College of Administration and Finance Sciences

Assignment (1)
Deadline: Saturday 22/April/2023 @ 23:59

Course Name: Advanced Financial

Student’s Name:
Accounting
Course Code: ACCT 302 Student’s
Semester: 3rd CRN:
Academic Year: 1444 H

For Instructor’s Use only

Instructor’s Name:
Students’ Grade: /15 Level of Marks: High/Middle/Low

Instructions – PLEASE READ THEM CAREFULLY

 The Assignment must be submitted on Blackboard (WORD format only) via
allocated folder.
 Assignments submitted through email will not be accepted.
 Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
 Students must mention question number clearly in their answer.
 Late submission will NOT be accepted.
 Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No
exceptions.
 All answers must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism.
 Submissions without this cover page will NOT be accepted.
 College of Administration and Finance Sciences

1) Assume Large Corporation Invested $ 600,000 for Small Corporation and the
estimated Fair Market Values of Assets, Liabilities and Equity Accounts are as
follows:

Assets Amount $ Liabilities Amount $

Account Receivable 125,000 Account Payables 180,000

Inventory 50,000 Retained Earnings 120,000
LT Marketable Securities 55,000 Commons Stock 100,000
PP & E 170,000
400,000 400,000

Required: (2+3 Marks)

a) Determine the Amount of Goodwill or Bargain Purchase.
b) What is the Journal Entry in the book of Large Corporation?
a) Computation of goodwill:-

Cost of investment 600,000

(-) fair value of net assets
(400,000-180,000) (220,000)
= Goodwill 380,000
b)
Dr. Cr.
Account Receivable 125,000
Inventory 50,000
LT Marketable Securities 55,000
PP & E 170,000
Goodwill 380,000
Account Payables 180,000
Cash 600,000
 College of Administration and Finance Sciences

2) From the following Table pass Basic Elimination Entry under Equity Method in
the book of Parent Company: (5 Marks)

Total = Common + Additional + Retained

Book Value Stock Paid in Earnings
Capital

Beginning Book 600 150 550 (100)

Value
+ Net Income 200 200
- Dividend (50) (50)

Ending 750 150 550 50

Book Value

Answer: Elimination entry is as follows:-

Dr. Cr.
Common stock 150
Additional paid in capital 550
Income from subsidiary 200
Retained earnings 100
Dividends declared 50
Investment in subsidiary 750
 College of Administration and Finance Sciences

3) Consolidated financial statements present the financial position and results of

operations for controlling entity and one or more controlled entities.
‘Consolidated Financial Statement has some advantages but at the same time it
is not free from limitations.’ Elaborate this statement. (5 Marks)

Advantages of consolidated financial statements are:

- The financial health of the company can be judged with one glance.

- It reduces the burden of preparing separate financial statements for all subsidiaries

- It helps to promote transparency. In standalone financial statements, it gets difficult to judge the health of the
subsidiaries of a parent.

- Cross-sale effects are correctly accounted for. It is a general mistake that the subsidiary records profit on sales
for sales made to parent companies. This is not correct.

Disadvantages of consolidated financial statements are:

- The poor performance of the parent company can be overshadowed by the excellent performance of the
subsidiary.

- If too many cross transactions have happened between parent and subsidiary and proper accounting is not
followed, then it will present elevated sales, which is actually not true.

- As everything is combined, so proper analysis based on ratios is tough.

- Confusion about true financial position of subsidiaries