Case 1: Consolidation worksheet, previously held investment in subsidiary


On 1 August 2018, Erik Ltd acquired 10% of the shares in Finn Ltd for $8000. Erik Ltd used the fair value method to measure this investment with movements in fair value being recognised in profit or loss. At 1 July 2017, the fair value of this investment was $15 400. The original investment in Finn Ltd was due to the fact that Finn Ltd was undertaking research into particular microbiological elements that could influence the profitability of Erik Ltd. With the continuing success of this research, Erik Ltd decided to acquire the remaining shares (cum div.) in Finn Ltd.

On 1 July 2017, Erik Ltd made an offer to buy the remaining shares in Finn Ltd for $151 000 cash. This offer was accepted by the shareholders of Finn Ltd. On 1 July 2017, immediately after the business combination, the statement of financial position of Finn Ltd was as follows:

Particulars  Erik Ltd.  Finn Ltd.
Share capital    130,000       90,000
General reserve      56,500       12,000
Retained earnings      93,500       36,000
Total equity    280,000     138,000
Dividend payable      25,000       12,600
Other liabilities      75,000       25,000
Total liabilities    100,000       37,600
Total equity & liabilities    380,000     175,600
Cash      11,000       20,600
Receivables      25,200       20,000
Other assets      10,000         8,000
Shares in Finn Ltd.    153,800                –
Inventories      55,000       42,000
Plant & equipment    210,000     107,000
Accumulated depreciation     (85,000)      (22,000)
Total assets    380,000     175,600


On analysing the financial statements of Finn Ltd, Erik Ltd determined that all the assets and liabilities recorded by Finn Ltd were shown at amounts equal to their fair values except for:

Carrying amount Fair value
Plant and Equipment (cost $46,000)        35,000        43,000
Inventories        42,000        46,000


The plant and equipment is expected to have a further 4-year life and is depreciated on a straight- line basis. The inventory was all sold by 30 June 2018.

Finn Ltd had expensed all the outlays on research and development. Erik Ltd placed a fair value of $12 000 on this asset. Finn Ltd also had reported a contingent liability at 30 June 2017 in relation to claims by customers for damaged goods. Erik Ltd placed a fair value of $3000 on these claims. The research and development is amortised evenly over a 10-year period. The claims by customers were settled in May 2018 for $2800.

The company tax rate is 30%.



  1. Prepare the consolidated financial statements of Erik Ltd at 1 July 2017, immediately after the business combination.
  2. Prepare the consolidation worksheet entries at 30 June 2018.


Case 2: Accounting by acquirer

On 1 July 2019, Angelina Ltd took control of the assets and liabilities of Jolie Ltd. At this date the statement of financial position of Jolie Ltd was as follows:


Carrying amount Fair value
Machinery                  40,000      67,000
Fixtures & fittings                  60,000      68,000
Vehicles                  35,000      35,000
Current assets                  10,000      12,000
Current liabilities                 (16,000)    (18,000)
Total net assets                129,000
Share capital (80,000 shares @ $1.00 per share)                  80,000
General reserve                  20,000
Retained earnings                  29,000
Total equity                129,000



Prepare the journal entries in the records of Angelina Ltd at 1 July 2019 in each of the following situations, assuming the costs of issuing the shares by Angelina Ltd cost $1600.

  1. Angelina Ltd issued 80 000 shares having a fair value of $2.40 per share in exchange for the net assets of Jolie Ltd
  2. Angelina Ltd issued 80 000 shares having a fair value of $2.00 per share in exchange for the net assets of Jolie Ltd.
  3. Angelina Ltd acquired the shares of Jolie The agreement was that Angelina Ltd would pay the shareholders of Jolie Ltd one share in Angelina Ltd for every two shares held in Jolie Ltd plus $1 in cash for each share held in Jolie Ltd. Shares in Angelina Ltd have a fair value of $1.80 per share.


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