1. l Consolidations WEEK 1 TEXT CHAP 13 & 14 AASB 1024 TEXT CHAP 13 & 14 AASB 1024

2. Investments in other companies l Cost method l A Ltd purchases shares in B Ltd $100 000 DR Investment in B Ltd 100 000 CR Cash 100 000 l Balance Sheet Investments (note 6) 100 000 l Consolidation is how do we record this amount when A Ltd has substantial ownership/control in B Ltd

3. Investments in other companies l Cost method –records asset at cost & records dividends received l Equity method –where company has a significant influence over another company AASB 1016/ AAS14 l Consolidation method –where one company gains “control” of another company

4. Consolidation l Where a company gains control of another company -referred to as the parent or chief entity - it is required to prepare consolidated accounts of its affairs & the entities under its control - subsidiaries (The company will still use cost method & then do adjustments to comply with requirements for consolidation) l Consolidated accounts as per AASB 1024 & Corporations law Consolidated Profit & Loss Consolidated Balance Sheet Consolidated Cash Flow Statement

5. l Consolidated accounts are prepared by adding together the accounts of the entities comprising the economic entity l Consolidated accounts are required in addition to the individual accounts CONSOLIDATION

6. l Parent entity/ Subsidiary e.g. company A controls company B Company A is required to prepare consolidated accounts for A & its subsidiary B ( A is the parent and B is the subsidiary) l Control as per corporations law controls composition of the board controls maximum number of votes holds more than 50% of issued capital l AASB control capacity of an entity to dominate the decision- making.....of another entity Definitions

7. Consolidation process l Firstly, to identify the parent entity and all of its subsidiaries (i.e. the economic entity) l Control is assumed to exist in this course if one company owns more than 50% of another company –please note that in practice control may not exist with 50% ownership but may in fact exist with less

8. Entity concept of consolidation 60% O.E.I. 40% A LTD B LTD O.E.I. is the equity of the entity other than that of the parent entity

9. Adjustment entries on consolidation l Two major types of adjustments Eliminate the investment ‘Shares in subsidiary’ (referred to as the pre-acquisition entry)

10. Adjustment entries on consolidation l Two major types of adjustments Eliminate the investment ‘Shares in subsidiary’ (referred to as the pre-acquisition entry) Eliminations of inter-company transactions ( future weeks)

11. Adjustment entries on consolidation l Two major types of adjustments Eliminate the investment ‘Shares in subsidiary’ (referred to as the pre-acquisition entry) Eliminations of inter-company transactions ( future weeks)

12. Adjustment entries on consolidation l Two major types of adjustments Eliminate the investment ‘Shares in subsidiary’ (referred to as the pre-acquisition entry) Eliminations of intercompany transactions ( future weeks) Assumptions Week 1 1) Wholly Owned Subsidiaries 2) Net Assets Acquired at Fair Values Assumptions Week 1 1) Wholly Owned Subsidiaries 2) Net Assets Acquired at Fair Values

13. Pre-acquisition adjustment l Assume that H Ltd gains control of S Ltd by purchasing all of its issued capital for $20,000 cash on 1 July 19x0 and that, immediately prior to purchase the Balance Sheets of H Ltd & S Ltd were :- H LTD S LTD CAPITAL 30,000 15,000 RETAINED PROFITS 15,000 5,000 $45,000 $20,000 CASH 20,000 - OTHER ASSETS 25,000 20,000 $45,000 $20,000

14. Pre-acquisition adjustment l Assume that H Ltd gains control of S Ltd by purchasing all of its issued capital for $20,000 cash on 1 July 19x0 and that, immediately prior to purchase the Balance Sheets of H Ltd & S Ltd were :- H LTD S LTD CAPITAL 30,000 15,000 RETAINED PROFITS 15,000 5,000 $45,000 $20,000 CASH 20,000 - OTHER ASSETS 25,000 20,000 $45,000 $20,000 SHARES IN S LTD IMMEDIATELY AFTER ACQUISITION BALANCE SHEETS IMMEDIATELY AFTER ACQUISITION BALANCE SHEETS

15. PRE-ACQUISITION ADJUSTMENT l Assume that H Ltd gains control of S Ltd by purchasing all of its issued capital for $20,000 cash on 1 July 19x0 and that, immediately prior to purchase the Balance Sheets of H Ltd & S Ltd were :- H LTD S LTD CAPITAL 30,000 15,000 RETAINED PROFITS 15,000 5,000 $45,000 $20,000 SHARES IN S LTD 20,000 - OTHER ASSETS 25,000 20,000 $45,000 $20,000 WHAT DID H LTD ACQUIRE FOR ITS $20,000 NET ASSETS OF S LTD i.e. CAPITAL $15,000& RETAINED PROFITS $5,000 WHAT DID H LTD ACQUIRE FOR ITS $20,000 NET ASSETS OF S LTD i.e. CAPITAL $15,000& RETAINED PROFITS $5,000

16. Pre-acquisition adjustment l Assume that H Ltd gains control of S Ltd by purchasing all of its issued capital for $20,000 cash on 1 July 19x0 and that, immediately prior to purchase the Balance Sheets of H Ltd & S Ltd were :- H LTD S LTD CAPITAL 30,000 15,000 RETAINED PROFITS 15,000 5,000 $45,000 $20,000 SHARES IN S LTD 20,000 - OTHER ASSETS 25,000 20,000 $45,000 $20,000 EQUITY ACQUIRED CAPITAL 15,000 RETAINED PROFITS 5,000 COST OF EQUITY 20,000 EQUITY ACQUIRED CAPITAL 15,000 RETAINED PROFITS 5,000 COST OF EQUITY 20,000

17. Pre-acquisition adjustment l Assume that H Ltd gains control of S Ltd by purchasing all of its issued capital for $20,000 cash on 1 July 19x0 and that, immediately prior to purchase the Balance Sheets of H Ltd & S Ltd were :- H LTD S LTD CAPITAL 30,000 15,000 RETAINED PROFITS 15,000 5,000 $45,000 $20,000 SHARES IN S LTD 20,000 - OTHER ASSETS 25,000 20,000 $45,000 $20,000 EQUITY ACQUIRED CAPITAL 15,000 RETAINED PROFITS 5,000 COST OF EQUITY 20,000 EQUITY ACQUIRED CAPITAL 15,000 RETAINED PROFITS 5,000 COST OF EQUITY 20,000 Consolidation entry:: DR CAPITAL 15,000 DR RET. PROFITS 5,000 CR SHARES IN S LTD 20,000 Consolidation entry:: DR CAPITAL 15,000 DR RET. PROFITS 5,000 CR SHARES IN S LTD 20,000

18. Consolidation Worksheet H LTD S LTD ADJUST’S CONS DR CR CAPITAL 30,000 15,000 RETAINED PROF 15,000 5,000 $45,000 $20,000 SHARES IN S LTD 20,000 OTHER ASSETS 25,000 20,000 $45,000 $20,000

19. Consolidation Worksheet H LTD S LTD ADJUST’S CONS DR CR CAPITAL 30,000 15,000 15,000 RETAINED PROF 15,000 5,000 5,000 $45,000 $20,000 SHARES IN S LTD 20,000 20,000 OTHER ASSETS 25,000 20,000 $45,000 $20,000

20. Consolidation Worksheet H LTD S LTD ADJUST’S CONS DR CR CAPITAL 30,000 15,000 15,000 30,000 RETAINED PROF 15,000 5,000 5,000 15,000 $45,000 $20,000 $45,000 SHARES IN S LTD 20,000 20,000 - OTHER ASSETS 25,000 20,000 45,000 $45,000 $20,000 $45,000

21. Worksheet - after one year H LTD S LTD ADJUST’S CONS DR CR CAPITAL 30,000 15,000 15,000 30,000 RETAINED PROF 25,000 12,000 5,000 32,000 $55,000 $27,000 $62,000 SHARES IN S LTD 20,000 20,000 - OTHER ASSETS 35,000 27,000 62,000 $55,000 $27,000 $62,000 In following years Adj entry will be the same i.e. based on Acq date

22. Pre-acquistion Dividends l 3 cases (1) Dividend payable at date of acquisition (2) Dividend paid subsequent to acquisition (3) Dividend payable since acquisition DIVIDENDS FROM PROFITS BEFORE ACQUISITION DIVIDENDS FROM PROFITS BEFORE ACQUISITION

23. Pre-acquisition dividends Dividend Payable @ acq l Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :- S LTD CAPITAL 15,000 RETAINED PROFITS 3,500 DIVIDEND PAYABLE 1,500 $20,000 ASSETS $20,000

24. Pre-acquisition dividends Dividend Payable @ acq l Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was : - S LTD CAPITAL 15,000 RETAINED PROFITS 3,500 DIVIDEND PAYABLE 1,500 $20,000 ASSETS $20,000 entry:: Equity Acquired Capital 15,000 Retd. Profits 3,500 Divid. Payable 1,500 Cost $20,000 (includes dividend receivable $1 500)

25. Pre-acquisition dividends Dividend Payable @ acq l Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :- S LTD CAPITAL 15,000 RETAINED PROFITS 3,500 DIVIDEND PAYABLE 1,500 $20,000 ASSETS $20,000 Purchase entry in books:- DR Shares in Sub 18 500 DR Dividend Receivable 1 500 CR Cash 20 000 (Pre-acq dividend : reduction in carrying amount of investment) Purchase entry in books:- DR Shares in Sub 18 500 DR Dividend Receivable 1 500 CR Cash 20 000 (Pre-acq dividend : reduction in carrying amount of investment)

26. Pre-acquisition dividends Dividend Payable @ acq l Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was : - S LTD CAPITAL 15,000 RETAINED PROFITS 3,500 DIVIDEND PAYABLE 1,500 $20,000 ASSETS $20,000 entry:: Capital 15,000 Retd. Profits 3,500 Div. Payable 1,500 Div Receivable 1,500 Shares in Sub 18,500 (Pre-acq entry) entry:: Equity Acquired Capital 15,000 Retd. Profits 3,500 Divid. Payable 1,500 Cost $20,000 (includes dividend receivable $1 500) Purchase entry in books:- DR Shares in Sub 18 500 DR Dividend Receivable 1 500 CR Cash 20 000 (Pre-acq dividend : reduction in carrying amount of investment) Purchase entry in books:- DR Shares in Sub 18 500 DR Dividend Receivable 1 500 CR Cash 20 000 (Pre-acq dividend : reduction in carrying amount of investment)

27. Pre-acquisition dividends Dividend Payable @ acq l Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :- S LTD CAPITAL 15,000 RETAINED PROFITS 3,500 DIVIDEND PAYABLE 1,500 $20,000 ASSETS $20,000 consolidation entry:: SUBSEQUENT YEARS CAPITAL 15,000 RETD. PROFITS 3,500 Shares in Sub 18,500 entry:: Capital 15,000 Retd. Profits 3,500 Div. Payable 1,500 Div Receivable 1,500 Shares in Sub 18,500 (Pre-acq entry)

28. Pre-acquisition dividends Dividend Paid after acq l Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :- S LTD CAPITAL 15,000 RETAINED PROFITS 5,000 $20,000 ASSETS $20,000 Since acquisition S Ltd pays a dividend $3,000 from pre-acquisition profits

29. Pre-acquisition dividends Dividend Paid after acq l Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was : - S LTD CAPITAL 15,000 RETAINED PROFITS 5,000 $20,000 ASSETS $20,000 Since acquisition S Ltd pays a dividend $3,000 from pre-acquisition profits CONSOLIDATION ENTRY:: DR CAPITAL 15,000 DR RET.PROFITS 5,000 CR SHARES IN SUB 20,000 (Pre-acq @ acquisition date) CONSOLIDATION ENTRY:: DR CAPITAL 15,000 DR RET.PROFITS 5,000 CR SHARES IN SUB 20,000 (Pre-acq @ acquisition date)

30. Pre-acquisition dividends Dividend Paid after acq l Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was : - S LTD CAPITAL 15,000 RETAINED PROFITS 5,000 $20,000 ASSETS $20,000 Since acquisition S Ltd pays a dividend $3,000 from pre-acquisition profits SINCE Acquisition ENTRY in Books:: Subsidiary DR RET.PROFITS 3,000 (Dividend Paid) CR Bank 3,000 Holding Coy DR Bank 3,000 Cr Shares in Sub 3,000 SINCE Acquisition ENTRY in Books:: Subsidiary DR RET.PROFITS 3,000 (Dividend Paid) CR Bank 3,000 Holding Coy DR Bank 3,000 Cr Shares in Sub 3,000

31. Pre-acquisition dividends Dividend Paid after acq l Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :- S LTD CAPITAL 15,000 RETAINED PROFITS 5,000 $20,000 ASSETS $20,000 SINCE ACQUISITION S LTD PAYS A DIVIDEND $3,000 FROM PRE-ACQUISITION PROFITS ENTRY:: DR CAPITAL 15,000 DR RET.PROFITS 5,000 CR DIVIDEND PAID 3,000 CR SHARES IN SUB 17,000 ENTRY:: DR CAPITAL 15,000 DR RET.PROFITS 5,000 CR DIVIDEND PAID 3,000 CR SHARES IN SUB 17,000 SINCE Acquisition ENTRY in Books:: Subsidiary DR RET.PROFITS 3,000 (Dividend Paid) CR Bank 3,000 Holding Coy DR Bank 3,000 Cr Shares in Sub 3,000 SINCE Acquisition ENTRY in Books:: Subsidiary DR RET.PROFITS 3,000 (Dividend Paid) CR Bank 3,000 Holding Coy DR Bank 3,000 Cr Shares in Sub 3,000 CONSOLIDATION ENTRY:: DR CAPITAL 15,000 DR RET.PROFITS 5,000 CR SHARES IN SUB 20,000 (Pre-acq @ acquisition date) CONSOLIDATION ENTRY:: DR CAPITAL 15,000 DR RET.PROFITS 5,000 CR SHARES IN SUB 20,000 (Pre-acq @ acquisition date)

32. Pre-acquisition dividends Dividend Paid after acq l Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :- S LTD CAPITAL 15,000 RETAINED PROFITS 5,000 $20,000 ASSETS $20,000 SINCE ACQUISITION H LTD PAYS A DIVIDEND $3,000 FROM PRE-ACQUISITION PROFITS ENTRY:: DR CAPITAL 15,000 DR RET.PROFITS 5,000 CR DIVIDEND PAID 3,000 CR SHARES IN SUB 17,000 ENTRY:: DR CAPITAL 15,000 DR RET.PROFITS 5,000 CR DIVIDEND PAID 3,000 CR SHARES IN SUB 17,000 SUBSEQUENT YEARS:: DR CAPITAL 15,000 DR RET. PROFITS 2,000 CR SHARES IN SUBS 17,000 SUBSEQUENT YEARS:: DR CAPITAL 15,000 DR RET. PROFITS 2,000 CR SHARES IN SUBS 17,000

33. Pre-acquisition dividends declared but not paid l Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was :- S LTD CAPITAL 15,000 RETAINED PROFITS 5,000 $20,000 ASSETS $20,000 Since acquisition S Ltd provides for a dividend $3,000 from pre-acquisition profits

34. Pre-acquisition dividends declared but not paid l Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was : - S LTD CAPITAL 15,000 RETAINED PROFITS 5,000 $20,000 ASSETS $20,000 Since acquisition S Ltd pays a dividend $3,000 from pre-acquisition profits Pre-acq adjustment: Dr Capital 15 000 DR R P 5 000 Cr Shares in Sub 20 000 Pre-acq adjustment: Dr Capital 15 000 DR R P 5 000 Cr Shares in Sub 20 000

35. Pre-acquisition dividends declared but not paid l Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was : - S LTD CAPITAL 15,000 RETAINED PROFITS 5,000 $20,000 ASSETS $20,000 Since acquisition S Ltd pays a dividend $3,000 from pre-acquisition profits Entries in Books :: Subsidiary Coy Dr Retained Profits 3 000 ( Dividend Provided) CR Provision for Dividend 3 000 Holding Coy DR Dividend Receivable 3 000 Cr Shares in Subsidiary 3 000 Entries in Books :: Subsidiary Coy Dr Retained Profits 3 000 ( Dividend Provided) CR Provision for Dividend 3 000 Holding Coy DR Dividend Receivable 3 000 Cr Shares in Subsidiary 3 000

36. Pre-acquisition dividends declared but not paid l Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was : - S LTD CAPITAL 15,000 RETAINED PROFITS 5,000 $20,000 ASSETS $20,000 Since acquisition S Ltd pays a dividend $3,000 from pre-acquisition profits Pre-acq adjustment: Dr Capital 15 000 DR R P 5 000 Dr Provision for Div 3 000 Cr Dividend Provided 3 000 Cr Dividend Receivable 3 000 Cr Shares in Sub 17 000 Pre-acq adjustment: Dr Capital 15 000 DR R P 5 000 Dr Provision for Div 3 000 Cr Dividend Provided 3 000 Cr Dividend Receivable 3 000 Cr Shares in Sub 17 000 Pre-acq adjustment: Dr Capital 15 000 DR R P 5 000 Cr Shares in Sub 20 000 Pre-acq adjustment: Dr Capital 15 000 DR R P 5 000 Cr Shares in Sub 20 000 Entries in Books :: Subsidiary Coy Dr Retained Profits 3 000 ( Dividend Provided) CR Provision for Dividend 3 000 Holding Coy DR Dividend Receivable 3 000 Cr Shares in Subsidiary 3 000 Entries in Books :: Subsidiary Coy Dr Retained Profits 3 000 ( Dividend Provided) CR Provision for Dividend 3 000 Holding Coy DR Dividend Receivable 3 000 Cr Shares in Subsidiary 3 000

37. Pre-acquisition dividends declared but not paid l Assume H Ltd acquired 100% of S Ltd for $20,000 cash, the Balance Sheet of S Ltd at that date was : - S LTD CAPITAL 15,000 RETAINED PROFITS 5,000 $20,000 ASSETS $20,000 Since acquisition S Ltd pays a dividend $3,000 from pre-acquisition profits Following year: Dr Capital 15 000 DR R P 2 000 Cr Shares in Sub 17 000 Following year: Dr Capital 15 000 DR R P 2 000 Cr Shares in Sub 17 000 Pre-acq adjustment: Dr Capital 15 000 DR R P 5 000 Dr Provision for Div 3 000 Cr Dividend Provided 3 000 Cr Dividend Receivable 3 000 Cr Shares in Sub 17 000 Pre-acq adjustment: Dr Capital 15 000 DR R P 5 000 Dr Provision for Div 3 000 Cr Dividend Provided 3 000 Cr Dividend Receivable 3 000 Cr Shares in Sub 17 000

38. Goodwill / Discount on acquisition l Goodwill Fair values of assets acquired less than the fair value of assets given up (must be written off over a maximum of 20 years) l Discount Fair values of assets acquired greater than fair values of assets given up (must be written off fair values of non-monetary assets)

39. Goodwill At 1 July 19x0 Green Ltd acquired control of Trees Ltd by purchasing all of its issued shares for $100,000. At this date the accounts of Trees Ltd contained the following balances :- CAPITAL 60,000 GENERAL RESERVE 10,000 RET. PROFITS 20,000 Any goodwill acquired amortised over 10 years.

40. GOODWILL At 1 July 19x0 Green Ltd acquired control of Trees Ltd by purchasing all of its issued shares for $100,000. At this date the accounts of Trees Ltd contained the following balances :- CAPITAL 60,000 GENERAL RESERVE10,000 RET. PROFITS 20,000 Any goodwill acquired amortised over 10 years. entry at date acquisition:: DR CAPITAL 60,000 DR GEN RESERVE10,000 DR RET. PROFITS 20,000 DR GOODWILL 10,000 CR SHARES IN S 100,000

41. GOODWILL At 1 July 19x0 Green Ltd acquired control of Trees Ltd by purchasing all of its issued shares for $100,000. At this date the accounts of Trees Ltd contained the following balances :- CAPITAL 60,000 General Reserve 10,000 RET. PROFITS 20,000 Any goodwill acquired amortised over 10 years. entry after 1 year: DR OPER. PROF 1,000 DR CAPITAL 60,000 DR G.R. 10,000 DR R.P. 20,000 DR GOODWILL 10,000 CR Acc Amortisation 1,000 CR SHARES IN S 100,000 entry after 1 year: DR OPER. PROF 1,000 DR CAPITAL 60,000 DR G.R. 10,000 DR R.P. 20,000 DR GOODWILL 10,000 CR Acc Amortisation 1,000 CR SHARES IN S 100,000

42. GOODWILL At 1 July 19x0 Green Ltd acquired control of Trees Ltd by purchasing all of its issued shares for $100,000. At this date the accounts of Trees Ltd contained the following balances :- CAPITAL 60,000 SHARE PREMIUM 10,000 RET. PROFITS 20,000 Any goodwill acquired amortised over 10 years.. entry AFTER 2 YEARS :: DR OPER. PROFIT 1,000 DR CAPITAL 60,000 DR GEN RESERVE10,000 DR RET. PROFITS 21,000 DR GOODWILL 10,000 CR Acc amortisation 2,000 CR SHARES IN S 100,000 entry after 1 year: DR OPER. PROF 1,000 DR CAPITAL 60,000 DR G.R. 10,000 DR R.P. 20,000 DR GOODWILL 10,000 CR Acc Amortisation 1000 CR SHARES IN S 100000 entry after 1 year: DR OPER. PROF 1,000 DR CAPITAL 60,000 DR G.R. 10,000 DR R.P. 20,000 DR GOODWILL 10,000 CR Acc Amortisation 1000 CR SHARES IN S 100000

43. Discount on Acquisition Assume that on 1 July 19x0, H Ltd acquires all the issued shares of S Ltd for $17,000. The share capital section of S Ltd at that date was : CAPITAL 15,000 RESERVES 3,000 RET. PROFITS 2,000 CURRENT ASSETS 5,000 LAND 10,000 EQUIPMENT 5,000 EQUITY ACQUIRED: CAPITAL 15,000 RESERVES 3,000 RET PROFITS 2,000 20,000 COST OF SUBS 17,000 DISCOUNT $3,000

44. DISCOUNT ON ACQUISITION Assume that on 1 July 19x0, H Ltd acquires all the issued shares of S Ltd for $17,000. The share capital section of S Ltd at that date was : CAPITAL 15,000 RESERVES 3,000 RET. PROFITS 2,000 CURRENT ASSETS 5,000 LAND 10,000 EQUIPMENT 5,000 EQUITY ACQUIRED: CAPITAL 15,000 RESERVES 3,000 RET PROFITS 2,000 20,000 COST OF SUBS 17,000 DISCOUNT $3,000 DISCOUNT AGAINST FAIR VALUES NON-MONETARY ASSETS BV Gross* Tax LAND 10,000 (10/15 $3,000) 2,000 2,857 ( 857) EQUIP 5,000 ( 5/15 ) 1,000 1,429 (429) $3,000 * Divide by.7

45. DISCOUNT ON ACQUISITION Assume that on 1 July 19x0, H Ltd acquires all the issued shares of S Ltd for $17,000. The share capital section of S Ltd at that date was : CAPITAL 15,000 RESERVES 3,000 RET. PROFITS 2,000 CURRENT ASSETS 5,000 LAND 10,000 EQUIPMENT 5,000 EQUITY ACQUIRED: CAPITAL 15,000 RESERVES 3,000 RET PROFITS 2,000 20,000 COST OF SUBS 17,000 DISCOUNT $3,000 DR CAPITAL 15,000 DR RESERVES 3,000 DR RET. PROFITS 2,000 CR LAND 2,857 Dr Deferred Tax Asset 857 CR EQUIPMENT 1,429 Dr Deferred Tax Asset 429 CR SHARES IN S 17,000 DISCOUNT AGAINST FAIR VALUES NON-MONETARY ASSETS BV Gross* Tax LAND 10,000 (10/15 $3,000) 2,000 2,857 ( 857) EQUIP 5,000 ( 5/15 ) 1,000 1,429 (429) $3,000 * Divide by.7

46. DISCOUNT ON ACQUISITION Assume that on 1 July 19x0, H Ltd acquires all the issued shares of S Ltd for $17,000. The share capital section of S Ltd at that date was : CAPITAL 15,000 RESERVES 3,000 RET. PROFITS 2,000 CURRENT ASSETS 5,000 LAND 10,000 EQUIPMENT 5,000 ENTRY AFTER 1 YEAR ASSUME EQUIP 10 YEARS LIFE CR DEPREC 143 DR ACC DEPN 143 DR Tax Expense 43 DR CAPITAL 15,000 DR RESERVES 3,000 DR RET. PROFITS 2,000 CR LAND 2,857 Dr Deferred Tax Asset 857 CR EQUIPMENT 1,429 Dr Deferred Tax Asset 386 CR SHARES IN S 17,000 DR CAPITAL 15,000 DR RESERVES 3,000 DR RET. PROFITS 2,000 CR LAND 2,857 Dr Deferred Tax Asset 857 CR EQUIPMENT 1,429 Dr Deferred Tax Asset 429 CR SHARES IN S 17,000

47. DISCOUNT ON ACQUISITION Assume that on 1 July 19x0, H Ltd acquires all the issued shares of S Ltd for $17,000. The share capital section of S Ltd at that date was : CAPITAL 15,000 RESERVES 3,000 RET. PROFITS 2,000 CURRENT ASSETS 5,000 LAND 10,000 EQUIPMENT 5,000 ENTRY AFTER 1 YEAR ASSUME EQUIP 10 YEARS LIFE CR DEPREC 143 DR ACC DEPN 143 DR Tax Expense 43 DR CAPITAL 15,000 DR RESERVES 3,000 DR RET. PROFITS 2,000 CR LAND 2,857 Dr Deferred Tax Asset 857 CR EQUIPMENT 1,429 Dr Deferred Tax Asset 386 CR SHARES IN S 17,000 ENTRY AFTER 2 YEARs ASSUME EQUIP 10 YEARS LIFE CR DEPREC 143 DR ACC DEPN 286 DR Tax Expense 43 DR CAPITAL 15,000 DR RESERVES 3,000 DR RET. PROFITS 1,900 CR LAND 2,857 Dr Deferred Tax Asset 857 CR EQUIPMENT 1,429 Dr Deferred Tax Asset 343 CR SHARES IN S 17,000

48. Accumulated Depreciation at acquisition The accumulated balances on acquisition should be written off: as the consolidation is adjusting to fair values therefore write off accumulated depreciation eg P Ltd purchases S Ltd & on that date balances as follows Plant 80 000 Acc Depn 22 000 58 000 Furniture 32 000 Acc Depn 12 000 20 000

49. Accumulated Depreciation at acquisition The accumulated balances on acquisition should be written off: as the consolidation is adjusting to fair values therefore write off accumulated depreciation eg P Ltd purchases S Ltd & on that date balances as follows Plant 80 000 Acc Depn 22 000 58 000 Furniture 32 000 Acc Depn 12 000 20 000 ENTRY DR Acc Depn - Plant 22 000 Cr Plant 22 000 Dr Acc Depn - Furn 12 000 Cr Furniture 12 000

50. Tutorial Questions l Exercise 14.1 l Exercise 14.2 l Exercise 14.4 l Problem 14.1 l Problem 14.2