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Part A: Case Study

(a) Albany Ltd and Busselton Ltd each hold 50% of the shares in Dunsborough Ltd, all companies being involved in the computer software industry. Albany Ltd agrees that Busselton Ltd should provide the management of Dunsborough Ltd because of the expertise provided by its managing director, Bob Gates. Busselton Ltd receives a management fee for providing its expertise. As shown here in the statement that having 50% share in the company the other company has the right to interfere in the management body and also to the financial activities of the parent company. As mention in appendix B of the AASB 10 Consolidated Financial Statements that while determining whether the sharing company control the parent company or can say as investee is controlled by the investor of it. Yes it is true but there should be have the following characteristics as if the investors have all the powers over the investee, if the investee have the exposure or rights that provide the variable returns if the investor involves with the investee activities and also if the investors have the ability to use own power on the parent company so that the returning amount from the parent company will be affected for the investors. It also depends on the contract between the investors and to the investee while having the investment in the parent company. Based on the situations here as the Albany Ltd and Busselton Ltd each hold the 50% share in the in Dunsborough Ltd so it is obvious that the investors have the powers and right to interfere in the parent companys decisions.

Part B: Practical Exercise


Taurus Ltd acquired all of the issued shares of Capricorn Ltd on 1 July 2012 for consideration of $137 600. At that date, the equity of Capricorn Ltd consisted of the following: Share capital $85 000 General reserve 18 000 Retained earnings 12 000 All of the identifiable assets and liabilities of Capricorn Ltd at this date were recorded at fair value, except for: Carrying amount Fair value Plant (cost $100 000) $80 000 $82 000 Inventory $5 000 $6 000 Land $150 000 $158 000 The plant had a further eight year life. The entire inventory was sold by Capricorn Ltd by 15 May 2013. Land was sold on 31 October 2015. Valuation adjustments are made on consolidation. At 1 July 2012, Capricorn Ltd had recorded goodwill of $5 400, and the liabilities of Capricorn Ltd included a dividend payable (cum div) of $6 000.

Date

Account description 1. Cash

title

and Debit

Credit

Comments

01, Jul Company acquisition fund 2012 01, Jul Share capital 2012 01, Jul General reserve 2012 01, Jul Retained earnings 2012 01, Jul Good will 2012 2. Equipments and assets 01, Jul Plant Cost 2012 01, Jul Land Cost 2012 3. Liabilities 01, Jul Inventory cost 2012 01, Jul Dividend payable 2012

$137 600

$85 000

$ 18 000

$12 000

$5400

Fund need to acquisition for the Capricorn Ltd The Capricorn Ltds share capital that will be used by now Taurus Ltd. Capricorn Ltd has this fund to its own account as reserve value The net earnings of the Capricorn Ltd till second quarter of 2012 Value over than asset of the Capricorn Ltd.

$8200

$19750

The total cost of the plant and the life is for 8 years The plant land cost that has the significant value as assets

$6000 $6000

01, Jul Development expenditure 2012

$5000 $148,600 $143,550

The current inventory cost in the firm available Dividend to be payable to the employees and share holders of the Capricorn Ltd. Development expediture by Capricorn Ltd.

Thus from the above journal entry as of the 01 July 2012 it is stated that the acquisition of the company was right decision to acquire the Capricorn Ltd.

References:
1. Australian Accounting Standards Board, 2012 < http://www.aasb.gov.au>/ 2. Bertrand Malsch, Yves Gendron, Accounting, Organizations and Society, Volume 36, Issue 7, October 2011, Pages 456-476 3. Grantley Taylor, Greg Tower, Mitch Van Der Zahn, Accounting Forum, Volume 35, Issue 1, March 2011, Pages 32-46 4. T.J. Brailsford, A.L. Ramsay, Journal of International Accounting, Auditing and Taxation, Volume 2, Issue 1, 1993, Pages 43-58 5. Garry D. Carnegie, Brian P. West, Critical Perspectives on Accounting, Volume 16, Issue 7, October 2005, Pages 905-928 6. DePamphilis, Donald (2008). Mergers, Acquisitions, and Other Restructuring Activities. New York: Elsevier, Academic Press. pp. 740 7. Maddigan, Ruth; Zaima, Janis (1985). "The Profitability of Vertical Integration". Managerial and Decision Economics 6 (3): 178179 8. Harwood, I. A. (2006). "Confidentiality constraints within mergers and acquisitions: gaining insights through a 'bubble' metaphor". British Journal of Management 17 (4): 347359 9. Rosenbaum, Joshua; Joshua Pearl (2009). Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions. Hoboken, NJ: John Wiley & Sons 10. Straub, Thomas (2007). Reasons for frequent failure in Mergers and Acquisitions: A comprehensive analysis. Wiesbaden: Deutscher Universitts-Verlag (DUV), Gabler Edition Wissenschaft