Corporate Accounting Assignment: Financial Statement Consolidation

This assignment solution focuses on corporate accounting, specifically addressing the acquisition of New World Retail Ltd by Super Retail Ltd. The solution provides detailed calculations and journal entries related to the acquisition, including the determination of goodwill, fair value adjustments, and the elimination of inter-company transactions. The assignment covers consolidation adjustments for the years ended June 30, 2018, and June 30, 2019, addressing unrealized profits on inventory, inter-company sales of plant and machinery, and the elimination of intercompany loans and interest. The solution also includes an introduction discussing the challenges and complexities of international acquisitions, particularly the differences in accounting standards between countries like Australia and the United States. It emphasizes the role of IFRS in facilitating international business combinations and highlights the importance of harmonization in accounting policies.

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

1CORPORATE ACCOUNTING
Table of Contents
Part A:........................................................................................................................................2
Sub part I:...............................................................................................................................2
Sub part II:..............................................................................................................................3
Sub part III:............................................................................................................................3
Part B:.........................................................................................................................................6
Introduction:...........................................................................................................................6
References and bibliography:.....................................................................................................9

2CORPORATE ACCOUNTING
Part A:
Sub part I:
Acquisition Analysis:
Total Share Capital 26,00,000
Percentage of shares acquired 100%
Value of shares acquired 26,00,000
Cost of Acquisition 6,20,000
Retained earnings at the date of acquisition 2,00,000
Add: Fair value adjustments 20,000
Total retained earnings at the date of
acquisition 2,20,000
Value of Goodwill 4,00,000
Adjustments, elimination entry as on the date of Acquisition:
Particulars Debit Credit
1 Investment in shares of New World Retail 6,20,000
Cash/Bank 6,20,000
(Entry for acquisition of shares
2 Plant and Machinery 20,000
Retained earnings 20,000
(To record the fair value adjustment)
3 Net Assets 2,20,000
Goodwill 4,00,000
Investment in shares of New World Retail 6,20,000
(Elimination entry for consolidation)

3CORPORATE ACCOUNTING
Sub part II:
Adjustment or elimination journal entry as at 30 June 2018
Particulars Debit Credit
1 Plant and Machinery 20000
Retained earnings 20000
(To record the fair value adjustment)
2 Net Assets
22000
0
Goodwill
40000
0
Investment in shares of New World Retail
62000
0
(Elimination entry for consolidation)
3 Retained Earnings 4000
Inventory 4000
(To eliminate the unrealised profit on inter group
transaction)
4 Tax Liability 1200
Retained Earnings 1200
(To eliminate the effect of tax on unrealised profit)
Sub part III:
Adjustments elimination entry as at 30 June 2019
Particulars Debit Credit
1 Plant and Machinery 20000
Retained earnings 20000
(To record the fair value adjustment)
2 Net Assets
22000
0
Goodwill
40000
0
Investment in shares of New World Retail
62000
0
(Elimination entry for consolidation)
3 Retained Earnings 4000
Inventory 4000

4CORPORATE ACCOUNTING
(To eliminate the unrealised profit on inter group
transaction)
4 Tax Liability 1200
Retained Earnings 1200
(To eliminate the effect of tax on unrealised
profit)
5 Retained Earnings 7000
Inventory 7000
(To eliminate unrealised profit on stock on
closing inventory purchased from New World
Ltd)
6 Tax Liability 2100
Retained Earnings 2100
(To eliminate the effect on tax on unrealised
profit)
7 Retained Earnings 45000
Machinery 45000
(To eliminate gain on inter company sale of
machinery)
8 Tax Liability 13500
Retained Earnings 13500
(To eliminate the tax effect on gain on sale of
machinery)
9 Accumulated Depreciation 11111
Retained Earnings 11111
(To record depreciation on machinery assuming a
useful life of 9 years)
1
0 Tax Liability 3333
Retained Earnings 3333
(To record the tax effect on charging depreciation)
1
1 Retained Earnings
Dividend paid

5CORPORATE ACCOUNTING
(To eliminate the inter company dividend
receipts, no tax elimination is required as it is
assumed to be fully franked)
1
2 Accounts Payable 1000
Accounts Receivable 1000
(To eliminate the intergroup outstanding for
services provided)
1
3 Loan From Super Ltd 50000
Loan to New World Retail Ltd 50000
(To record elimination of intergroup loans)
1
4 Retained Earnings 2000
Interest Expense 2000
(To eliminate the intergroup interest payment)
OR
Or no entry is required, as both the sides of
retained entry get adjusted by way of an income
and a subsequent expense. In the same way tax
adjustment is also not required
Interest Payable 1000
Interest Receivable 1000
(To eliminate the effect of outstanding interest
on inter group loan)
1
5 Retained Earnings 4000
Goodwill 4000
(To record impairment of goodwill in the previous years)
Current Year's Retained earnings/Equity 6000
Goodwill 6000
(To record current year's impairment of goodwill)
Notes: In all the above three situations, the first elimination entry or the elimination entry for
investment in shares and previous year adjustment entries have been shown for better
understanding. In all the entries related to profit, loss or gain, the tax effect elimination entry

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has been passed subsequently with the respective entry and a 30% tax rate is assumed for all
the years.

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Part B:
Introduction:
Super Retail is a fast growing Australian company. There are various routs of growth
in the modern and developed business environment. They can grow by generic way by
investing more funds in potential business opportunities, or they can go through the indirect
way by merging and acquiring already established businesses. Their growth in Australia
mainly based on such types of their business strategy. In Australia, as most of the companies
are under the same regulations and following same accounting policies, there would be no
such legal complications or accounting issues in merger and acquisition with Australian
companies (Devalle and Rizzato 2017).
Recently the company wants to grow more by entering into the international market
and are planning to acquire an American company. In this context the company may be
facing some legal complexities and accounting issues, as the American rules and regulations
would be completely different from their existing scenario. Moreover, the accounting policies
and treatments for the American company might be different from the Australian company.
There would be a problem in consolidating and comparing the performances of the American
company. For instances it can be noted that, most of the American companies follows the US
GAAP for their accounting and reporting, whereas, in Australia the accounting policies and
procedures are governed by Australian Accounting Standards Board (AASB). Accounting
standards issued by AASB are mostly followed by all the Australian companies (De Simone
2016).
The comparability and conversion ability of the financial performance and position of
the American business will not be matching with their existing business practices. It does not

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mean that, there is no scope for such an acquisition or merger, it creates some barriers, but
still it can be done if those barriers can be eliminated. If both the companies follows some
international accounting standards and practices then the accounting and reporting issues will
be resolved. For instances if both the company follows the IFRS 15 for their revenue
recognition then, revenue reported by both the companies would be in same line and can be
consolidated easily. Moreover the IFRS3 provides the guidelines and solutions for all the
issues related to the business acquisition and combination. If the company wants to grow
internationally by acquiring business in various countries, then the accounting complications
arising from such acquisitions can be resolved following the guidelines and frameworks of
IFRS 3 (Devalle and Rizzato 2017).
There may be certain political and environmental issues related with the business
organisations in America that too can be eliminated by complying with the legal
requirements, licenses and certificate. Therefore, doing business in abroad may be
challenging and difficult, but it can be done successfully if some international standards, rules
and regulations can be followed. For the Super Retail Ltd, in the given case study the
company is more facing problems with their accounting policies and accounting exposures in
the acquisition of an American company. They are thinking about the differences in
accounting policies, treatments, disclosure requirements and reporting, which can easily be
met and eliminated by using international accounting standards and international reporting
standards. Moreover, they must be using the basic conceptual framework for their accounting
for harmonization in their accounting policies (Karakaya and Kaynak 2018).
Lastly it can be concluded that, though it is not easy to implement same accounting
structures and practices in two companies operating in two different countries, but it can be
harmonized to a large extent by following international accounting and reporting standards.
As can be cited in recent international corporate world, numerous companies are successfully

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investing internationally and doing their business acquiring various companies abroad from
their home country, and internationals accounting and reporting standards are backing them
up for to resolve all of their accounting and reporting issues.

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References and bibliography:
De Simone, L., 2016. Does a common set of accounting standards affect tax-motivated
income shifting for multinational firms?. Journal of Accounting and Economics, 61(1),
pp.145-165.
Devalle, A. and Rizzato, F., 2017. IFRS 3, IAS 36 and disclosure: The determinants of the
quality of Disclosure. GSTF Journal on Business Review (GBR), 2(4).
Gordon, E.A. and Hsu, H.T., 2017. Tangible long-lived asset impairments and future
operating cash flows under US GAAP and IFRS. The Accounting Review, 93(1), pp.187-211.
Johansson, S.E., Hjelström, T. and Hellman, N., 2016. Accounting for goodwill under IFRS:
A critical analysis. Journal of International Accounting, Auditing and Taxation, 27, pp.13-25.
Karakaya, F. and Kaynak, E., 2018. Using International Financial Databases in Teaching
International Accounting Courses. In Utilizing New Information Technology in Teaching of
International Business (pp. 115-126). Routledge.
Kieso, D.E., Weygandt, J.J. and Warfield, T.D., 2016. Intermediate Accounting, Binder
Ready Version. John Wiley & Sons.