Part A
Discuss about the Company Accounting for Acquire Smaller Ltd.
Companies registered in Australia required complying with accounting guidelines cited by AASB for the preparation of financial statements. The objective of these standards is to ensure financial information of entity in a fair manner to assist stakeholders in making viable decisions (Dagwell, Wines and Lambert, 2011). The present study is focused on preparing consolidated financial statements by considering norms described by provisions of AASB 10.
Provisions of AASB 3 establish norms for preparation and presentation of consolidated financial statements in a situation where one entity imposed controlling power on other entity or entities through acquisition (Business combinations, 2004). It also considers provisions of section 334 of the Corporations Act 2001. In accordance with provisions of AASB 3, parent entity is required to present consolidated financial statements if they establish control over other entities (Australian Accounting Standards, 2016).
Assets
Accruals & receivables. $ 25000
Trademarks & patents $ 600000
Inventory $ 60000
Debtors $ 59540
Prepaid expenses $ 2900
Land $ 202000
Vehicles $ 29100
Dividend and int. $ 2880
PPE $ 76560
Liabilities
Contingent liability $ 91500
Dividend payable $ 4000
Creditors $ 13500
Other liabilities $ 10720
Debenture $ 50000
Share capital $ 443400
Cash $ 300000
Net assets $ 448540
Consideration transferred =$3 00 000 + 420,000 * (3/5) * 2.95
=$743,400
Goodwill =$294860
Acquisition of Smaller Ltd had created goodwill of $294860 as consideration provided by the company is higher in comparison to the value of net received through the acquisition process. This shows that Baxter Ltd had paid higher amount because of the market reputation of Smaller Ltd as this acquisition will provide them non-monetary benefits like increase in customer market, synergy advantage, improved productivity and other business advantages (Jones and Ratnatunga, 2012).
Accruals & receivables Dr. $ 25000
Trademarks & patents Dr $ 600000
Inventory Dr $ 60000
Debtors Dr $ 59540
Prepaid expenses Dr $ 2900
Land Dr $ 202000
Vehicles Dr $ 29100
Dividend and int. Dr $ 2880
PPE Dr $ 76560
Goodwill Dr $ 294860
Contingent liability Cr $ 91500
Dividend payable Cr $ 4000
Creditors Cr $ 13500
Other liabilities Cr $ 10720
Debenture Cr $ 50000
Share capital Cr $ 443400
Cash Cr $ 300000
Purchase Analysis to Acquire Smaller Ltd
In notes to account, Baxter Ltd is required to show entire acquisition facts such as consideration provided by segregating it in cash and equity shares. Further, computation of net assets is required to be shown in a detailed manner (Parker, 2013). The company is also required to show the applicability of AASB 3 to ensure that proper procedure is followed for an accounting of acquisition (Business combinations, 2004). Further, valuation methods of assets are to be stated to provide a brief of acquisition to stakeholders. In a situation where viable disclosures required by the acquisition and other Australian Accounting Standards are not able to meet these objectives than in situation, Baxter Ltd is required to provide disclosure of other additional information which is necessary for the purpose of meeting those objectives (Jones and Ratnatunga, 2012).
Accounting for consolidation in Baxter Ltd is required to be done by considering provisions of AASB 10 (Australian Accounting Standards, 2016). The holding company has a regulatory requirement to prepare consolidated financial statements in accordance with the standardised accounting policies for financial transactions taking place in similar conditions (Australian Accounting Standards, 2016). On the basis of this provisions consolidation of Baxter and Subby Ltd will be recorded in the following manner:
Net fair value of identifiable assets and liabilities
Share capital + General reserve+ retained profit
=$ 1839970
Share of Baxter Ltd 1839970*.6
=$ 1103982
Consideration transferred = 420,000 * (1/4) * 2.95 +420,000 * (1/4) * 2.5
=$ 572250
Capital reserve =$ 531732
Legal and administration expenses will be reduced from capital reserve, and net amount will be shown in balance sheet of company i.e. 793082. Along with this, minority interest will also be recorded a minority interest in liability portion.
Journal entries
Retained earnings Dr. $ 48170
Share capital Dr. $ 11750000
General reserve Dr. $ 41800
Shares in Subby Ltd. Cr. $ 572250
Business combination valuation reserve Cr. $ 531732
Business combination valuation reserve Dr $ 1300
To legal charges $ 1300
Conclusion
The present study shows compliance of AASB 3 and AASB 10 for an accounting of Baxter Ltd to acquire Smaller Ltd and Subby Ltd in a proper manner. Finance department of the company is required to consider these provisions for preparation of financial statements. Further, proper disclosure is to made in notes to accounts of the annual report of a company to provide a better understanding to stakeholders of the company regarding financial transactions.
References
Books and Journals
Dagwell, R., Wines, G. and Lambert, C., 2011. Corporate Accounting in Australia. Pearson Higher Education.
Jones, S. and Ratnatunga, J., 2012. Contemporary Issues in Sustainability Accounting, Assurance and Reporting. Emerald Group Publishing.
Parker, H. R., 2013. Accounting in Australia (RLE Accounting): Historical Essays. Routledge.
Online
Business combinations. 2004. [Pdf]. Available through < https://www.iasplus.com/en/binary/au/dp2004-02.pdf>. [Accessed on 14th December 2016].
Australian Accounting Standards. 2016. [Online]. Available through <https://www.charteredaccountants.com.au/Industry-Topics/Reporting/Australian-accounting-standards.aspx>. [Accessed on 14th December 2016].
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