Accounting Business Reporting for Decision Making

CHAPTER 5 Balance sheet 177

ILLUSTRATIVE EXAMPLE 5.2

Goodwill determination

On 1 July 2014, Vocation acquired 100 per cent of the issued share capital of Endeavour College of

Natural Health (‘Endeavour’), one of Australia’s leading providers of higher education and vocational

training in the health and wellness sector. The acquisition sought to significantly strengthen Vocation’s

position in the higher education market, broaden its educational offering by providing further exposure

to the growing health and wellness sector, and deliver an established and high-quality national campus

footprint which would significantly improve the consolidated entity’s overall geographic exposure.

Source: Information from Vocation, preliminary final report 2014, p. 26.

Step 1: Determine the purchase consideration.

1. What is the purchase consideration? This is the purchase price paid by Vocation for Endeavour:

$82 944 000

Step 2: Determine the fair value of the net assets acquired.

2. Determine the fair value of net assets acquired (fair value of assets acquired less the fair value of any
   liabilities acquired):

$34 002 000

Step 3: Calculate goodwill.

3. Calculate goodwill as the purchase consideration less the fair value of net assets acquired:

$82 944 000 − $34 002 000 = $48 942 000

To provide users with information that is useful for decision making, further information about

the various asset classes on the balance sheet should be provided in the notes to the accounts. Since

the information in the financial statements consists of summarised and aggregated data, the financial

statements contain cross-references from the notes to the accounts, where greater detail is provided.

Figure 5.8 provides the disaggregation of the asset classes in the extract of the 2015 balance sheet for

JB Hi-Fi Ltd to enable us to gain an appreciation of the assets comprising each asset class. This is not to

say that every entity would necessarily have the same asset classes listed on its balance sheet and/or the

same assets within each asset class.

JB Hi-Fi Ltd’s assets on

the balance sheet Note Disaggregation of asset class

Current assets

Cash and cash

equivalents

It is usual for the cash and cash equivalent asset class to include:

•   cash at bank, on hand and in transit

•   cash on deposit.

If an entity is operating a bank overdraft, rather than having cash at bank,

then the overdraft appears as a current liability.

Trade and other

receivables

9 • Trade receivables (measured at their face value less any allowance for

doubtful debts (impairment))

•   Goods and services tax (GST) recoverable

•   Non-trade receivables

Other types of receivables appearing on a balance sheet include:

•   loans to other persons

•   employee share plan loans.

FIGURE 5.8 Extract of JB Hi-Fi Ltd’s 2015 balance sheet — disaggregation of asset classes (continued)