Acquisition Analysis And Consolidation Journal Entries Of Tuna Ltd

Consolidation of the financial statemenst mainly deal with integration of the financial statements of both the parent as well as the subsidiary company. Here the parent company (Tuna Limited) means the acquiring company and the subsidiary company is the target company (Brim Limited). Various accounting adjustments are being done while doing the acquisition of the company (Sithole, et al., 2017). Further, business integration valuation entries are needed to make adjustments in carrying amount of assets and liabilities of subsidiaries to fair value. The pre-acquisitions entries generally reduce the carrying amount of the parent investments in every subsidiary (Dichev, 2017).

Fair value of only the identifieable assets and the liabilities are being recognised when the entity is being taken over as the contingent liabilities are generally not seen as materialised on the date of acquisition and hence not valued at fair value (Goldmann, 2016). They are just given for the disclosure purposes. According to AASB3, companies are required to recognize these by another business on the date of acquisition. Companies identify the FVINA with relation to the subsidiary’s equity balances, instead of the balances of individual assets and liability.

Table 1: Statement showing acquisition analysis of Tuna Ltd

Calculation of Goodwill on acquisition as on July 1, 2015
Particulars Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Amount	Amount
Net fair value of identifiable assets and liabilities of Brim Ltd
Equity	=66000+6000	72,000
Inventory	=4500 (1 – 30%)	3,150
Patents	=15 000 (1 – 30%)	10,500
Plant	=3 000 (1 – 30%)	2,100
		87,750
Purchase Consideration given		90,000
Goodwill		2,250

Below mentioned are the consolidation entries in the books of Tuna Limited.

In the books of Tuna Limited
Journal entries

1. Business combination valuation entries
Date	Particulars	Dr./Cr.	Amount ($)	Amount ($)
	Accumulated depreciation	Dr.	30,000
	Plant	Cr.		27,000
	Deferred tax liability	Cr.		900
	Business combination valuation reserve	Cr.		2,100
	Depreciation expense	Dr.	600
	Retained earnings (1/7/16)	Dr.	600	1,200
	Accumulated depreciation	Cr.
	(1/5 x $3000 p.a. for 2 years)
	Deferred tax liability	Dr.	360
	Income tax expense	Cr.		180
	Retained earnings (1/7/16)	Cr.		180
	Goodwill	Dr.	2,250
	Business combination valuation reserve	Cr.		2,250

2. Pre-acquisition entries
Date	Particulars	Dr./Cr.	Amount ($)	Amount ($)
1/7/2015	Retained earnings	Dr.	6,000
	Share capital	Dr.	66,000
	Business combination valuation reserve	Dr.	18,000
	Shares in Brim Ltd	Cr.		90,000
30/06/2015	Retained earnings (1/7/16)*	Dr.	19,650
	Share capital	Dr.	66,000
	Business combination valuation reserve	Dr.	4,350
	Shares in Tuna Ltd	Cr.		90,000
	(* = $6000 + $3 150 + $10 500)

3. Sales and profit in closing inventory
Date	Particulars	Dr./Cr.	Amount ($)	Amount ($)
	Sales revenue	Dr.	21,000
	Cost of sales	Cr.		21,000
	Sales revenue	Dr.	4,500
	Cost of sales	Cr.		4,200
	Inventory	Cr.		300
	Deferred tax asset	Dr.	90
	Income tax expense	Cr.		90
4. Profit in opening inventory of Brim Ltd.
Date	Particulars	Dr./Cr.	Amount ($)	Amount ($)
1/7/2016	Retained earnings	Dr.	420
	Income tax expense Dr 180	Dr.	180
	Cost of sales Cr 600	Cr.		600
5. Sale of Plant – current period
Date	Particulars	Dr./Cr.	Amount ($)	Amount ($)
	Proceeds on sale of plant	Dr.	15,000
	Carrying amount of plant sold	Cr.		14,000
	Plant	Cr.		1,000
	Deferred tax asset	Dr.	300
	Income tax expense	Cr.		300
	Accumulated depreciation – plant	Dr.	100
	Depreciation expense	Cr.		100
	(10% x $1000)
	Income tax expense	Dr.	30
	Deferred tax asset	Cr.		30

6. Sale of Inventory classified as Plant : prior period
Date	Particulars	Dr./Cr.	Amount ($)	Amount ($)
1/7/2016	Retained earnings	Dr.	1,400
	Deferred tax asset	Dr.	600
	Plant	Cr.		2,000
	Accumulated depreciation	Dr.	1,000
	Depreciation expense	Cr.		400
1/7/2016	Retained earnings	Cr.		600
	(20% x $2000 p.a. for 1.5 years)
	Income tax expense	Dr.	120
1/7/2016	Retained earnings	Dr.	180
	Deferred tax asset	Cr.		300
7. Sale of Plant classified as Inventory: current period
Date	Particulars	Dr./Cr.	Amount ($)	Amount ($)
	Proceeds on sale of plant	Dr.	9,000
	Carrying amount of plant sold	Cr.		7,500
	Cost of sales	Cr.		1,500

Below mentioned is the set of financial information beuing provided by both the companies as on 30^th June 2017:

	Tuna Ltd	Brim Ltd
	Dr	Cr	Dr	Cr
Sales revenue		64 500		78 000
Cost of sales	30 900		46 350
Trading expenses	4 800		9 000
Office expenses	7 950		4 050
Depreciation expenses	1 800		3 900
Proceeds on sale of plant		9 000		15 000
Carrying amount of plant sold	7 500		14 000
Income tax expense	11 100		7 300
Share capital		96 000		66 000
Retained earnings (1/7/16)		48 000		31 500
Current liabilities		21 100		10 500
Deferred tax liability		11 000		15 000
Plant	57 000		107 250
Accumulated depreciation – plant		18 300		33 450
Intangibles	12 000		11 100
Deferred tax assets	8 100		9 450
Shares in Brim Ltd	90 000		0
Inventory	28 500		24 600
Receivables	8 250		12 450
	267 900	267 900	249 450	249 450

On the basis of the above mentioned financial information and the journal entries being passed above, the consolidated set of financial statements for the group is shown below in the given format.

	Tuna Ltd	Brim Ltd	Journal number	Adjustments	Journal	Group
Dr	Cr	number
Sales revenue	64 500	78 000	3 3	21000 4500			117700
Cost of sales	30 900	46 350			21000 4200 600 1500	3 3 4 7	49950
Gross profit	33 600	31 650					67050
Trading expenses	4 800	9 000					13800
Office expenses	7 950	4 050					12000
Depreciation	1 800	3 900	1	600	100 400	5 6	5800
	14 550	16 950					31600
Profit from trading	19 050	14 700					35450
Proceeds from sale of plant	9 000	15 000	5 7	15000 9000			0
Carrying amount of plant sold	7 500	14 000			14000 7500	5 7	0
Gain/loss on sale of machinery	1 500	1 000					0
Profit before tax	20 550	15 700					35450
Tax expense	11 100	7 300	4 5 6	180 30 120	180 90 300	1 3 5	18160
Profit	9 450	8 400					17290
Retained earnings (1/7/16)	48 000	31 500	1 2 4 6 6	600 19650 420 1400 60	180 200	1 6	57750
Retained earnings (30/6/17)	57 450	39 900					75040
Share capital	96 000	66 000	2	66000			96000
BCVR	—	—	2	4350	2100 2250	1 1	0
Total equity	153 450	105 900					171040

Current liabilities	21 100	10 500					31600
Deferred tax liability	11 000	15 000	1	360	900	1	26540
Total liabilities	32 100	25 500					58140
Total equity and liabilities	185 550	131 400					229180

				Dr	Cr		Group
Plant	57 000	107 250			27000 1000 2000	1 5 6	134250
Accumulated depreciation	(18 300)	(33 450)	1 5 6	30000 100 600	1200	1	(22250)
Intangibles	12 000	11 100					23100
Shares in Brim Ltd	90 000	–			90000	2	0
Deferred tax asset	8 100	9 450	3 5 6	90 300 600	30 180	5 6	18330
Inventory	28 500	24 600			300	3	52800
Receivables	8 250	12 450					20700
Goodwill	0	0	1	2250			2250
Total assets	185 550	131 400		177210	177210		229180

Notes on Accounts:

The total equity of the group is the sum total of the equity shares share capital), the retained earnings, the net profit and the general reserves. It is the total capital formulation of the company over the years put together. In short, it is equal to the net assets of the company and the thereby both the sides of the balance sheet will be equal(Alexander, 2016).
Profit is generally the difference between the incomes and expenses for the year on which the tax is being paid at 30% and the remainder is profit after tax. This is then being added to the retained earnings and shown as part of the equity.
For the current assets like accounts receivables and inventory, the line by line item consolidation takes place and the book value is added for both the entities while doing consolidation(Das, 2017).
Similarly, for the current liabilities as well like the payables, the line by line item consolidation takes place(Boccia & Leonardi, 2016).
Deferred tax asset or liability is created due to the timing differences. There are some line items on which the tax is being paid as per taxation laws and the tax as per accounting laws might need to be paid in the later years, thereby giving rise to the deffered tax asset or liabilities.

References

Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp. 411-431.

Boccia, F. & Leonardi, R., 2016. The Challenge of the Digital Economy: Markets, Taxation and Appropriate Economic Models. s.l.:Springer.

Das, P., 2017. Financing Pattern and Utilization of Fixed Assets – A Study. Asian Journal of Social Science Studies, 2(2), pp. 10-17.

Dichev, I., 2017. On the conceptual foundations of financial reporting. Accounting and Business Research, 47(6), pp. 617-632.

Goldmann, K., 2016. Financial Liquidity and Profitability Management in Practice of Polish Business. Financial Environment and Business Development, Volume 4, pp. 103-112.

Sithole, S., Chandler, P., Abeysekera, I. & Paas, F., 2017. Benefits of guided self-management of attention on learning accounting. Journal of Educational Psychology, 109(2), p. 220.

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