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Corporate Accounting System by Australian Accounting Board

University: London University

  • Unit No: 9
  • Level: Undergraduate/College
  • Pages: 9 / Words 2210
  • Paper Type: Assignment
  • Course Code: ACC202
  • Downloads: 208
Question :

Learning Outcomes

a) Discuss an understanding of the concepts and theoretical approach of Company Accounting with Accounting standards.

b) Examine the purpose and practical applications of the requirements pertaining to a range of key areas of corporate accounting practices.

c)Evaluate and interpret issues relating to accounting for companies.

d)Devise and critically evaluate the contextual and theoretical aspects of accounting for groups

e) Implement the accounting standards of Corporate accounting for share capital, Leases and company tax.

f) Highlight accounting standards for group of entities, Business combination and consolidation g) Use the Principle of Fair value cash flow statement and Impairment Loss.

Assessment Descriptions

This assessment is developed to analyse the students’ ability to research and implement accounting standards and interpret how to apply relate corporate accounting concepts to various scenarios. It examines students’ problem solving and researching skills and enables them to deal with the financial affairs of a company. It consists of 2 sections; the first section covers the researching skills and section 2 cover case studies with complex calculations which allows the students to use relevant accounting standards to the real-life case.

Answer :
Organization Selected : Davis Ltd


Corporate accounting relates to the analysis and reporting of fiscal statements and records. This typically points to accounting with respect to larger organizations instead of narrower-scale small businesses or partnerships in which the reporting account specifications and requirements appear to be less strict. That's because companies have a responsibility to serve general public and legislative authorities with financial information, while smaller firms don't have that obligation (Parker, 2013).

The study evaluates method of acquisition as prescribed in AASB 3 / IFRS 3 issues by Australian Accounting Standards Board. Further, this study contains a practical sum of acquisition of Davis Ltd by Alma Limited.



Acquisition method in AASB-3 / IFRS-3:

Accounting standard applicable with respect to accounting related to event of business combinations is AASB-3 “Business Combinations” which is primarily issued by Australian-Accounting Standards-Board in 2008,March that is similarly Australian equivalent of IFRS-3 “Business Combinations” which is issued by International-Accounting Standards-Board (IASB) in 2008,January. In the AASB-3, the Appendix-A incorporate defined-outlined terms, whereas Appendix-B incorporates practical application guidelines: these both the Appendixes are significant integral portion of AASB-3. Regulatory body IASB also has drawn a basis guidance for conclusions on IFRS-3, although it's not an inherent portion of standard (Johansson, Hjelström and Hellman., 2016).

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According to AASB-3, business acquisition is contract or other circumstance whereby an acquirer gets ownership of any other businesses. There must be an economical agreement/event between two organizations in which ownership of a firm is passed from one entity to another. This standard also provides specific guidelines on method of acquisition and other relevant information. According to it, when a business is acquired, all the assets are valued at their fair-value. Here as per this standard assets are those items which are capable of providing return (Guthrie and Pang, 2013).

Acquisition method is required approach/method for accounting of any business combination as prescribed in AASB-3, para 4. This involves four major steps as stated in standard's para 5. First one is identification of acquirer, then determination of acquisition date/period. Thereafter recognition and assessment of overall identifiable acquired assets and liabilities as well as any other non-controlling interest related to acquisition process. Lastly, assessment of goodwill or any gain generated through purchase considerations. The process of purchase is enforced on the day of purchase, which is the day the acquirer acquires controlling over the acquiree. The business combination usually occurs on such specific date. AASB 3 also lays out criteria for the corresponding assessment and accounting of assets and liabilities originally recognised at date of purchase (Glaum, Schmidt, Street and Vogel, 2013).

Para seven of AASB 3

Para seven of AASB 3 notes that purchaser/acquirer is the entity/firm that takes ownership of another firm/entity. Here appendix A of this standard defines acquiree and acquirer. Business/businesses over which acquirer gains controlling under business acquisition process are called as acquiree while business entity which gains controlling(ownership) is called as acquirer. The primary factor, then, is control in determining an acquirer/buyer. This concept is same as specified in AASB-10 Consolidated Financial Statements employed to describe the apparent-subsidiary relationship. According to it control of investee is existing in case investor is being entitled/exposed, or holds rights, to uncertain returns via its involvement as an investee as well as ability to impact such returns by his power over investee. In certain cases, it is quite straightforward to recognize an acquirer/buyer. For instance, in case enterprise A gains more-than half of Enterprise B's assets, Enterprise ' A ' can have influential-control over enterprise ' B ' as enterprise A have more than half of enter B's voting rights and influence over enterprise B's management. In other cases, judgement-formation is needed when defining an acquirer. Consider the context in which entity A merges with entity B. A new corporation (entity C) is created to impact the merger, which offers securities for the purchase of all shares of both corporations A and B. Eventually the subsequent organisational structure would be as follows:


Annex B to AASB 3As C is formed alone to formalize entire organisational structure, so this is not an acquirer, however this can be regarded as legal parent/owner of both respective entities. As stated in Annex B to AASB 3, para B18, one of the organizations that prevailed before the mixture should be defined as acquirer, because Entity C is not significant party to decisions related to business combination, only part of the organizational structure that was formed to enforce entire combination. As previously noted, when Entity A is known as the acquirer, then B (acquiree)'s assets and liabilities are assessed at fair-value at acquisition date (Hamberg and Beisland, 2014).

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Second step is recognising effective acquisition date, thus is regarded as particular-date at which buyer/acquirer gains controlling over targeted business-entity. This date in business context is quite crucial since value of aggregate amounts involved in processes of business combination generally assessed at such date as well as buyer initiates consolidation process of target-entity for accounting-purpose. Here another considerable criteria to define acquisition date is use-of control which ensures that actual substance behind transaction/event determines accounting-aspect instead of form of event/transaction. For instance, assets acquired under business combination may be acquired in different stages/payments so in case of these assets, acquisition made over different point of time with no. of payments. As specified in para-nine of AASB-3, on closing-date of combination-process, acquirer/purchaser lawfully transfers purchase-consideration in cash or shares as well as acquires assets/liabilities of acquiree-entity, although in several cases this can not be considered as acquisition date. The meaning of acquisition-date then refers to point in time whenever the acquiree's net-assets became acquirer's net assets— basically date on which acquirer will recognize net assets obtained in his own accounts. This method is compatible with Framework that an asset is described in para 49(a) with regard to future economic benefits that an agency manages (Tsalavoutas, André and Dionysiou, 2014).

Recognising and assessing non-controlling interest and assets & liabilities is major step in business combination. The cumulative assets as well as assumed liabilities required to be listed/recognised individually as per the relevant guidelines of to IFRS3. Here assets are likely future economic benefits achieved, and obligations/liabilities are regarded as likely future expenditures. Identified or recognised intangible assets must fulfil several conditions like such assets should originate through contractual or any legally enforceable rights and must be capable of separate from enterprise. Here notable thing is that Intangible assets those have finite lives should be amortised over their-entire useful life. This standard prescribe that identified assets/liabilities should be valued at fair-value on acquisition date. Even though acquirer/purchaser doesn't acquired 100 percent of targeted enterprise, all the acquired assets/assumed liabilities are reported at their respective 100 percent of fair value. Once all the assets/liabilities are being reported, related accounts for such generally consider generally aspected accounting principles which otherwise mandated to them (Eloff and de Villiers, 2015).

In situation of partial acquisition, fair value on acquisition date of non-controlling interest should be recognised-first. In this context a non-controlling interest refers to equity-holding of target-business which is owned by minority-holders i.e. less than 50percent interest. In case acquirer hold current interest in target-company, than its fair-value required to be assessed as on acquisition date. This can be assessed in 2 specific manner; first one is proportionate sharing of fair-value in entity's net assets where as second is fair value depended upon shares' market value.

Goodwill resulting from the corporate combination on date of acquisition regarded as intangible assets in acquirer's balance sheet. Asset is determined as excessive amount of entire acquisition costs over buyer’s interest in terms of fair-value of aggregate assets/liabilities acquired. After business combination process, in the books of acquiring enterprise goodwill is recognised and shown as intangible asset under the head of non-current asset in balance sheet. This amount of goodwill is not to be amortised but it should be impaired periodically. In case acquisition costs are lower then the net value of assets and liabilities acquired then there would be negative amount of goodwill. When initial computations of value of goodwill is considered appropriate, then amount of negative goodwill should be written-off and entire gain should be recognised in income-statement. Thus, Negative excessive amount should be recognised instantly in P&L. Here fair values of assumed liabilities are typically measured against present values of projected future cash outflows. Any losses or any other expenses which are expected to occur from the merger aren't acquirer's liabilities and therefore are not reflected in the estimation of fair value of entire consideration received (Baboukardos and Rimmel, 2014).


Given Information:

Alma Ltd - - - - - - - - - (acquired all issued shares (ex dividend.)- - - - - - - - - - - - > Davis Ltd

Acquisition date: 1st July 2018

Purchase-consideration: $1239870

In books of Davis Ltd:

Reported dividend payable :

$ 25000

Share capital :

$ 434000

Asset revaluation surplus :

$ 186000

Retained earnings :

$ 149000



Carrying Amount

Fair value

Further life- in Year

Inventories (90% was sold by 30 June 2019 and 10 % sold by 30 June 2020)















In May-2019, Davis Ltd transferred from the Retained earnings at 1 July 2018 to a Asset revaluation surplus: $74500

Tax Rate: 30 percent.

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Acquisition analysis at 1 July, 2018:

 Net fair value of identifiable assets and liabilities of Davis Ltd


 ($ 434000 + $ 186000 + $ 149000) (equity)



+ ($ 335000 - 186000) (1 – 30%) (Inventory)



+ ($ 670000 -372000) (1 – 30%) (land)



+ ($ 781000 - $ 434000) (1 – 30%) (Vehicle )



$ 1324800

Net consideration transferred


$ 1239870 - $ 25000



$ 1214870



$ 1324800 - $ 1214870



$ 109930

Consolidation worksheet entries for Alma Ltd’s group at 30 June 2019:

Business combination valuation entries:

Inventories A/c Dr. $ 149000

Deferred Tax Liability $ 44700

Business combination valuation reserve $ 104300

land Dr. $ 298000

Deferred Tax Liability $ 89400

Business combination valuation reserve $ 208600

Vehicle A/c Dr. $ 347000

Deferred Tax Liability $ 104100

Business combination valuation reserve $ 242900

Share Capital Dr. $ 434000

Retained Earning [186000 -109930 (gain)] Dr. $ 76070

Asset revaluation surplus Dr. $ 149000

Dividend Payable Dr. $ 25000

Business combination valuation reserve Dr. $ 555800

Shares in Davis Ltd $ 1239870

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From above report it has been articulated that corporate accounting is crucial aspect in current corporate world. It is a wider aspect which involves different aspects of accounting related to large corporations. This also involves IFRS and AASB which guides the entire accounting practices used in companies. These standards also includes acquisition method which is generally applied in accounting for business combination.

Other related samples:-

Methods of Management Accounting in GSQ Ltd.

Evaluation of Management Accounting System & Financial Accounting System


Books and Journals:

  • Parker, R.H. ed., 2013. Accounting in Australia (RLE Accounting): Historical Essays. Routledge.
  • Guthrie, J. and Pang, T.T., 2013. Disclosure of Goodwill Impairment under AASB 136 from 2005–2010. Australian Accounting Review. 23(3). pp. 216-231.
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