HI5020

Corporate Accounting

12c - A Review Session

 Session 3 (cont.)
Question 3: SuperStar Ltd issues a prospectus inviting the public to subscribe
for 30 million ordinary shares of $4.00 each. The terms of the issue are that
$2.00 is to be paid on application and the remaining $2.00 within one month of
allotment.

Applications are received for 36 million shares. The directors allot 30 million
shares. All applicants receive shares on a pro rata basis. The holders of 6
million shares have failed to pay the amounts due on allotment by the due date.
The directors forfeited those shares. The forfeited shares were resold as fully
paid. An amount of $3.40 per share is received. Keeping the shortfall amount,
the directors returned the remaining money to the shareholders whose shares
were forfeited.
 Session 4
•Understand how profit is both calculated and disclosed
•Comprehensive income
•The link between profits and professional judgement and
the accounting model selected
•The purpose of “Statement of Comprehensive Income”
and “Statement of Changes in Equity” and the
requirements of an entity
•Accounting for changes in accounting policies
•Managing prior period errors

3
 Session 5
•Understand the accounting requirements related
to disclosure of information about an
organisation’s cash flow
•Construct a statement of cash flows (AASB 107)
•The relation between statement of cash flow and
statements of financial position and
comprehensive income
•Defining cash and cash equivalents
•Difference between cash flows from operations,
investing and financing activities
•Notes supporting cash flows
5

Session 6
Understand that there is typically a difference between an
organisation’s profit or loss for accounting purposes, and its
profit or loss for taxation purposes
Be able to identify some of the factors that will cause a
difference between profit or loss for accounting purposes and
profit or loss for taxation purposes
Understand how deferred tax assets and deferred tax liabilities
arise
Understand how to account for taxation losses incurred by
companies and understand how, in certain circumstances,
taxation losses can lead to the recognition of assets in the form
of deferred tax assets
Be able to critically evaluate the balance sheet approach to
accounting for taxation and the associated asset, deferred tax
asset, and liability, deferred tax liability
Some differences between accounting and tax rules

Item Generally Tax rule

Many accrued expenses
(e.g. long-service leave,
warranty costs)
Many prepaid expenses
(e.g. prepaid rent)
Revenue received in
advance (e.g. rental
revenue)
Entertainment and goodwill
impairment
Doubtful debts
Development expenditure
Copyright © 2016 McGraw-Hill Education (Australia) Pty Ltd
Deegan, Financial Accounting, 8e subsequently amortised
accepted
accounting rule
An expense when accrued
Initially an asset—expensed
when economic benefits
used
Treated as a liability and
recognised as revenue when
earned
Treated as an expense
Treated as an expense
when recognised
Often capitalised and
Recognised as a tax
deduction when paid
Typically a tax deduction
when paid
Typically taxed when
received
Not a tax deduction in
current or subsequent
periods
Treated as a tax deduction
when debtor is actually
written off in subsequent
period
Typically a tax deduction
when paid for 18-6
Temporary differences, deferred tax
assets and liabilities—summary
Assets Liabilities
Taxable temporary Deductible temporary
difference difference
Carrying
amount
>
tax base Deferred tax liability Deferred tax asset

Deductible temporary Taxable temporary

Carrying difference difference
amount
<
tax base
Deferred tax asset Deferred tax liability

Holmes Institute 2017

7
 Session 7
A. Understand what a Group Structure is.
B. Reasons for preparing consolidated financial
statements
C. Basics involved in preparing consolidated
financial statements
D. Direct & Indirect Control
E. Using a consolidated worksheet
F. Control vs legal form, criterion for
determining whether or not to consolidate an
entity
G. Relevant journal entries – goodwill
 In-class Worked Example
What is the dividend % that Company A can expect in
Company C and what is the voting interests?

Company
70% A 45%

30% Company
Company C
B

Non- Non-
controlling controlling
Interest – Interest –
30% 25%
 Consolidation Process (cont.)
Fair value of consideration transferred xxx
Add: Amounts of Non-controlling interest xxx
Fair Value of any previously-held equity interest in the acquiree xxx
Sub-total xxx
Less: Fair Value of identifiable assets acquired & liabilities assumed xxx
Goodwill or Gain on Acquisition Date XXX
 Eliminating Parent Investment in Subsidiary (cont.)
Eliminations & Consolidated
Consolidated Worksheet Parent Subsidiary Adjustments Statement
Binga Bongo Dr Cr
Current Assets
Cash 255,000 423,000 678,000
Accounts receivable 210,000 396,000 606,000
Non-current Assets
Plant & Equipment 415,000 273,000 688,000
Land & Building 2,165,000 1,173,000 3,338,000
Investment in Bongo 1,900,000 1,900,000
Goodwill on acquisition 20,000 20,000
4,945,000 2,265,000 5,330,000
Current Liabilities
Accounts payable 376,000 205,000 581,000
Non-current Liabilities
Long-term Loan 500,000 180,000 680,000
Equity
Share Capital 3,500,000 1,250,000 1,250,000 3,500,000
Retained earnings & Reserves 569,000 630,000 630,000 569,000

4,945,000 2,265,000 1,900,000 1,900,000 5,330,000

 Session 8
•Understand what the nature of intra-group
transactions are
•The reasons for eliminating intra-group
dividends on consolidation on pre- and post-
acquisition earnings and how to do this.
•How to account for intra-group sales of
inventory inclusive of related tax expense, and
•How intra-group sales of non-current assets
inclusive of the related tax expense effects are
accounted for.
 Session 9
Understand the meaning and nature of non-
controlling interests
Know how to calculate the non-controlling interests’
share in share capital and reserves, and current
period profit or loss and other comprehensive income
Know how to calculate goodwill or bargain gain on
purchase in the presence of non-controlling interests
Know how to disclose non-controlling interests
within consolidated financial statements.
 Session 10
Understand what an indirect equity ownership interest
represents and how it is calculated
Understand that the determination of the total ownership
interest in a subsidiary must take account of both direct and
indirect ownership interests
Understand that the parent’s interest in the post-acquisition
movements of a subsidiary’s retained earnings and other
reserves will be used on the sum of the direct and indirect
ownership interests.
Know how to account for sequential and non-sequential
acquisitions.
 Session 11

• Be aware of how to account for equity investments

• Be aware that investments in associates and joint
ventures must be accounted for using the equity method
of accounting, and know how to apply this method of
accounting
• Understand that , if the investor is a parent entity (that is,
it has at least one subsidiary), either the cost method of
accounting or fair value is to be used in its own individual
accounts, and the equity method in the consolidation
worksheet to account for the investments in associates
and joint ventures, and that, by contrast, if any investor is
not a parent entity (it has no subsidiaries), the equity
method of accounting is to be used in its own accounts to
account for investments in associates and joint ventures.
 Session 12

• Understand why it is necessary to translate the

financial statements of foreign subsidiaries to a
specific presentation currency before the
consolidation process is performed
• Be able to translate the financial statements of a
foreign operation into a particular functional currency
• Be able to translate the financial statements of a
foreign operation into a particular presentation
currency
• Understand which rates to use when translating the
financial statements of a foreign operation
THE END