COAC318 Corporate Accounting- preparation of consolidated financial statements

1. Explain the purpose of the pre-acquisition entries in the preparation of consolidated financial statements. 

The purpose of the pre-acquisition entry is to:
• Prevent double counting of the assets of the economic entity.
• Prevent double counting of the equity of the economic entity.
• Recognise any gain on bargain purchase.

A simple example such as that below could be used to illustrate these points:

A Ltd has acquired all the issued shares of B Ltd. The balance sheets of both companies immediately after acquisition are as follows:

Share capital    $200    Share capital    $100
Reserves    100    Reserves    50
300        150

Shares in B Ltd    150        —
Cash    150    Cash    150
300        150

 

The balance of the “Shares in B Ltd” account can be changed to introduce goodwill/ gain on bargain purchase amounts.

 

2. When there is a dividend payable by the subsidiary at acquisition date, under what conditions should the existence of this dividend be taken into consideration in preparing the pre-acquisition entries? 

Discuss:
•  The difference between ex div and cum div acquisitions.
•  The effects on the acquisition journal entry in the records of the parent under each circumstance. 

Assume for example that A Ltd acquires all the issued shares of B Ltd for $500 000 when at acquisition date B Ltd has recorded a dividend payable of $10,000.

• The effects on the acquisition analysis.
• The differences in the pre-acquisition entries at acquisition date if the acquisition is cum div versus ex div. (the cum div entry will need to eliminate the dividend receivable raised by the parent and the dividend payable raised by the subsidiary).

Question: Prepare acquisition analysis and Consolidation worksheet adjusting entries

Required:
a. Prepare Acquisition Analysis at 1 July 2020.
b. Prepare the consolidation worksheet entries for consolidated financial statements prepared by Syd Ltd at 30 June 2021. 
c. Prepare the acquisition analysis at 1 July 2020 if Syd Ltd acquired the issued share of Mel Ltd on Ex-div basis.