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Corporate Accounting Case Study Essay Sample

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  • Pages: 3
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Introduction of TOPIC

• On 1 July 2011, Dyson purchased 80% of the shares on Malone for $ 800,000. • On 30 June 2012, the land was revalued to $ 870,000.
• On 30 June 2012, Brennan owned 100% of Dyson, there has been changed to 60% of Dyson in the next year. • Dividend of $ 20,000 was declared on 15 October 2012, and been paid on 15 November 2013. • On 31 October 2012, Dyson sold the entire interest for $1.1 million. • Partial goodwill method is used in Malone.

Theory and Impact of Accounting Treatment

• AASB 10 Paragraph 97-99

The consolidated financial statement involves adding together the financial statement of the parent and subsidiary and making a number of adjustments. • Impact of Investment on Consolidation – On 30 June 2012 Brennan should recognize profit and loss in investment on Malone. (a) Carrying amount and Fair Value of Malone asset and Liability should be consideration received to Brennan. (b) Any other different profit and loss should be recognized in Brennan Group.

• AASB 10 Paragraph B98

Where an entity sells some or all of the ownership interest and the parent entity thereby lose control of that subsidiary, the gain or loss recognized on the sale shall be adjusted by the net post acquisition movement to the date of sale in the retained earnings or accumulated losses and reserves of the subsidiary. • I

mpact of Investment on Consolidation – after 31st October 2012 Brennan should not recognize in

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consolidated statement of financial position on Malone due to Malone has been sold and not be a subsidiary after 31 October 2012. (a) Malone’s assets and liabilities at their carrying amounts; (b) Malone’s NCI at the date when control is lost.

Accounting treatments for loss of control
As the requirements in AASB 10 paragraph B97 – B99, we should do the following calculation: Acquisition analysis: Dyson-Malone
Net fair value of identifiable assets and liabilities of Malone = $500,000 + $200,000 + $150,000 + ($700,000 – $600,000)*(1-30%) = $920,000 Net fair value acquired = 80% * $920,000 = $736,000
Consideration transferred = $800,000
Goodwill = $64,000
Net assets of Malone on 31 October 2012:

Share capital $500,000 Revaluation reserve 339,000 Opening retained earnings (1/7/12) $380,000 Profit (1/7/12-31/10/12) 30,000 Dividend declared (20,000) Closing retained earnings (31/10/12) $390,000 Total net assets (31/10/12) $1,229,000 Net assets Dyson acquired @ 80% $983,200 Dyson’s gain from disposal:

Proceeds from disposal of investment in Malone $1,100,000 Less: Dividend declared @ 80% ($16,000) Net assets Dyson acquired ($983,200) (999,200) Gain on sale of investment (Inc. goodwill) $100,800 Less: Goodwill (64,000) Gain on sale of investment (ex. goodwill) $36,800 So, Brenna share at 60% = $22,080, and NCI share at 40% = $14,720 Disclosure

• AASB 12 Disclosure of Interests in Other Entities (paragraph 19), an entity require disclosing the gain or loss calculated in accordance with paragraph 25 of AASB10, and: (a) The portion of that gain and loss attributable to measuring any investment retained in the former subsidiary at its fair value at the date when control is lost; (b) The line items in profit and loss in which the gain or loss is recognized. • Requirement for disclosure gain on sale of investment in Malone (a) Brennan should disclosure part of gain on sale of investment in Malone, 60% gain on sales should contribute to Brennan’s group. (b) NCI of gain on sale of Dyson is not recognized in Brennan’s group. Conclusions

• On consolidation, Brennan’s balance sheet will not include Malone’s assets and liabilities after 30 October 2012. Therefore, there is derecognized Malone’s assets and Liability. Initial recognized goodwill should be written off from the consolidation. • Brennan should derecognize assets and Liabilities of Malone after loss of control, including goodwill.

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