a) Consolidation adjustment to recognise the fair value adjustments:

In detail:

Accounts	DR	CR

You may not get time in class, but can you do a summarised condensed version of the above journal entry:

Accounts	DR	CR

Analysis of investment (amounts in thousands):

Equity acquired in net assets of subsidiary
Share capital
FVA
General Reserve
Retained earnings
	-------
Total equity acquired
Cost of investment
	-------
Goodwill
	====

b) Consolidation adjustment to eliminate the intra-group investment and recognise goodwill:

Accounts	DR	CR

c) Consolidation adjustments to eliminate the intra-group loan and intra-group interest receivable:

Accounts	DR	CR
	DR	CR

d) Consolidation adjustment to eliminate the intra-group dividend revenue and dividend paid:

Accounts	DR	CR

e) Consolidation adjustment to recognise the impairment of goodwill:

Accounts	DR	CR

Preparation of consolidation worksheet (amounts in thousands):

	ABC	XYZ	Adjustments			Group
			Debit		Credit
Sales revenue	$1080	$ 430
Less Cost of goods sold
Opening inventory	400	100
Purchases	700	290
Less Closing inv	590	200
Cost of goods sold	510	190
Gross profit	570	240
Add Interest revenue	12
Add Dividend revenue	100
Less Interest expense		12
Less Other operating exp	82 ____	28 ____
Profit before tax	$ 600	$ 200
Less Income tax expense	170	50
Profit for the year	$ 430	$ 150
Add Retained earnings 1 January 20X1	700	600
Less Dividend paid	250	100
Retained earnings 31.12.X1	$ 880	$ 650
Share capital	6000	1000
General reserve		400
FVA	____	____
Shareholders equity	$6880	$2050
	====	====
Assets
Inventory	$ 590	$ 200
Other current assets	250	820
Loan receivable	250
Land	4500	1400
Buildings	200	100
Less Acc depreciation	40	40
Investment in sub	1800
Goodwill	____	____
Total assets	$7550	$2480
	====	====
Liabilities
Borrowings payable		$ 250
Other non-current L	670	180
Deferred tax liability	____	____
Total liabilities	$ 670	$ 430
	====	====
Net assets	$6880	$2050	*	*

* always check that these totals equal and demonstrate on any exam question asking you to do a consolidation worksheet

Notes to worksheet:

Adjustment to recognise the effects of the valuation increments at acquisition

Adjustment to eliminate the intra-group investment and recognise goodwill

Adjustment to eliminate the effects of the intra-group loan and interest

Adjustments to eliminate the intra-group dividend revenue and dividend paid

Adjustment to recognise the impairment of goodwill

_____________________________________________________________________

ABC Ltd Group

Consolidated Income Statement for the Year ended December 31 20X1

(amounts in thousands)

Sales revenue
Less cost of goods sold
Gross profit
Less operating expenses
Profit before tax
Less income tax expense
Profit for the year

ABC Ltd Group

Consolidated Balance Sheet as at December 31 20X1

(amounts in thousands)

	$	$
Assets
Current assets
Inventory
Other
Total current assets
Non-current assets
Property, plant and equipment
Intangibles
Total non-current assets
Total assets
Less non-current liabilities
Sundry
Deferred tax
Total liabilities
Net assets
Shareholders equity
Share capital
Retained earnings
Total shareholders equity

ABC Ltd Group

Consolidated Statement of the Changes in Equity Year ended December 31 20X1

(amounts in thousands)

	Retained Earnings	Share Capital	Shareholders Equity
Balances at January 1 20X1	$1053.0	$6000	$7053.0
Add profit for the year
Less dividend paid
Balances at December 31 20X1
	====	====	=====

E3.9 Consolidation at reporting date with fair value adjustments for land and buildings (Section 3.4.3) On 1 January 20X0, ABC Ltd acquired all of the onemillion issued ordinary shares of XYZ Ltd for $1.8million. At this date, the shareholders' equity of XYZ Ltd was as follows: Issued capital General Reserve Retained eamings 1/1/20x0 Total equity 1000000 400000 200000 160000 ADDITIONAL INFORMATION ? At acquisition date, all the identifiable net assets of XYZ Ltd were recorded at their fair values in the accounts of XYZ Ltd except land and buildings. On 1 January 20x0, XYZ Ltd's land had a carrying amount of $1.4million, but a fair value of $1.5million, and XYZ Ltd's buildings had a carrying amount of $100000, but a fair value of $150000. ABC Ltd and XYZ Ltd use the cost basis of measurement for their property, plant and equipment. The buildings of XYZ Ltd are depreciated 20% p.a. on cost (note, we have not told you anything here about the accumulated depreciation balance for the property, plant and equipment in XYZ Ltd's ledger. You need to check it! Clue: refer to the Statement of Financial Position two years later as presented below and work backwards) During the year ended 31 December 20X1, XYZ Ltd borrowed $250000 from its parent, ABC Ltd, and was charged and paid $12000 interest on the loan. Dividends paid or declared? Review the accounting information provided below to assess whether any consolidation adjustments in relation to dividends are required. An impairment loss of $40000 relating to the goodwill arising on the acquisition of XY.Z Ltd was recognised during the year ended 31 December 20XO. The directors of ABC Ltd believe that the goodwill relating to the acquisition of XYZ Ltd has been impaired by a further $20000 during the year ended 31 December 20X1 The company income tax rate is 30% E3.9 Consolidation at reporting date with fair value adjustments for land and buildings (Section 3.4.3) On 1 January 20X0, ABC Ltd acquired all of the onemillion issued ordinary shares of XYZ Ltd for $1.8million. At this date, the shareholders' equity of XYZ Ltd was as follows: Issued capital General Reserve Retained eamings 1/1/20x0 Total equity 1000000 400000 200000 160000 ADDITIONAL INFORMATION ? At acquisition date, all the identifiable net assets of XYZ Ltd were recorded at their fair values in the accounts of XYZ Ltd except land and buildings. On 1 January 20x0, XYZ Ltd's land had a carrying amount of $1.4million, but a fair value of $1.5million, and XYZ Ltd's buildings had a carrying amount of $100000, but a fair value of $150000. ABC Ltd and XYZ Ltd use the cost basis of measurement for their property, plant and equipment. The buildings of XYZ Ltd are depreciated 20% p.a. on cost (note, we have not told you anything here about the accumulated depreciation balance for the property, plant and equipment in XYZ Ltd's ledger. You need to check it! Clue: refer to the Statement of Financial Position two years later as presented below and work backwards) During the year ended 31 December 20X1, XYZ Ltd borrowed $250000 from its parent, ABC Ltd, and was charged and paid $12000 interest on the loan. Dividends paid or declared? Review the accounting information provided below to assess whether any consolidation adjustments in relation to dividends are required. An impairment loss of $40000 relating to the goodwill arising on the acquisition of XY.Z Ltd was recognised during the year ended 31 December 20XO. The directors of ABC Ltd believe that the goodwill relating to the acquisition of XYZ Ltd has been impaired by a further $20000 during the year ended 31 December 20X1 The company income tax rate is 30%