
(Being dividend of Small Ltd. reversed)
6 30-06-
2019
Share Capital A/c Dr. 9,000.00
Retained Earnings A/c Dr. 36,000.00
To Share in equity of Fry Ltd. A/c 45,000.00
(Being investment in Fly Ltd. reversed)
7 30-06-
2019
Share Capital of Fry Ltd. A/c Dr. 21,000.00
Retained Earnings of Fry Ltd. A/c Dr. 84,000.00
To Minority Interest A/c 1,05,000.00
(Being share capital transferred to minority
interest)
8 30-06- Dividend Income A/c Dr.
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Corporate Accounting
2020
3,000.00
To Dividend Expense A/c 3,000.00
(Being dividend of Small Ltd. reversed)
9 30-06-
2020
Share Capital A/c Dr. 9,000.00
Retained Earnings A/c Dr. 45,000.00
To Share in equity of Fry Ltd. A/c 54,000.00
(Being investment in Fly Ltd. reversed)
10 30-06-
2020
Share Capital of Fry Ltd. A/c Dr. 21,000.00
Retained Earnings of Fry Ltd. A/c Dr. 1,05,000.00
To Minority Interest A/c 1,26,000.00
(Being share capital transferred to minority
interest)
Solution 2: Allocation to beneficiaries in case of
Liquidation
In the liquidation process, funds are realized from the assets of the company and distributed
to beneficial (AccountingTool, 2018).
Calculation of allocation of fund realized on liquidation (Amount in $)
Realization from Assets 1,42,50,000.00
Secured Land and Buildings 75,00,000.00
Other Assets 67,50,000.00
Preferential Allocation of Expenses 1,11,00,000.00
Liquidator Expenses 6,00,000.00
Receiver cost on realizing secured assets 1,50,000.00
Secured Creditor (Swayamjit, no date) 90,00,000.00
Tax Payable 10,50,000.00
Local Government Rates 3,00,000.00
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Corporate Accounting
Net amount available to unsecured
liabilities subject to proportionate
distribution 31,50,000.00
Unsecured bank overdraft 4,50,000.00
Unsecured trade payables 14,40,000.00
Staff wages payable 5,40,000.00
Staff leave entitlement 90,000.00
Executive's director wages payable 2,70,000.00
Executive's director leave entitlement 90,000.00
Dividend Payable 2,70,000.00
Net available to contributories NIL
Working Note:
Calculation of proportion of unsecured options (Amount in $)
Payable Percentage
Distributabl
e Amount
Proportionat
e Amount
Unsecured bank overdraft 7,50,000.00
0.14285714
3 31,50,000.00 4,50,000.00
Unsecured trade payables
24,00,000.0
0
0.45714285
7 31,50,000.00 14,40,000.00
Staff wages payable 9,00,000.00
0.17142857
1 31,50,000.00 5,40,000.00
Staff leave entitlement 1,50,000.00
0.02857142
9 31,50,000.00 90,000.00
Executive's director wages
payable 4,50,000.00
0.08571428
6 31,50,000.00 2,70,000.00
Executive's director leave
entitlement 1,50,000.00
0.02857142
9 31,50,000.00 90,000.00
Dividend Payable 4,50,000.00
0.08571428
6 31,50,000.00 2,70,000.00
Total unsecured portion
52,50,000.0
0 31,50,000.00
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Corporate Accounting
Solution 3: Journal Entries in Consolidation
Consolidated Journal Entries
Sr.
No. Date Entries Amount ($)
1 30-06-2019
Share Capital A/c Dr.
1,37,600.0
0
Retained Earnings A/c Dr.
1,69,936.0
0
To Investment in Seven Ltd. A/c 3,06,160.00
To BCVR A/c 1,376.00
(Being effect of holding in investment and
equity eliminated)
2 30-06-2019
Share Capital A/c Dr. 34,400.00
Retained Earnings A/c Dr. 42,484.00
To Non-Controlling Interest A/c 76,884.00
(Being non controlling interest recognized) -
3 30-06-2019 Dividend Income A/c Dr. 63,984.00
To Dividend Exp. A/c 63,984.00
(Being adjustment entry passed for dividend)
4 30-06-2019
Seven Ltd. A/c Dr. 11,180.00
To BCVR A/c 11,180.00
(Being difference of $ 55,900 less $ 44,720
has been recognized in BCVR reserve)
5 30-06-2019
Sales A/c Dr. 6,020.00
To BCVR A/c 6,020.00
(Being unrealized profit on opening
inventory transferred to BCVR)
6 30-06-2019
Sales A/c Dr. 4,816.00
To Inventory A/c 4,816.00
(Being unrealized profit portion in inventory
reversed)
7 30-06-2019
Sales A/c Dr. 2,064.00
To Inventory A/c 2,064.00
(Being unrealized profit portion in inventory
reversed)
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Corporate Accounting
8 30-06-2019
Gain on Plant A/c Dr. 30,100.00
To Plant A/c 30,100.00
(Being unrealized profit on sale of plant
reversed)
9 30-06-2019
Management fees income A/c Dr. 22,790.00
To Management fees expense A/c 22,790.00
(Being unrealized profit on sale of plant
reversed)
Working Note:
1. Acquisition Analysis
As on 01 July 2009
Share Capital of Seven Ltd. 1,72,000.00
Retained Earnings 1,46,200.00
Net Assets 3,18,200.00
Less: Value of Investment 3,06,160.00
Goodwill 12,040.00
2. Calculation of Non Controlling Interest
As on 30 June 2018
Share Capital of Seven Ltd. 172000
Retained Earnings 212420
Net Assets 384420
Non Controlling Interest @ 20% 76884
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Corporate Accounting
Solution 4: Consolidation Analysis
Business Report
Report To : Bill Handy
Designation : Finance Director
Company : Northern Australia Global Investment Ltd (NAGIL)
Subject : Requirement of consolidation of financial statements
Background:
The company has made the investment in number of other entities. It has also
provided the loan to some entities. Consolidation becomes important in this
position as required by AASB 10. We are providing the consolidation analysis
case to case which is as follows:
i) According to AASB 10 “Consolidated Financial Statement”, an entity
should consolidate its financial statement with its subsidiaries, associates,
joint ventures on which the entity can exercise control (Knapp, 2013).
AASB 10 defines the term controls as if the investor is able to exercise his
right in respect of variable returns for the investee & also able to affect the
return through the utilization of power with respect to investee. AASB 10
also defines the term power which means that the investor has the ability
to affect the operational activities of the company (AASB, no date).
In the instant case, the company NAGIL holds the 70 percent stake in the
Struggle Ltd. AASB 10 does not prescribe the specific limit for the
consolidation of the financial statements between two entities. NAGIL
does not hold any position in the board of directors and also it does not
involve in the regular activities (PWC, no date). But, it has substantial
holding in the Struggle Ltd., which means that it any decision in the
Struggle Ltd. may be affected by the NAGIL. As such, NAGIL has
appropriate control in the Struggle Ltd., which may affect the NAGIL’s
return on investment. As such, Para 10 to 18 of AASB has been justified
by the NAGIL.
It may be concluded that NAGIL may prepare the consolidated financial
statement with the company Struggle Ltd.
ii) AASB 10 describes that control through the equity portion is not enough
for the determination of consolidation requirement between two entities.
According to the standard there are no hard and fast rules for the
consolidation requirement (Deloitte, no date). The consolidation is
already based on facts and circumstances of the particular case.
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Corporate Accounting
Meanwhile, there are some criteria such as controls, power in the
subordinate entities (Drew, 2017).
In the instant case, NAGIL has given the loan to the VBCL. The company
VBCL has not been able to repay the loan. Further, based on mutual
agreement, NAGIL has become the part of financial issues i.e. all these
financial issues will be resolved with the consent of office of the NAGIL.
In such case, this event may fall in the relevant activities of the VBCL
because these activities may affect the NAGIL’s return in term of recovery
from the VBCL. As such, NAGIL may consider the financial statement of
VBCL for the purpose of consolidation.
iii) Consolidation of the financial statement of the two or more entities
depends on the factors like there should be control in other entity, control
should be in such form that may affect the return of the investor or
investee entity both etc (ACCA, no date).
In the instant case, NAGIL and SPL, each company have 50 percent stake
in the MSCL. In addition to that, NAGIL has provided the fund to the
MSCL and SPL will manage the managerial fees. Here, for the
consolidation purpose, one needs to justify the control of the one entity in
another entity. In this case, NAGIL has more control in the MSCL in
comparison to the SPL because NAGIL has 50 percent stake as well as it
has provided the fund facility to the MSCL. It has more return influencing
power than the SPL. As such, for the NAGIL, it may prepare the
consolidated statement with the MSCL.
iv) Para 7 of the AASB 10 deals with the controls in the investee company for
the purpose of consolidation (Murray, 2018). The control can be identifies
with the three things such as power in the company in which investment
has been made, power in the company which may affect the return from
these companies and risk of movement in the return. If these three things
are justified, then the companies should prepare the consolidated financial
statement (Orpurt, 2016).
In the instant case, NAGIL has 40 percent stake in the CrocsRUs. The
director of the second company has given the major power of operational
activities to the NAGIL. NAGIL has power of such operating activities, in
which it has the power to influence its interest in the second company. But,
both the director are very active in any decision making process because
NAGIL would not be able to do such things by which it may influence the
return of both the companies. It can be said that the company NABIL has
no control in the CrocsRUs. As such, NAGIL is not requires to prepare the
consolidated financial statements (Sullivan, no date).
Consol:
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Corporate Accounting
XYZ
(Business Advisor)
References:
AASB (no date), Consolidated Financial Statements [Online] Available from:
https://www.aasb.gov.au/admin/file/content105/c9/AASB10_08-11.pdf [Assessed 15
September 2018]
AccountingTool (2018), Liquidation basis of accounting [Online] Available from:
https://www.accountingtools.com/articles/liquidation-basis-of-accounting.html [Assessed 15
September 2018]
ACCA (no date), Preparing simple consolidated financial statements [Online] Available
from: https://www.accaglobal.com/in/en/student/exam-support-resources/fundamentals-
exams-study-resources/f3/technical-articles/preparing-simple-consolidated-financial-
statements.html [Assessed 15 September 2018]
CFI (no date), Associates & Joint Venture Accounting [Online] Available from:
https://corporatefinanceinstitute.com/resources/ebooks/investment-banking/jv-joint-venture-
accounting-associates/ [Assessed 15 September 2018]
Deloitte (no date), Interest in Joint Ventures [Online] Available from:
https://www.iasplus.com/en/standards/ias/ias31 [Assessed 15 September 2018]
Drew, J. (2017), FASB issues proposal for consolidation of VIEs [Online] Available from:
https://www.journalofaccountancy.com/news/2017/jun/private-company-accounting-
alternative-for-vie-consolidation-201716931.html [Assessed 15 September 2018]
Knapp, J. (2013), A Reconsideration of Consolidation Accounting Requirements and Pre-
acquisition Dividends [Online] Available from:
https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1835-2561.2012.00190.x [Assessed 15
September 2018]
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Corporate Accounting
Murray, J. (2018), What is Joint Venture and How Does It Works? [Online] Available from:
https://www.thebalancesmb.com/what-is-a-joint-venture-and-how-does-it-work-397540
[Assessed 15 September 2018]
Orpurt, S. (2016), Why Consolidation Accounting Matters to Reporters [Online] Available
from: https://businessjournalism.org/2016/08/business-basics-consolidation-accounting-
matters-reporters/ [Assessed 15 September 2018]
PWC (no date), Consolidation / Joint Venture Formation Accounting [Online] Available
from: https://www.pwc.com/us/en/services/audit-assurance/accounting-advisory/
consolidations-joint-venture-formation-accounting.html [Assessed 15 September 2018]
Swayamjit (no date), Liquidator’s Financial Statement of Account [Online] Available from:
http://www.yourarticlelibrary.com/accounting/liquidation-of-companies/liquidators-final-
statement-of-account-with-format/58525 [Assessed 15 September 2018]
Sullivan, D. (no date), Joint Venture Accounting Methods [Online] Available from:
https://work.chron.com/joint-venture-accounting-methods-28514.html [Assessed 15
September 2018]
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