10.1 Lecture_28_Sept_Consolidation_More_Than_One_Year_After_Acquisition

10.1 Lecture_28_Sept_Consolidation_More_Than_One_Year_After_Acquisition

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1 ACIS 211 Company Accounting 2009 Consolidation More Than One Year After Acquisition Bill Foster Room 619 bill.foster@canterbury.ac.nz
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2 Tutorial exercises: week commencing 5 Oct part 1 Deegan and Samkin 26.9 In your own time: week commencing 5 Oct part 1 D&S 26.9 plus: buildings are undervalued of $40,000 10 years left; and goodwill is impaired by $200,000 during 2012 Consolidations more than one year after acquisition problem 1
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3 Overview I. Income tax considerations II. Structure of the elimination entries more than one year after acquisition III. Year 2 example IV. Worksheet entries summary (and additions)
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4 Reading NZ IAS 27 Deegan & Samkin Chapters 24,26 Alfredson Chapter 20 Alfredson Chapter 22
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5 I. Income tax considerations In order to facilitate a better understanding of the process of consolidation, we will ignore income tax effects
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6 II. Structure of the elimination entries more than one year after acquisition Assume we are in year 2 but the same logic applies to any future year The structure of our worksheet entries in years subsequent to year 1 is similar to the structure of the worksheet entries one year after acquisition
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7 Worksheet entry #1 is the same entry that was prepared on the worksheet one year after acquisition Remember year one’s entry was a worksheet-only entry It was not posted (pushed down) to the books of S, so we need to prepare it again on the worksheet every year Worksheet entry #1 writes S’s assets and liabilities up or down to fair on the worksheet at the date of acquisition , as if S revalued its net assets on its books at that time
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8 Worksheet entry #1 for year 2 is #1 Land 10,000 Buildings (net) 60,000 (10 years left) Inventory 5,000 (1 year left) Revaluation surplus –S 75,000 In years subsequent to year 1, we will have to make further adjustments to worksheet entry #1 because some of the items were charged to expense on the worksheets after the date of acquisition (in this case, year 1)
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9 Specifically, in this case, inventory was charged to cost of goods sold and buildings were depreciated with the following entries on the year 1 worksheet #6 Depreciation Expense 6,000 Net Building 6,000 Cost of Goods Sold Expense 5,000 Inventory 5,000
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10 On the worksheets for years subsequent to year 1, close the income accounts related to the revaluation for all prior years (in this case, just year 1) to beginning RE #1a RE beg 6,000 Net Building 6,000 #1b RE beg 5,000 Inventory 5,000 Note that the Building and Inventory accounts were credited on the Year 1 worksheet, but those entries were worksheet-only entries and both accounts have to be drawn down again on the current year’s worksheet
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11 Worksheet entry #2 is the same entry that was prepared at the end of year 1-- a standard elimination entry at the date of acquisition after considering the revaluation surplus created in # 1 This entry needs to be prepared on the worksheet of each year #2 Share Capital – S 160,000 (200,000 x 80%) Retained Earnings (beg) – S 80,000 (100,000 x 80%) Revaluation Surplus –S 60,000 (75,000 x 80%) Goodwill 10,000 (forced) Investment in S 310,000 If Goodwill is impaired after the date of acquisition, further adjustments are needed for worksheet entry #2
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10.1 Lecture_28_Sept_Consolidation_More_Than_One_Year_After_Acquisition

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