Accounting Managing Business Activities to Achieve Results

Question: Consolidation of wholly owned subsidiary, pre-acquisition equity and BCVR entries for assets and liabilities Lisa Ltd acquired all the issued shares of Sunshine Ltd on 1 January 2016 for $88 000. At this date the equity of Sunshine Ltd consisted of: Share capital $ 40 000 General reserve 10 000 Retained earnings 8 000 All the identifiable assets and liabilities of Sunshine Ltd were recorded at amounts equal to their fair values except for: Carrying amount Fair valueFixtures Fittings(cost $70 000) $50 000 $55 000Inventory 10 000 15 000 Of the inventory on hand at 1 January 2016, 90% was sold by 30 June 2016. The remainder was all sold by 30 June 2017. The Fixtures Fittings was considered to have a further 2-year life with benefits to be received equally in each of those years. There were no records in the books for a provision of legal claim worth 5,000 and patents of 60,000. These were reflected at fair value. The tax rate is 30%.RequiredPrepare the consolidated worksheet entries for the consolidated financial statements prepared by Lisa Ltd at 30 June 2016. Show acquisition analysis calculation, BCVR entries and Pre-acquisition entries for 30.6.16. Answer: Acquisition Analysis as on 1st January 2016 Net Fair of Identifiable Assets Liabilities As on 1st January, 2016 Particulars Amount Amount Amount Liabilities (A) Equity Share Capital 40000 Asset Revaluation Surplus 10000 Retained Earnings 8000 TOTAL 58000 Difference Of Carrying amount Fair Value of the Assets (B) Fair Value Carrying Amount Inventory 15000 10000 5000 Fixtures and Fittings 55000 50000 5000 TOTAL 10000 68000 Net Fair value of Identifiable Assets Liabilities (A-B) 68000 Goodwill Estimation Sunshine Ltd as per Goodwill method Particulars Amount Amount Consideration Transferred ( C ) : Value of Acquisition 88000 88000 TOTAL (C+D) 88000 Less: Net Fair Value 68000 Goodwill Acquired by Sunshine Ltd. 20000 BCVR Pre-Acquisition Journal Entries:- In the Books of Sunshine Ltd Journal Entries Particulars Dr Cr Cost of goodwill A/c Dr 5000 Current Tax Liability Cr 1500 BCVR Cr 3500 Accumulated Depreciation on Fixtures and Fittings A/c Dr 20000 Furniture A/c Cr 15000 Deffered Tax Liability A/c Cr 1500 BCVR A/c Cr 3500 BCVR A/c Dr 6500 Provision for legal claim A/c Cr 5000 Deffered Tax Liability A/c Cr 1500 Patetent A/c Dr 60000 Deffered tax assets A/c Dr 18000 BCVR A/c Cr 78000 Reference List: Abuaddous, M., Hanefah, M.M. and Laili, N.H., 2014. Accounting standards, goodwill impairment and earnings management in Malaysia.International Journal of Economics and Finance,6(12), p.201. AbuGhazaleh, Naser M., Osama Musa Al-Hares, and Ayman E. Haddad. "The value relevance of goodwill impairments: UK evidence."International Journal of Economics and Finance4, no. 4 (2012). Argyrou, Argyris. "Auditing Journal Entries Using Extreme Value Theory."Auditing7 (2013): 1-2013. Avallone, Francesco, and Alberto Quagli. "Insight into the variables used to manage the goodwill impairment test under IAS 36."Advances in Accounting31, no. 1 (2015): 107-114. Jarva, Henry. "Economic consequences of SFAS 142 goodwill writeà ¢Ã¢â€š ¬Ã‚ offs."Accounting Finance54, no. 1 (2014): 211-235. Kim, Sohyung, Cheol Lee, and Sung Wook Yoon. "Goodwill accounting and asymmetric timeliness of earnings."Review of Accounting and Finance12, no. 2 (2013): 112-129.