MICROLINK INFORMATION TECHNOLOGY AND BUSINESS COLLEGE

DEPARTMENT OF ACCOUNTING AND FINANCE

Group Assignment for the course Advanced Financial Accounting

Weight (20%)
Submission date: July, 28,2024
1. Explain the meaning of Business combinations.
2. State the difference between statutory merger and statutory
consolidation.
3. Explain the terms: Constituent companies, combiner &Combinee.
4. Why do business enterprises enter in to business combination?
5. What makes the consolidation of wholly owned subsidiaries different
from the partially owned subsidiaries?
6. Discuss about the steps that should be followed in preparing
consolidated financial statements?
7. Distinguish between the annual financial statements and interim
financial statements?
8. What are the three factors used to allocate non-traceable expenses
among segments?
9. What are the testing mechanisms to identify the reporting segments?
10. Discuss how foreign currency transactions should be treated?

Workout
1. Illustration-1: On April 1, 2010, Company B (the combinee) was merged
with Company A (the combinor). The following is the balance sheet of
company B just prior to business combination. Company B is liquidated after
combination.

Company B
Balance Sheet
April1, 2010
AssetsLiabilities and owners’ equity
Current Assets 800,000 Current liabilities 600,000
Plant Assets 4,000,000 Long Liabilities 1,200,000
Other Assets 200,000 C/S $10 par 2,000,000
Retained Earnings 1,200,000
Total assets 5,000,000 Total Liabilities and OE 5,000,000
Additional Information
Company A (the combinor ) exchanged 200,000 shares of its $10 par
common stock (CFV$25) a share . In addition Company A paid out of
pocket expense as follows; Legal & Finder's fee $150,000 and Other
Combination expense 50,000. The Current Fair Value of Company B's
Assets and Liabilities were as follows;
Current Assets $ 950,000
Plant Assets 4,500,000
Other Assets 250,000
Current Liabilities (600,000)
Long Liabilities (1,100,000)
Required: Show Journal Entries
1. In the record of company A for purchase type business
combination.
2. In the record of company B for liquidation.

2. On December 31, 2009, M Company issued 55 ,000 shares of its $

1par common
stock (Current Fair Value $21 a share) to the shareholders of
NCompany in
exchange for 36,000 of the 40,000 outstanding shares of
NCompany’s $10 par
common stock in the purchase type business combination. Out
of pocket cost of
business combination paid in cash by MCompany on December 31, 2009,
were as
follows;

Finder’s and legal fee $45,000

SEC Registration statement cost 55,000
Total $100,000
Financial Statements of M Company and N Company for their fiscal
year ended
December 31, 2009, prior to the business combination were as follows. There
was no
inter-company transactions prior to the business combination.
 M Company and NCompany
Separate Financial Statements (Prior to business combination)
For the year ended December 31, 2009

M Company N Company

Income statement
Net sales $6,600,000 $1,200,000
Cost of goods sold $4,620,000 $780,000
Operating expenses 1,110,000 204,000
Interest expenses $90,000 $48,000
Income tax expense $260,000 $56,000
Net income $520,000 $112,000
Statement of RE
RE Beginning $810,000 $290,000
Add: Net Income $520,000 $112,000
Sub total $1,330,000 $402,000
Less: Dividends $180,000 $48,000
RE end $1,150,000 $354,000
Balance sheet
M Company N Company
Asset
Cash $240,000 $120,000
Inventories $960,000 $600,000
Other Current Assets $660,000 $258,000
Plant Assets (net) $4,200,000 1,320,000
Good will (net) $120,000 -
Total Assets $7,280,000 $2,298,000
Liabilities and SHE
Income tax payable $149,000 $66,000
Other Liabilities $2,940,000 1,116,000
Common stock ($1 Par) $1,200,000
Common stock ($10 Par) 480000
Excess Over Par $660,000 282,000
Retained Earnings $1,150,000 354,000
Total Liabilities & SHE $7,280,000 $2,298,000
On December 31, 2009, the current fair value of Y Company’s identifiable
assets and
liabilities were the same as their carrying amounts, except the following
assets.

Item Current Fair Value (CFV)

Inventories $631,200
Plant Assets 1,548,000
Lease hold 36,000
Required;
1. Record journal entries in MCompany .
2. Show the necessary ledger accounts.
3. Compute minority interest.
4. Develop elimination journal.
5. Prepare working paper for consolidated balance sheet.
6. Prepare the consolidated balance sheet.
1. A business combination is defined as an entity obtaining control
of one or more businesses. The most common business
combination is a purchase transaction in which the acquirer
purchases the net assets or equity interests of a business for
some combination of cash or shares.
2. The essential difference between a merger and a consolidation
is that in a merger, one of the constituent corporations remains a
continuing corporation called the surviving corporation, whereas
in a consolidation, the continuing entity is a new corporation
formed in the transaction.

3.

4. The main reason a company would consider a business

combination is because the combined business would be
stronger than the individual business operating separately. The
acquirer would acquire the other company to obtain control of its
assets, people, or its intellectual property (IP).
 5. When the controlling interest represents more than 50% but less than 100% of the
subsidiary's shares, the subsidiary is known as a partially owned subsidiary. When the
controlling interest represents 100% of the subsidiary's shares, the second company is
called a wholly owned subsidiary

6. 1 . Identify subsidiaries & investments. ...:- . Identify subsidiaries: A

subsidiary is a company whose parent is a majority shareholder.
Both the parent and subsidiary are separate entities and
independent of one another. Investment definition: is an asset acquired or
invested in to build wealth and save money from the hard earned income or
appreciation. Investment meaning is primarily to obtain an additional source of income or
gain profit from the investment over a specific period of time
2.Gather financial statements. ...
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3. Eliminating intra-group transactions involves removing both the

recorded amounts and any related unrealized gains or losses.
For example, if one subsidiary sells goods to another subsidiary
within the group, the revenue and expense associated with the
transaction should be eliminated.
4.Adjust for non-controlling interests. ... Non-controlling interest is the
minority interest of a company's ownership, where shareholders
own less than half of the company's outstanding shares. This
means that shareholders with non-controlling interests have no
control over organizational decisions. Additionally, companies
typically measure minority interest according to the net asset
values they currently possess. Non-controlling or minority
 interest contrasts with controlling interest, where key
stakeholders own a majority of company shares and have equal
control over the decisions that a company makes to support its
growth and development.
5.Consolidate those financial statements. ... Consolidated financial statements
are the overall financial statements of any entity with multiple divisions, including the
parent company and all subsidiaries that are controlled by the parent company. They
include three key financial statements; income, cash flow, and financial position
6.Review and audit. ...
An Independent Review provides limited assurance, whereas an
audit provides reasonable assurance that the financial
statements are represented fairly and free from material
misstatements. The difference in assurance obtained from an
independent review versus an audit is due to the scope of work
performed.
7.Monitor and update. Connect the USB Type-B male cable (square with 2 cut
corners) to the USB Type-B port of your monitor. Then connect the other end of the
cable to the USB port of your computer. 3. Click Update to upgrade your monitor's
firmware, and wait until the upgrade process completes. You don't need to update
monitor drivers unless you have problems with image quality or functionality. Monitor
drivers might improve color accuracy or add functionality, though it's rare. To install
monitor drivers, go to the manufacturer's website, download the driver, and follow the
on-screen prompts to install it.

7.Financial statements may be prepared for different timeframes.

Annual financial statements cover the company's latest fiscal year.
Companies may also prepare interim financial statements on a
monthly, quarterly or semi-annual basis. Interim statements
sometimes include fewer components than year-end statements
8. These factors are: (1) Service life: The estimated use that the company expects to receive
from the asset. (2) Allocation base: the value of the usefulness that is expected to be
consumed. (3) Allocation method: the pattern in which the usefulness is expected to be
consumed.
9. External revenue of reportable segments must constitute at least 75% of total
consolidated revenue. Consolidated revenue for the purpose of this comparison would,
by definition, mean external revenue, as inter-segment revenue would be eliminated on
consolidation.

10. Record initial transaction in the functional currency using the exchange rate on that date.
Translate monetary assets/liabilities using current exchange rates each reporting period.
Recognize translation adjustments in net income. Disclose foreign currency translation
information in financial statement footnotes