Reference no: EM132772873

Here are the issues we are most concerned about: Recently Brown Ltd have acquired all the shares of Pink Ltd. One of the assets in the statement of financial position of Pink Ltd was $42,000 goodwill, which had been recognised by Pink Ltd upon its acquisition of a business from Blue Ltd. Having prepared the acquisition analysis as part of the process of preparing the consolidated financial statements for Brown Ltd, the directors have asked you to explain these following issues:

Problem 1: What is the purpose of preparing consolidated statements as well as separate financial statements? Do we need to prepare separate financial statements if we are required to prepare consolidated statements?

Problem 2: How does the recording of goodwill by the subsidiary (Pink Ltd) affect the accounting for the group's goodwill? When goodwill is impaired in later years, should the impairment loss be recognised in the records of Brown Ltd or as a consolidation adjustment? How will it be recorded? What happens when it is fully impaired?

Problem 3: Where a fair increment involves a depreciable asset (increased by $50,000), why is depreciation expense adjusted in subsequent years? How is the depreciation rate/method