ACW2491 Financial Accounting, Semester 1, 2018

Lecture Example Week 8 – Wholly Owned Subsidiaries

Example 1 (cum dividend)
On 1 July 2017, Bernese Ltd acquired all the issued shares (cum div.) of Husky Ltd for $285 000. At that date, the financial statements of Husky
Ltd included the following items:

Share Capital $150 000

General reserve $ 90 000
Retained earnings $ 25 000
Dividend payable $ 15 000

At 1 July 2017, all of Husky Ltd’s identifiable assets and liabilities were recorded at fair value. The tax rate is 30%.

Required
Prepare the pre-acquisition entries for the preparation of consolidated financial statements as at 1 July 2017 and 30 June 2018.

Acquisition analysis:
FVINA =

Consideration transferred =
Goodwill =

Pre-acquisition entries:
1.7.2017 30.6.2018

(eliminate investment) (eliminate investment)

(eliminate dividend owning)

1
ACW2491 Financial Accounting, Semester 1, 2018
Lecture Example Week 8 – Wholly Owned Subsidiaries
Example 2 (ex dividend)
On 1 July 2017, Bernese Ltd acquired all the issued shares (ex div.) of Husky Ltd for $285 000. At that date, the financial statements of Husky
Ltd included the following items:

Share Capital $150 000

General reserve $ 90 000
Retained earnings $ 25 000
Dividend payable $ 15 000

At 1 July 2017, all of Husky Ltd’s identifiable assets and liabilities were recorded at fair value. The tax rate is 30%.

Required
Prepare the pre-acquisition entries for the preparation of consolidated financial statements as at 1 July 2017 and 30 June 2018.

Acquisition analysis:
FVINA =

Consideration transferred =
Goodwill =

Pre-acquisition entries:
1.7.2017 30.6.2018

(eliminate investment) (eliminate investment)

2
ACW2491 Financial Accounting, Semester 1, 2018
Lecture Example Week 8 – Wholly Owned Subsidiaries
Example 3 (transfer of GR to RE)
On 1 July 2017, Pyxis Ltd acquired all of the share capital of Gemini Ltd for $200 000. At this date, Gemini’s equity comprised:
Share Capital (100 000 shares) $100 000
General reserve $ 50 000
Retained earnings $ 36 000

All identifiable assets and liabilities of Gemini Ltd were recorded at fair value. The tax rate is 30%.

On 30 June 2018, the directors of Gemini Ltd decided to transfer $25 000 from the general reserve existing at 1 July 2017 to retained earnings.

Required
Prepare the consolidation worksheet entries for the preparation of the consolidated financial statements for Pyxis Ltd and its subsidiary Gemini
Ltd as at 1 July 2017 and 30 June 2018.

Acquisition analysis:
FVINA =

Consideration transferred =
Goodwill =

Pre-acquisition entries:
1.7.2017 30.6.2018

(eliminate investment) (eliminate investment)

(transfer)