Journal Entries

ABC Ltd made a takeover bid for all the issued voting shares of XYZ Ltd offering three ABC Ltd shares for every two XYZ Ltd shares. The offer from ABC Ltd was accepted by 90% of the shareholders of XYZ Ltd. The date control was obtained by ABC Ltd was deemed to be 1 January 20X7. The following information is available.

(c) In XYZ Ltd’s accounting records, land was stated at $200,000 below its cost to the group. This is to be accounted for as a consolidation adjustment. Statements of comprehensive income and statements of financial position of ABC Ltd and XYZ Ltd for the year ended 31 December 20X8 are as follows:

Additional information
(a) ABC Ltd records dividend revenue in the accounting period when the cash is received.
(b) The final dividend declared by XYZ Ltd for the 20X7 year was $130,000 and it was paid on 1 March 20X8.
(c) Impairment losses for goodwill arising on acquisition had not been recognised in any of the previous years’ consolidated financial statements. The directors of ABC Ltd are of the opinion an impairment loss of $10 000 will be recognised in relation to its investment in XYZ Ltd in the consolidated financial statements for the year ended 31 December 20X8.

(f) The rate of company income tax is 30%.
(g) Assume the directors of ABC Ltd have adopted the full goodwill method.
Required:
(a) For the accounting records of ABC Ltd show the general journal entries to record:
i. the acquisition of the shares in XYZ Ltd on 1 January 20X7.
ii. the dividend received from XYZ in 20X8 but proposed by XYZ Ltd in
20X7; and
iii. the interim dividend received from XYZ Ltd in 20X8.

(b) Prepare the consolidated financial statements at 31 December 20X8.
Show all consolidation journal entries and a worksheet and all workings for
the calculation of NCI.
The consolidated financial statements should be presented in the same
manner your textbook presents them.
(c) Explain the partial and the full goodwill methods. In your discussion list the advantages and disadvantages of using each method.