consolidation worksheet

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Question 10.4
Worksheet entries at acquisition date and in subsequent year, no fair value/carrying
amount differences at acquisition date, bargain purchase ⋆ LO4, 5
On 1 July 2022, John Ltd acquired all the issued shares of Robert Ltd for $153  000. At
this date the equity of Robert Ltd was recorded as follows:
Share capital $ 80  000
General reserve
30000
Retained earnings
40000
    All the identifiable assets and liabilities were recorded at amounts equal to their fair
values.
Required
(a) Prepare the consolidation worksheet entries at 1 July 2022 and 1 July 2023
assuming John Ltd paid $153  000 for the shares in Robert Ltd.
(b) Prepare the consolidation worksheet entries at 1 July 2022 and 1 July 2023
assuming John Ltd paid $148  000 for the shares in Robert Ltd.
(c) Prepare the consolidation worksheet entries at 1 July 2022 assuming John Ltd
paid $145  000 for the shares in Robert Ltd and at that date Robert Ltd had recorded
goodwill of $4000.
(a) Consideration of $153 000:
Acquisition analysis
At 1 July 2022:
Net fair value of identifiable assets
and liabilities of Robert Ltd =
($80 000 + $30 000 + $40 000) (equity)
=
=
=
=
$150 000
$153 000
Consideration transferred
Goodwill acquired
$153 000 – $150 000
$3 000
Worksheet entries at 1 July 2022:
Business combination valuation entries:
Goodwill
Dr
3 000
Business combination valuation reserve
Cr
3 000
Pre-acquisition entries:
Retained earnings (1/7/22)
Share capital
General reserve
Dr 40 000
Dr
Dr
80 000
30 000
Business combination valuation reserve
Dr
3 000
Shares in Robert Ltd
Cr
153 000
Worksheet entries at 1 July 2023:
 The entries are the same as those above.
(b) Consideration of $148 000:
Acquisition analysis
At 1 July 2022:
Net fair value of identifiable assets
and liabilities of Robert Ltd =
($80 000 + $30 000 + $40 000) (equity)
=
=
=
=
$150 000
$148 000
Consideration transferred
Gain on bargain purchase
$148 000 – $150 000
$2 000
Worksheet entries at 1 July 2022:
Pre-acquisition entries:
Retained earnings (1/7/22)
Share capital
General reserve
Gain on bargain purchase
Shares in Robert Ltd
Worksheet entries at 1 July 2023:
Retained earnings (1/7/23)
Share capital
General reserve
Shares in Robert Ltd
Dr
Dr
Dr
Cr
Cr
40 000
80 000
30 000
2 000
148 000
Dr
Dr
Dr
Cr
38 000
80 000
30 000
148 000
(c) Consideration of $145 000 and recorded goodwill of $4000:
Acquisition analysis
At 1 July 2022:
Net fair value of identifiable assets
and liabilities of Robert Ltd
=
($80 000 + $30 000 + $40 000) (equity)
– $4 000 (goodwill)
=
=
=
=
$146 000
$145 000
Consideration transferred
Gain on bargain purchase
$145 000 – $146 000
$1 000
Worksheet entries at 1 July 2022:
Business combination valuation reserve entries:
Business combination valuation reserve
Dr
4 000
Goodwill
Cr
4 000
Pre-acquisition entries:
Retained earnings (1/7/22)
Share capital
General reserve
Business combination valuation reserve
Gain on bargain purchase
Shares in Robert Ltd
Question 10.6
Dr
Dr
Dr
Cr
Cr
Cr
40 000
80 000
30 000
4 000
1 000
145 000
Business combination valuation entries, pre-acquisition entries ⋆ LO5
On 1 July 2022, Mutt Ltd acquired all the issued shares of Jeff Ltd for $174  800. At this
date the equity of Jeff Ltd consisted of share capital of $80  000 and retained earnings of
$68  800. All the identifiable assets and liabilities of Jeff Ltd were recorded at amounts
equal to fair value except for:
Carrying amount Fair value
Patent
Plant (cost $80000)
$ 60000
40000
$ 72000
48000
Inventories
21600
28000
              The patent was considered to have an indefinite life. It was calculated that the plant had
a further life of 10 years, and was depreciated on a straight-line basis. All the
inventories were sold by 30 June 2023. In June 2023, Jeff Ltd conducted an impairment
test on the patent, as it was considered to have an indefinite life, and the goodwill. As a
result, the goodwill was considered to be impaired by $1200.
In May 2023, Jeff Ltd transferred $20  000 from the retained earnings on hand at 1 July
2022 to a general reserve. The tax rate is 30%.
Required
Prepare the consolidation worksheet adjustments entries at 1 July 2022 and 30 June
2023.
At 1 July 2022:
Net fair value of identifiable assets
and liabilities of Jeff Ltd
=
($80 000 + $68 800) (equity)
+$6 400 (1 – 30%) (inventory)
+ $12 000 (1 – 30%) (patent)
+ $8 000 (1 – 30%) (plant)
$167 280
$174 800
$7 520
=
=
=
Consideration transferred
Goodwill
Worksheet entries at 1 July 2022:
Business combination valuation entries:
Inventory
Deferred tax liability
Business combination valuation reserve
Dr
Cr
Cr
6 400
Patent
Deferred tax liability
Business combination valuation reserve
Dr
Cr
Cr
12 000
*Accumulated depreciation – equipment
Equipment
Deferred tax liability
Business combination valuation reserve
Dr
Cr
Cr
Cr
40 000
*Refer to end of solution for an alternative to this journal entry.
Goodwill
Business combination valuation reserve
Dr
Cr
7 520
Pre-acquisition entries:
Retained earnings (1/7/22)
Share capital
Business combination valuation reserve
Shares in Jeff Ltd
Dr
Dr
Dr
Cr
68 800
80 000
26 000
Worksheet entries at 30 June 2023:
Business combination valuation entries:
Note: the entries at 1 July 2022 are affected by the:



sale of the inventory
depreciation of the plant
impairment of the goodwill.
Cost of sales
Income tax expense
Transfer from business combination
valuation reserve
Dr
Cr
6 400
Cr
Patent
Deferred tax liability
Business combination valuation reserve
Dr
Cr
Cr
12 000
Accumulated depreciation – equipment
Equipment
Deferred tax liability
Business combination valuation reserve
Dr
Cr
Cr
Cr
40 000
Depreciation expense
Dr
800
Accumulated depreciation
(10% x $8 000)
Deferred tax liability
Income tax expense
(30% x $1 000)
Goodwill
Business combination valuation reserve
Cr
800
Dr
Cr
240
240
Dr
Cr
7 520
7 520
Impairment loss – goodwill
Accum. impairment losses – goodwill
Pre-acquisition entries:
Dr
Cr
1 200
1 200
Note: the entries are different from 1 July 2022 because of the transfer:
from business combination valuation reserve in current year.
to general reserve in the current year.
Retained earnings (1/7/22)
Dr
68 800
Share capital
Dr
80 000
Business combination valuation reserve
Shares in Jeff Ltd
General reserve
Transfer to general reserve
Dr
Cr
Dr
Cr
26 000
174 800
20 000
20 000
Transfer from business comb. valuation reserve Dr
4 480
Business combination valuation reserve
Cr
4 480
The transfer from BCVR to retained earnings occurs when a fair valued asset is sold in the
current period:
Inventory sold
$6 400 x (1-30%) = $4 480
The balance of the BCVR that is eliminated on consolidation relates only to those assets with
fair value adjustments that are still on hand plus goodwill:
 Patent
 Plant
 Goodwill
$12 000 x (1-30%) =
$8 400
$8 000 x (1-30%) = $5 600
$7 520
$21 520
In the books of the subsidiary, the transfer to general reserve:
 increases general reserve from $0 to $20 000
 decreases retained earnings from $68 800 to $48 800.
*Alternative BCVR entry for Equipment:
Accumulated depreciation – equipment
Equipment
Dr
Cr
40 000
40 000
Equipment
Deferred tax liability
Business combination valuation reserve
Dr
Cr
Cr
8 000
2 400
5 600
The above BCVR entry demonstrates the 2 steps for the recognition of a change in fair value
on consolidation.
1. Write back all of the accumulated depreciation for the asset at date of acquisition.
2. Recognise the increase/decrease to the asset’s fair value with the tax effect.
NB: From these 2 journal entries it is easier to see that the depreciation adjustments then
required at the end of each year for consolidation purposes are based on the $8 000 increase
to fair value. That is, the additional amount of the asset that needs to be depreciated.
In this question….$8,000 / 10years = $800 per year.
Question 10.7
In the year ended 30 June 2018, Abbott Ltd acquired 40% of the issued shares of
Costello Ltd for $72  000. This acquisition did not give Abbott Ltd control of Costello
Ltd as the ownership of Costello Ltd was held by a small number of shareholders.
(Costello Ltd was developed as a family company in 2011.) On 1 July 2022, Abbott Ltd
approached these family members following a death in the family and persuaded them
to sell the remainder of the shares in Costello Ltd to Abbott Ltd for $137  700 on a cum
div. basis.
Information about the two companies at 1 July 2022 included the following.
• Abbott Ltd recorded its original investment in Costello Ltd at fair value, with
changes in fair value being recognised in profit or loss. At 1 July 2022, the asset was
recorded at $91  800.
• The equity of Costello Ltd at 1 July 2022 consisted of $144  000 capital and
$36  000 retained earnings.
• Included in the assets and liabilities recorded by Costello Ltd at 1 July 2022 were
goodwill of $5400 (net of accumulated impairment losses of $3600) and dividend
payable of $4500.
• On the acquisition date all the identifiable assets and liabilities of Costello Ltd
were recorded at carrying amounts equal to their fair values except for inventories for
which the fair value of $39  600 was $3600 greater than its carrying amount, and
equipment for which the fair value of $94  500 was greater than the carrying amount,
this being cost of $108  000 less accumulated depreciation of $18  000.
• Besides determining the fair values of the recorded assets and liabilities of
Costello Ltd, Abbott Ltd discovered that Costello Ltd had two assets that had not been
recorded by Costello Ltd. These were internally generated patents that had a fair value
of $45  000 and in-process research and development for which Costello Ltd had
expensed $90  000, but which Abbott Ltd valued at $18  000. Further, in the financial
statements of Costello Ltd at 30 June 2022 Costello Ltd had reported the existence of a
contingent liability relating to guarantees for loans. Abbott Ltd determined that this
liability had a fair value of $9000.
• The tax rate is 30%.
Required
Prepare the consolidation worksheet entries for consolidated financial statements
prepared by Abbott Ltd at 1 July 2022.
Acquisition analysis
1 July 2022:
Net fair value of identifiable assets
and liabilities of Costello Ltd = $144 000 + $36 000
+ $3 600 (1– 30%) (BCVR – inventory)
+ $4 500 (1 – 30%) (BCVR – plant)
– $5 400 (goodwill)
+ $45 000 (1 – 30%) (BCVR – patents)
+ $18 000 (1 – 30%) (BCVR – research)
– $9 000 (1 – 30%) (BCVR – liability)
= $218 070
Consideration transferred
= $137 700 – $4 500 (dividend receivable)
= $133 200
Previously held equity interest
Goodwill acquired
= $91 800 (fair value)
= ($133 200 + $91 800) – $218 070
= $6 930
Unrecorded goodwill
= $6 930 – $5 400
= $1 530
Business combination valuation entries at 1 July 2022:
Inventory
Deferred tax liability
Dr
Cr
3 600
1 080
Business combination valuation reserve
Cr
2 520
Accumulated depreciation
Dr
18 000
Plant
Deferred tax liability
Cr
Cr
13 500
1 350
Business combination valuation reserve
Cr
3 150
Patents
Deferred tax liability
Dr
Cr
45 000
13 500
Business combination valuation reserve
Cr
31 500
In-process research
Deferred tax liability
Dr
Cr
18 000
5 400
Business combination valuation reserve
Business combination valuation reserve
Cr
Dr
12 600
6 300
Deferred tax asset
Guarantee payable
Dr
Cr
2 700
9 000
Accumulated impairment losses – goodwill
Dr
3 600
Goodwill
Cr
3 600
Goodwill
Dr
1 530
Business combination valuation reserve
Pre-acquisition entries at 1 July 2022:
Retained earnings (1/7/22)
Share capital
Business combination valuation reserve
Shares in Costello Ltd
Cr
1 530
36 000
144 000
45 000
Dr
Dr
Dr
Cr
225 000
Dividend payable
Dividend receivable
Question 10.10
Dr
Cr
4 500
4 500
Consolidation worksheet, previously held investment in subsidiary ⋆⋆ LO5
On 1 August 2021, Alistair Ltd acquired 10% of the shares in George Ltd for $8000.
Alistair Ltd used the fair value method to measure this investment with movements in
fair value being recognised in profit or loss. At 1 July 2020, the fair value of this
investment was $15  400. The original investment in George Ltd was due to the fact that
George Ltd was undertaking research into particular microbiological elements that
could influence the profitability of Alistair Ltd. With the continuing success of this
research, Alistair Ltd decided to acquire the remaining shares (cum div.) in George Ltd.
On 1 July 2020, Alistair Ltd made an offer to buy the remaining shares in George Ltd
for $151  000 cash. This offer was accepted by the shareholders of George Ltd. On 1 July
2020, immediately after the business combination, the statement of financial position of
George Ltd was as follows:
Alistair Ltd George Ltd
Share capital $ 130  000 $ 90  000
General reserve
56500
12000
Retained earnings
93500
36000
Total equity
280000
138000
Dividend payable
25000
12600
Other liabilities
75000
25000
Total liabilities
100000
37600
Total equity and liabilities
380000
175600
Cash
11000
20600
Receivables
25200
20000
Other assets
10000
8000
Shares in George Ltd
153800

Inventories
55000
42000
Plant and equipment
Accumulated depreciation
Total assets
210000
(85000)
380000
107000
(22000)
175600
                                                          On analysing the financial statements of George Ltd, Alistair Ltd determined that all
the assets and liabilities recorded by George Ltd were shown at amounts equal to their
fair values except for:
Carrying amount
$ 35000
Fair value
$ 43000
Plant and equipment (cost $46000)
Inventories 42  000 46  000
The plant and equipment is expected to have a further 4-year life and is depreciated on
a straight-line basis. The inventories were all sold by 30 June 2021.
George Ltd had expensed all the outlays on research and development. Alistair Ltd
placed a fair value of $12  000 on this asset. George Ltd also had reported a contingent
liability at 30 June 2020 in relation to claims by customers for damaged goods. Alistair
Ltd placed a fair value of $3000 on these claims. The research and development is
amortised evenly over a 10-year period. The claims by customers were settled in May
2021 for $2800.
The company tax rate is 30%.
Required
(a)
Prepare the consolidated journal entries for Alistair Ltd at 1 July 2020,
immediately after the business combination.
(b)
Prepare the consolidated journal entries at 30 June 2021.
At 1 July 2020:
Net fair value of identifiable assets
and liabilities of George Ltd
= ($90 000 + $12 000 + $36 000) (equity)
+ $4 000 (1 – 30%) (inventory)
+ $8 000 (1 – 30%) (plant)
+ $12 000 (1 – 30%) (R&D)
– $3 000 (1 – 30% (claims)
= $152 700
Consideration transferred
= $151 000 – $12 600 (dividend receivable)
= $138 400
Previously acquired equity interest = $15 400
Goodwill
= ($138 400 + $15 400) – $152 700
= $1 100
(a) Worksheet entries at 1 July 2020:
Business combination valuation entries:
Accumulated depreciation
Dr
11 000
Plant
Deferred tax liability
Business combination valuation reserve
Cr
Cr
Cr
3 000
2 400
5 600
Inventory
Deferred tax liability
Business combination valuation reserve
Dr
Cr
Cr
4 000
1 200
2 800
Deferred research and development
Deferred tax liability
Business combination valuation reserve
Dr
Cr
Cr
12 000
3 600
8 400
Business combination valuation reserve
Deferred tax asset
Dr
Dr
2 100
900
Provision for customer claims
Cr
Goodwill
Business combination valuation reserve
Pre-acquisition entries:
Retained earnings (1/7/20)
Share capital
General reserve
Business combination valuation reserve
Shares in George Ltd
Dr
Cr
1 100
Dr
Dr
Dr
Dr
Cr
36 000
90 000
12 000
15 800
Dividend payable
Dividend receivable
(b) Worksheet entries at 30 June 2021:
Business combination valuation entries:
Accumulated depreciation
Dr
Cr
12 600
Dr
11 000
Plant
Deferred tax liability
Business combination valuation reserve
Cr
Cr
Cr
Depreciation expense
Accumulated depreciation
(1/4 x $8 000)
Deferred tax liability
Dr
Cr
2 000
Dr
600
Income tax expense
Cr
Cost of sales
Income tax expense
Transfer from business combination
valuation reserve
Dr
Cr
4 000
Cr
Deferred research and development
Deferred tax liability
Business combination valuation reserve
Dr
Cr
Cr
12 000
Amortisation expense
Accumulated amortisation
Dr
Cr
1 200
Deferred tax liability
Dr
360
Income tax expense
Transfer from business combination valuation
reserve
Income tax expense
Cr
2 100
900
Dr
Dr
Damages expense
Gain on claims settlement
Cr
Cr
Pre-acquisition entries:
Retained earnings (1/7/20)
Share capital
General reserve
Business combination valuation reserve
Goodwill
Shares in Finn Ltd
Transfer from business combination
valuation reserve
Business combination valuation reserve
Question 10.14
Consolidation worksheet entries ⋆⋆⋆ LO5
Dr
Dr
Dr
Dr
Dr
Cr
36 000
90 000
12 000
14 000
1 800
153 800
Dr
Cr
700
700
On 1 July 2021, Zack Ltd acquired all the issued shares (ex div.) of William Ltd for $455
000. At this date the equity of William Ltd consisted of:
Share capital
General reserve
$ 300000
68000
Retained earnings
40000
      At acquisition date, William Ltd reported a dividend payable of $16 000. All the
identifiable assets and liabilities of William Ltd were recorded at amounts equal to their
fair values except for:
Carrying amount Fair value
Plant (cost $400000)
Land
$ 350000
300000
$ 380000
310000
Inventories
64000
80000
              The plant was considered to have a further 3-year life. Of the inventories, 90% was sold
by 30 June 2022 and the remainder was sold by 30 June 2023. The land was sold in
January 2022 for $340  000. William Ltd had recorded goodwill of $4000 (net of
accumulated impairment losses of $24  000).William Ltd was involved in a court case
that could potentially result in the company paying damages to customers. Zack Ltd
calculated the fair value of this liability to be $16 000, even though William Ltd had not
recorded any liability.
The following events occurred in the year ending 30 June 2022.
• On 12 August 2021 William Ltd paid the dividend that existed at 1 July 2021.
• On 1 December 2021 William Ltd transferred $34  000 from the general reserve
existing at 1 July 2021 to retained earnings.
• On 1 January 2022 William Ltd made a call of 10c per share on its issued shares.
William Ltd had 200  000 shares on issue. All call money was received by 31 January
2022.
• On 29 June 2022 William Ltd reassessed the liability in relation to the court case
as the chances of winning the case had improved. The fair value was now considered to
be $4000.
Required
Prepare the consolidation worksheet entries for the preparation by Zack Ltd of its
consolidated financial statements at 30 June 2022.
Acquisition analysis
1 July 2021:
Net fair value of identifiable assets
and liabilities of William Ltd = ($300 000 + $68 000 + $40 000) (equity)
+ $16 000 (1 – 30%) (inventory)
+ $30 000 (1 – 30%) (plant)
+ $10 000 (1 – 30%) (land)
– $16 000 (1 – 30%) (provision for damages)
– $4 000 (goodwill)
= $432 000
Consideration transferred
Goodwill
Goodwill recorded
Unrecorded goodwill
Worksheet entries at 30 June 2022:
= $455 000
= $23 000
= $4 000
= $19 000
Business combination valuation entries:
Accumulated depreciation – plant
Dr
50 000
Plant
Cr
20 000
Deferred tax liability
Cr
9 000
Business combination valuation reserve
Cr
21 000
Depreciation expense
Dr
10 000
Accumulated depreciation
(1/3 x $30 000)
Deferred tax liability
Income tax expense
Cr
10 000
3 000
Dr
Cr
3 000
Land
Dr
10 000
Deferred tax liability
Cr
3 000
Business combination valuation reserve
Cr
7 000
Inventory
Dr
1 600
Deferred tax liability
Cr
480
Business combination valuation reserve
Cr
1 120
Cost of sales
Income tax expense
Dr
Cr
14 400
4 320
Transfer from business combination
valuation reserve
Cr
10 080
Accumulated impairment losses
Dr
24 000
Goodwill
Cr
5 000
Business combination valuation reserve
Cr
19 000
Business combination valuation reserve
Dr
2 800
Deferred tax asset
Provision for damages
Transfer from business combination valuation
reserve
Income tax expense
Gain
Pre-acquisition entries:
At 1/7/21:
Retained earnings (1/7/21)
Share capital
General reserve
Business combination valuation reserve
Shares in William Ltd
Note: the entry at 30/06/2022 is affected by:
 90% of inventory sold, 10% on hand
Dr
Cr
1 200
Dr
Dr
Cr
8 400
3 600
Dr
Dr
Dr
Dr
Cr
40 000
300 000
68 000
47 000
 re-measurement of liability from $16 000 to $4 000
 $34 000 transfer from pre-acquisition general reserve
 call of 10c per share on 200 000 shares.
Transfer from business combination
valuation reserve
Business combination valuation reserve
(Sale of inventory)
Business combination valuation reserve
Transfer from business combination
valuation reserve
(Re-measurement of liability)
Transfer from general reserve
General reserve
Dr
Cr
10 080
Dr
8 400
Cr
Dr
Cr
34 000
Share capital
Dr
20 000
Shares in William Ltd
Cr

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