Business combination:
Business combination refers to the combining of one or more business organizations in a single entity. The business combination leads to the formation of combined financial statements. After business combination, the entities having separate control merges into one having control over all the assets and liabilities. Merging and acquisition are types of business combinations.
Push-down accounting:
It refers to process about subsidiary’s recording of the fair-value allocations as well as subsequent amortization in its books of accounts.
The fair value of the asset:
The fair value of the asset is the amount at which two parties may enter into an agreement with an open hand.
:
Identify the accounting methods which would be recommended if the deals are completed.
Want to see the full answer?
Check out a sample textbook solutionChapter 2 Solutions
Advanced Accounting
- You have been presented with the following set of financial statements for National Property Trust, a REIT that is about to make an initial stock offering to the public. This REIT specializes in the acquisition and management of warehouses. Your firm, Blue Street Advisors, is an investment management company that is considering the purchase of National Property Trust shares. You have been asked to prepare a financial analysis of the REIT. National Property Trust Panel A. Operating Statement Summary Net revenue $ 101,000,000 Less: Operating expenses 40,400,000 Depreciation and amortization 23,000,000 General and administrative expenses 6,100,000 Management expense 3,100,000 Income from operations 28,400,000 Less: Interest expense* 6,400,000 Net income (loss) $ 22,000,000 *At 8% interest only. Panel B. Balance Sheet Summary Assets Cash $ 51,600,000 Rents receivable 2,600,000 Properties @ cost 710,000,000 Less: Accumulated depreciation…arrow_forwardRequired: i)Determine the gain for World Cruise Bhd. when it acquires Sunrise Cruise Bhd. (ii) World Cruise Bhd. is proposing to finance by cash the deal to purchase all of Sunrise Cruise Bhd.’s issued shares and is offering a premium of 25% over the market price of Sunrise Cruise Bhd.’s shares.Calculate the cost of acquisition of Sunrise Cruise Bhd. (iii) Suggest what should be recommended by Jack Pang to the Board of Directors on the proposed acquisition of Sunrise Cruise Bhd. and why Sunrise’s shareholders should accept the offer.arrow_forwardYou have been presented with the following set of financial statements for National Property Trust, a REIT that is about to make an initial stock offering to the public. This REIT specializes in the acquisition and management of warehouses. Your firm, Blue Street Advisors, is an investment management company that is considering the purchase of National Property Trust shares. You have been asked to prepare a financial analysis of the REIT. National Property Trust Panel A. Operating Statement Summary Net revenue $ 112,000,000 Less: Operating expenses 44,800,000 Depreciation and amortization 34,000,000 General and administrative expenses 7,200,000 Management expense 4,200,000 Income from operations 21,800,000 Less: Interest expense* 6,400,000 Net income (loss) $ 15,400,000 *At 8% interest only. Panel B. Balance Sheet Summary Assets Cash $ 52,700,000 Rents receivable 3,700,000 Properties @ cost 820,000,000 Less: Accumulated depreciation…arrow_forward
- What CGT events apply to the following transactions?o You sell shares in Flight Centre Limited (ASX:FLT) for $15,000o You receive $100,000 in return for signing a three-year contract to play AFL with theBrisbane Liono You sell your investment property at Mango Hills for $450,000.o You sell your Indian restaurant for $100,000 and receive an additional $20,000 foragreeing not to open another restaurant within a 10 km radius for the next threeyears.o You pay Daniel $25,000 for the option to purchase his butcher shop in three years’time.In three years’ time you exercise the option to purchase Daniel’s butcher shop for$110,000.o You sell a piece of antique for $20,000. You paid $12,000 for the piece of antique in1984 please put 3 referencesarrow_forwardAssume an investor purchases an investee’s net assets with a cash payment of $1,200 and issuance to the investee’s shareholders of 240 shares of $1 par value common stock with a current fair value of $28.50 per share. In addition, we assume the purchaser paid an additional $60 of transaction costs to a third party (e.g., appraiser or broker) and provided the seller with contingent consideration with a fair value of $240 at the date of acquisition. The investee has the following net assets at current appraised fair value and historical book value: investee fair value investee book value plant and equipment 900 480 land 1260 900 patent 1440 120 total 3600 1500 a. Provide the journal entry on the investor’s books for the purchase of the individual net assets of the investee. Assume the acquired net assets do not qualify as a business. b. Provide the journal entry on the investor’s books for the purchase of the individual net assets of the investee. Assume the acquired net…arrow_forwardPROBLEM 3: FOR CLASSROOM DISCUSSION Share-for-share exchanges 1. Frown Co. issued shares in exchange for all the outstanding shares of Long Co. Frown's shares have par value of P20 per share and fair value per value of P100. On acquisition date, Long's net identifiable assets have fair value of P4,000,000. Frown recognized goodwill of P200,000 from the business combination. How many shares did Frown issue on the business combination?arrow_forward
- ABC Corporation operates hotels and restaurants in the central business district of Makati City. It is aiming to acquire XYZ Inc. another corporation in Pampanga. This corporation runs small hostels. ABC offers to acquire XYZ by offering 100,000 ABC ordinary shares valued at P12,000,000. 1. Kind according to purpose (Choose 1) a. Horizontalb. Verticalc. Product Extentiond. Market Extensione. Congenericf. Conglomerate 2. Kind according to approach to the target firm (Choose 1)a. Friendlyb. Hostile 3. Kind according to acquisition mode (Choose 1) a. Cashb. Equity swapc. Mix of cash and equity swaparrow_forwarddo not copy from bartleby and cheggggg King Company is contemplating the purchase of a smaller company, which is a distributor of King's products. Top management of King is convinced that the acquisition will result in significant synergies in its selling and distribution functions. The financial management group (of which you are a part) has been asked to analyze the effects of the acquisition on the combined company's financial statements. This is the first acquisition for King, and some of the senior staff insist that based on their recollection of goodwill accounting, any goodwill recorded on the acquisition will result in a “drag” on future earnings for goodwill amortization. Other younger members on the staff argue that goodwill accounting has changed. Your supervisor asks you to research this issue. Instructions Access the IFRS authoritative literature at the IASB website. When you have accessed the documents, you can use the search tool in your Internet browser to respond to…arrow_forwardPrepare general journal entries for the following transactions, identifying each transaction by letter: (a) Gnu Company issued 5,000 shares of 1 par common stock to the Prendergas law firm as partial payment of fees incurred to incorporate the business. Gnu was short of cash, so Prendergas agreed to accept 10,000 cash and the shares of common stock in full settlement of its bill for 55,000. (b) Gnu issued 50,000 shares of 1 par common stock in exchange for a parcel of land for building a shopping plaza. (The list price for the land was 400,000; a similar parcel in the same area sold last week for 380,000. During the past month, the price at which Gnus common stock has traded on the open market has ranged from 5 to 12 per share. Two trades occurred yesterday at 7 and 10 per share.) (c) Gnu purchased 10,000 shares of 1 par value common treasury stock for 70,000. (This is the only treasury stock that Gnu holds.) (d) Gnu sold 4,000 shares of common treasury stock for 32,000. (e) Gnu sold 5,000 shares of common treasury stock for 30,000.arrow_forward
- Assume you purchased ten shares of Roku during the companys IPO. Comment on why this might be a good investment. Consider factors such as what you expect to get from your investment, why you think Roku would become a publicly traded company, and what you think is the landscape of the industry Roku is in. What other factors might be relevant to your decision to invest in Roku?arrow_forwardAmekom Plc is a public company that would like to acquire (100% of) a suitable private company. It has obtained the following draft financial statements for two companies, Bordiem Plc and Apim Plc. They operate in the same industry and their managements have indicated that they would be receptive to a takeover. Statements of Profit or Loss for the year ended 31st December, 2020 Bordiem Plc Apim PlcGH¢’000 GH¢’000 Revenue 12,000 20,500Cost of sales (10,500) (18,000)–––––––– ––––––––Gross profit 1,500 2,500Operating expenses (240) (500)Finance costs – loan (210) (300)– overdraft nil (10)– lease nil (290)–––––––– ––––––––Profit before tax 1,050 1,400Income tax expense (150) (400)–––––––– ––––––––Profit for the year 900 1,000–––––––– ––––––––Note: dividends paid during the year 250 700–––––––– ––––––– Statements of financial position as at 31st December, 2020AssetsNon-current assetsFreehold factory (note(i)) 4,400 nilOwned plant (note (ii)) 5,000 2,200Leased plant (note (ii)) nil…arrow_forwardFirm A is planning on merging with Firm B. Firm A will pay Firm B's stockholders the current value of their stock in shares of Firm A. Firm A currently has 1,800 shares of stock outstanding at a market price of $40 a share. Firm B has 1,200 shares outstanding at a price of $47 a share. What is the value per share of the merged firm?arrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningExcel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,