Reference no: EM132612777 , Length: word count:3500

Advanced Corporate Reporting - London School of Business and Finance

Learning Outcome 1: Identify rules and principles in the international accounting standards and financial regulations and core values in business that led to competitive advantage, while critically analysing businesses and financial statements for value creation.

Learning Outcome 2: Demonstrate an in-depth knowledge in the sphere of business and financial analysis with a view to corporate evaluation, through evaluation and analysis of business models and financial statements.

Learning Outcome 3: Critically assess businesses and accounting data and financial
information available to make investment decisions.

Learning Outcome 4: Discuss the linkage between current theory and common practice and be able to organise appropriate evidence and reasoning to produce a balanced conclusion in business and financial analysis.

Learning Outcome 5: Demonstrate problem solving and analytical approaches to facilitate effective business and financial decision-making.

Your Task Part A

On 1 January 2020, Pear company acquired 80% of Guava company's share capital for a total value of £250m. Additional information:

- The fair value of the subsidiary's net assets on acquisition total £200 million
- Assume the fair value of the non-controlling interest (NCI) share at acquisition was £50 million

Required:

Calculate the NCI and goodwill of the group on January 1 2020 using the following two NCI methods:

1. Traditional method: NCI's proportionate share of net assets of the acquiree
2. Full (gross) goodwill method Make appropriate references to IFRS.

Part B

The balance sheets of Sigma plc and Omega plc on 31 December 2019, the accounting date for both companies, were as follows:

	Sigma plc	Omega plc
Assets	£'000	£'000
Tangible fixed assets	60,000	40,000
Inventory	10,000	9,000
Other current assets	12,000	10,000

	82,000	59,000
Liabilities
Current liabilities	-      9,000	-      8,000
Quoted debentures	-    15,000	-     12,000
	-    24,000	-    20,000
Net assets	58,000	39,000
Shareholders' Equity
Equity share capital (£1 shares)	30,000	20,000
Share premium account	10,000	5,000
Profit & loss account	18,000	14,000
Total Shareholders' Equity	58,000	39,000

On 31 December 2019, Sigma plc purchased 100% of Omega plc shares. The purchase consideration was satisfied by the issuance of 6 new equity shares by Sigma plc for every 5 equity shares purchased from Omega plc.

On 31 December 2019, the market value of a Sigma plc share was £2.25, and the market value of an Omega plc share was £2.40.

Further relevant details regarding Omega plc's accounts on 31 December 2019 are as follows:

- The fixed assets had a fair value of £43.5 m
- The inventory had a fair value of £9.5 m
- The debentures had a market value of £11 m
- Other net assets had a fair value that was the same as their book value.

Note that the effect of the acquisition was not reflected in Sigma plc's
statement above.

Required:

Prepare the consolidated balance sheet of Sigma plc on the acquisition date. Please explain and justify all steps you have taken to prepare the statement and provide details of any assumptions you have made.

Part C

ABC Ltd acquired 70% of XYZ Ltd shares on 31 December 2018 for a cost of £4,000,000. The balance sheets of the two companies on 31 December 2019 and the profit and loss accounts for the year ending 31 December 2019 are as follows:

		ABC Ltd	XYZ Ltd
Balance Sheet on 31 December   2019		£'000	£'000
Fixed Assets		1,500	2,000
Investment in XYZ Ltd		4,000
Current Assets
Due from group company		1,100	450
Other current assets		300	1,350
Current liabilities
Due to Group Company		-250	-1,100
Other current liabilities		-400	-150
		6,250	2,550
Ordinary shares		2,000	1,275
P&L account	pre 31.12.18	3,650	725
	y/e 31.12.19	600	550
		6,250	2,550
Profit & Loss account
Year ending 31 December 2019
Sales	external	6600	2700
	intergroup	1700	1950
Cost of sales	external	-5100	-2000
	intergroup	-1950	-1700
Gross Profit		1250	950
Admin Expenses		-450	-275
Net profit before tax		800	675
Taxation		-200	-125
Net profit after tax		600	550

- A goodwill impairment review has been carried out, and it has been determined that goodwill has been impaired by £300,000 as of 31st December 2019

- On 31st December 2019, ABC Ltd paid XYZ Ltd £200,000 for intercompany liabilities, but XYZ has not yet recognised this in its accounts.

Required:

1. Define what is meant by purchased goodwill and how it is calculated, and explain the reasons why it might arise.
2. Prepare the consolidated profit and loss account for the group for the year ending 31 December 2019.
3. Prepare the consolidated balance sheet for the group as of 31 December 2019.
4. Show all of your workings, explain the steps you have taken (with reference to IFRS standards), and note any assumptions that you have made.
5. Outline the goodwill impairment review process and examine the current criticisms of its practical implementation.

Part D

Royal Dutch Shell (RDS) is a multinational British-Dutch oil and gas company that is headquartered in the Netherlands. Accordingly, it prepares its final accounts in accordance with IFRS. Obtain the annual report of RDS for the year ending 2016 (available online at www.shell.com) and review the information about its acquisitions. This information may be provided in different parts of the annual report, including financial statements.

List the acquisition(s) made during the year. Prepare a report which shows:

1. Your research into the reasons for success or failure of acquisitions in general
2. Potential advantages of (each of) RDS's acquisition(s) in 2016
3. The impact of the acquisition(s) on the group's consolidated financial
statements, including the adjustments to the subsidiary's book values
4. Express your opinion about the goodwill of the group and the goodwill impairment charges, if any

Your answer should be supported with references to specific IFRS standards the company followed.

Attachment:- Advanced Corporate Reporting.rar