Introduction to accounting for groups

Note that in these questions, the account name used for the revaluation adjustments made on consolidation is the Business Combination Valuation Reserve (BCVR) instead of the Revaluation Surplus Recognised on Consolidation that is used in Deegan. It is the same temporary account, just a different name.

QUESTION 1:

Parent Ltd acquired all of the issued share capital of Subsidiary Ltd on 30 June 2022 for a cash consideration of $400,000. At that time the net assets of Subsidiary Ltd were represented by share capital of $300,000 and retained earnings of $50,000. At acquisition date, the statement of financial position of Parent Ltd and Subsidiary Ltd were as follows:

Parent (000) Subsidiary (000)

Cash at bank 460 200

Land - 200

Buildings 100

Accumulated depreciation (20)

Investment in Subsidiary Ltd 400

860 480

Accounts payable 160 130

Share capital 600 300

Retained earnings 100 50

860 480

When Parent Ltd acquired its investment in Subsidiary Ltd, the following information applied:

a. Land held by Subsidiary Ltd was undervalued by $10,000

b. A building held by Subsidiary Ltd was undervalued by $45,000. The building had originally cost $100,000 two years ago and was being depreciated at 10% per year

c. A contingent liability relating to an unsettled legal claim with a fair value of $3,000 was disclosed in the notes to Subsidiary Ltd.s financial statements

d. The tax rate is 30%

e. Financial and tax year end is 30 June

REQUIRED

1. Prepare the consolidation of Parent Ltd and Subsidiary Ltd at acquisition date, clearly labelling each step in the following order:

a. acquisition analysis,

b. business combination valuation entries,

c. pre-acquisition entries, and

d. consolidation worksheet

2. Due to the revaluation of the building on acquisition, the depreciation charge in the books of the subsidiary is not the same as the depreciation charge required on consolidation. Prepare the consolidation worksheet journal entries for 30 June 2023 and 30 June 2024 for the building.