Company Accounting Acquire Smaller Ltd

Question: Discuss about theCompany Accountingfor Acquire Smaller Ltd. Answer: Introduction Companies registered in Australia required complying with accounting guidelines cited by AASB for the preparation of financial statements. The objective of these standards is to ensure financial information of entity in a fair manner to assist stakeholders in making viable decisions (Dagwell, Wines and Lambert, 2011). The present study is focused on preparing consolidated financial statements by considering norms described by provisions of AASB 10. Part A Purchase Analysis to Acquire Smaller Ltd Provisions of AASB 3 establish norms for preparation and presentation of consolidated financial statements in a situation where one entity imposed controlling power on other entity or entities through acquisition (Business combinations, 2004). It also considers provisions of section 334 of the Corporations Act 2001. In accordance with provisions of AASB 3, parent entity is required to present consolidated financial statements if they establish control over other entities (Australian Accounting Standards, 2016). Purchase Analysis to Acquire Smaller Ltd Value of Net Assets Assets Accruals receivables. $ 25000 Trademarks patents $ 600000 Inventory $ 60000 Debtors $ 59540 Prepaid expenses $ 2900 Land $ 202000 Vehicles $ 29100 Dividend and int. $ 2880 PPE $ 76560 Liabilities Contingent liability $ 91500 Dividend payable $ 4000 Creditors $ 13500 Other liabilities $ 10720 Debenture $ 50000 Share capital $ 443400 Cash $ 300000 Net assets $ 448540 Consideration transferred =$3 00 000 + 420,000 * (3/5) * 2.95 =$743,400 Goodwill =$294860 Acquisition of Smaller Ltd had created goodwill of $294860 as consideration provided by the company is higher in comparison to the value of net received through the acquisition process. This shows that Baxter Ltd had paid higher amount because of the market reputation of Smaller Ltd as this acquisition will provide them non-monetary benefits like increase in customer market, synergy advantage, improved productivity and other business advantages (Jones and Ratnatunga, 2012). Recording of Acquisition in the General Journal as at 30th June 2X16 Accruals receivables Dr. $ 25000 Trademarks patents Dr $ 600000 Inventory Dr $ 60000 Debtors Dr $ 59540 Prepaid expenses Dr $ 2900 Land Dr $ 202000 Vehicles Dr $ 29100 Dividend and int. Dr $ 2880 PPE Dr $ 76560 Goodwill Dr $ 294860 Contingent liability Cr $ 91500 Dividend payable Cr $ 4000 Creditors Cr $ 13500 Other liabilities Cr $ 10720 Debenture Cr $ 50000 Share capital Cr $ 443400 Cash Cr $ 300000 Note to the Accounts of Baxter Ltd In notes to account, Baxter Ltd is required to show entire acquisition facts such as consideration provided by segregating it in cash and equity shares. Further, computation of net assets is required to be shown in a detailed manner (Parker, 2013). The company is also required to show the applicability of AASB 3 to ensure that proper procedure is followed for an accounting of acquisition (Business combinations, 2004). Further, valuation methods of assets are to be stated to provide a brief of acquisition to stakeholders. In a situation where viable disclosures required by the acquisition and other Australian Accounting Standards are not able to meet these objectives than in situation, Baxter Ltd is required to provide disclosure of other additional information which is necessary for the purpose of meeting those objectives (Jones and Ratnatunga, 2012). Part B Acquisition of Subby Ltd in the Books of Baxter Ltd Accounting for consolidation in Baxter Ltd is required to be done by considering provisions of AASB 10 (Australian Accounting Standards, 2016). The holding company has a regulatory requirement to prepare consolidated financial statements in accordance with the standardised accounting policies for financial transactions taking place in similar conditions (Australian Accounting Standards, 2016). On the basis of this provisions consolidation of Baxter and Subby Ltd will be recorded in the following manner: Net fair value of identifiable assets and liabilities Share capital + General reserve+ retained profit =$ 1839970 Share of Baxter Ltd 1839970*.6 =$ 1103982 Consideration transferred = 420,000 * (1/4) * 2.95 +420,000 * (1/4) * 2.5 =$ 572250 Capital reserve =$ 531732 Legal and administration expenses will be reduced from capital reserve, and net amount will be shown in balance sheet of company i.e. 793082. Along with this, minority interest will also be recorded a minority interest in liability portion. Journal entries Retained earnings Dr. $ 48170 Share capital Dr. $ 11750000 General reserve Dr. $ 41800 Shares in Subby Ltd. Cr. $ 572250 Business combination valuation reserve Cr. $ 531732 Business combination valuation reserve Dr $ 1300 To legal charges $ 1300 Conclusion The present study shows compliance of AASB 3 and AASB 10 for an accounting of Baxter Ltd to acquire Smaller Ltd and Subby Ltd in a proper manner. Finance department of the company is required to consider these provisions for preparation of financial statements. Further, proper disclosure is to made in notes to accounts of the annual report of a company to provide a better understanding to stakeholders of the company regarding financial transactions. References Books and Journals Dagwell, R., Wines, G. and Lambert, C., 2011. Corporate Accounting in Australia. Pearson Higher Education. Jones, S. and Ratnatunga, J., 2012. Contemporary Issues in Sustainability Accounting, Assurance and Reporting. Emerald Group Publishing. Parker, H. R., 2013. Accounting in Australia (RLE Accounting): Historical Essays. Routledge. Online Business combinations. 2004. [Pdf]. Available through https://www.iasplus.com/en/binary/au/dp2004-02.pdf. [Accessed on 14th December 2016]. Australian Accounting Standards. 2016. [Online]. Available through https://www.charteredaccountants.com.au/Industry-Topics/Reporting/Australian-accounting-standards.aspx. [Accessed on 14th December 2016].