The main purpose of the financial statements in the consolidated form is to lay down the financial performance as well as the financial position of the parent company and all of its subsidiaries. The second purpose of the consolidated financial statement is to disclose the results for the benefits of the stakeholders of the company in the manner that the group represents one single entity even though it has number of subsidiaries (Hove,2016).
Group, Parent and Subsidiary
The entity which controls the management and the functioning of the other entity is known as parent entity.
The entity which is controlled by the other entity is known as the subsidiary (AASB, 2011).
The group is the broad term and includes the parent entity and the number of subsidiaries in which the parent entity has the controlling power.
Number of Parents Group Can have
The group can have only one parent company which will be presenting the financial results of all the subsidiaries on which it exercises the control in accordance with the provisions of the Australian Accounting standard. If there is more than one parent in the group then the financial statements cannot be presented in the defined and consolidated manner. Thus, the group has only one parent company (IAS Website, 2016).
Necessity of Adjustments for intra group Transactions
Intra group transactions always occur between the subsidiary and the parent entity in the normal course of business. The adjustments relating to these transactions shall be done on the regular basis. It is because of the fact that there is the high possibility of having the transactions recorded in the books of accounts twice till the time it is knock off while preparing the financial statements (AASB 101; Accounting for Intra group Transactions, 2016).
Realization of Profit transfers within the Group
The profits are realized when the entity outside of the group is involved. It means when the inventory is sold to the other entity, which is not the part of the group, the profit will be realized.
Chief Financial Officer
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Answer 2 (a) |
PALDIVIA LIMITED |
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Acquisition Anlaysis |
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Cost of Acquisition |
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Cash |
$ 1,000,000 |
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Shares in Soletta Limited |
$ – |
$ 1,000,000 |
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Book Value of Net Assets |
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Share Capital |
$ 650,000 |
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General Reserve |
$ 20,000 |
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Retained Earnings |
$ 250,000 |
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Total Book Value of Net Assets |
$ 920,000 |
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Add: |
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Fair Value Adjustments |
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Increase in Equipment |
$ 30,000 |
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Increase in Contingent Liability |
$ (40,000) |
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$ (10,000) |
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Fair Value of Net Assets |
$ 910,000 |
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Goodwill (100% Acquisition) |
$ 90,000 |
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Answer 2 (b) |
General Journal |
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Date |
Particulars |
Debit Amount |
Credit Amount |
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PRE ACQUISITION |
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1-Jul-19 |
Retained Earnings |
$ 250,000 |
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Share Capital |
$ 650,000 |
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Business Combination Valuation Reserve |
$ 100,000 |
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Shares in Soletta Limited |
$ 1,000,000 |
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AT THE TIME OF ACQUISITION |
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1-Jul-19 |
Depreciation – Accumulated |
$ 80,000 |
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To Equipment |
$ 80,000 |
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1-Jul-19 |
Equipment |
$ 80,000 |
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Business Combination Valuation Reserve |
$ 80,000 |
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1-Jul-19 |
Goodwill |
$ 90,000 |
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Business Combination Valuation Reserve |
$ 90,000 |
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AFTER ACQUISITION |
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1-Jul-19 |
Depreciation |
$ 40,000 |
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Retained Earnings |
$ 40,000 |
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Accumulated Depreciation |
$ 80,000 |
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Consolidation Entries |
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1 |
Share Capital |
$ 1,000,000 |
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Share in Soletta Limited |
$ 1,000,000 |
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2 |
Goodwill |
$ 90,000 |
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Share in Soletta Limited |
$ 90,000 |
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Answer 3 |
General Journal |
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S. No. |
Partiuculars |
Debit Amount |
Credit Amount |
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a) |
Retained Earnings |
$ 175 |
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Income Tax Expense |
$ 75 |
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To Cost of Sales |
$ 250 |
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b) |
Retained Earnings |
$ 2,800 |
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Deferred Tax’ |
$ 1,200 |
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To Tractor |
$ 4,000 |
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Accumulated Depreciation |
$ 600 |
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To Depreciation |
$ 400 |
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To Retained Earnings |
$ 200 |
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(10% for 1.5 years on $6000) |
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Income Tax Expense |
$ 120 |
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Retained Earnings |
$ 60 |
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To Deferred Tax Asset |
$ 180 |
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c) |
Retained Earnings |
$ 70 |
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Income Tax Expense |
$ 30 |
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To Cost of Sales |
$ 100 |
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Inventory |
$ 300 |
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To Bank |
$ 300 |
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Inventory |
$ 100 |
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To Bank |
$ 100 |
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d) |
Management Services Income |
$ 3,000 |
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To Management Services Expense |
$ 3,000 |
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` |
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e) |
Loan From Salto Limited |
$ 50,000 |
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To Loan to Patagonia Limited |
$ 50,000 |
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Interest Revenue |
$ 1,500 |
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To Interest Expense |
$ 1,500 |
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Interest Revenue |
$ 1,500 |
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To Interest Expense |
$ 1,500 |
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f) |
Dividend Revenue |
$ 1,500 |
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To Interim Dividend Paid |
$ 1,500 |
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g) |
Dividend Payable |
$ 3,000 |
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To Final Dividend declared |
$ 3,000 |
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Dividend Revenue |
$ 3,000 |
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To Dividend Receivable |
$ 3,000 |
References
- Hove M, (2016), “Consolidated Financial Statements – An International Perspective”
- AASB official website, (2011), “Consolidated Financial Statements”,
- AASB official website, (2011), “AASB101 Presentation of Financial Statements”
- Accounting For Intra Group Transaction, (2016),
- IAS Website, (2016), “IAS 27 Consolidate and Separate Financial Statements”,
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