ACCT7104 Corporate Accounting

Seminar 2 Set Work Questions and Problems

Arthur et al:
Q2.3 What are the inputs, processes and outputs of consolidation accounting? Describe
how the consolidation worksheet and consolidation worksheet adjusting entries
facilitate the preparation of a consolidated statement of comprehensive income and a
consolidated statement of financial position.

Q2.4 Explain why the following statement is incorrect:

Why is it necessary to eliminate the investment in
subsidiary asset each time a consolidation is
performed? Surely if the investment asset has been
eliminated in last years consolidation there is no need
to eliminate it again in the current period?
Q2.5 Distinguish between the pre-acquisition and post-acquisition equity balances of a
subsidiary. Explain the significance of this distinction to the consolidation process. In
particular, describe how the pre-acquisition and post-acquisition equity balances of a
subsidiary are accounted for upon consolidation.
Q2.6 Describe how the cost of investment in a subsidiary is determined in accordance
with AASB 3. Explain whether each of the following would be included in the cost of
acquisition:
1. shares in the acquirer that are issued to the target company shareholders
on acquisition date;
2. the acquirer is required to issue additional shares to the target company
shareholders two years after acquisition date only if the market value of
the acquirers shares is below $5.50 on that date;
3. debt obligations of the target company assumed by the acquirer;
4. stamp duty payable on acquisition of the target companys shares;
5. accounting fees for a due diligence report on the target company;
6. costs incurred by a department in the parent entity formed to facilitate
the acquisition;
7. borrowing costs on debt used to finance the purchase;
8. allocation of directors fees for time spent on the acquisition
9. unsecured notes issued by the acquirer to the target company
shareholders
10. redundancy costs payable to employees of the target company as part of a
planned restructuring.
E2.1, 2.2, 2.8 and 2.10.
Please refer to Arthur et al for exercise details. Excel spreadsheet solutions will be
provided to these exercises.