Examine the component of the shareholders equity

Assignment Help Financial Accounting

Reference no: EM133784977

Case Study 1:

Part I: Analyzing the Balance Sheet and Financial Disclosures of a Company Listed in the Dubai or Abu Dhabi Exchange Market

Background: You are a group of professionals hired by a consulting firm to assess the financial health and outcomes of a company that is listed on the Dubai Financial Market (DFM) or the Abu Dhabi Securities Exchange (ADX). Your mission is to download a company's most recent annual report then review its balance sheet and related financial disclosures to provide information about the organization's financial role, performance, and capability risks.

Company Selection: Each group selects a different company from the Dubai or Abu Dhabi exchange market. Ensure that the chosen company have publicly available annual reports.

Case Study Tasks:
Company overview: Investigate and present a high-level overview of the chosen enterprise, including its industry, key operations, and core products/services..etc.

Balance Sheet Analysis: investigate the organization's balance sheet and answer the following questions:
• What are the total assets, liabilities, and equity of the organization?
• How the total assets, liabilities, and equality of the company changed over the last two years?
• Is there any significant changes in the components of assets or liabilities?
3.Examine the Assets section of the balance sheet and answer the following question

Question:
a. Within the Current Assets section, discuss the components of the this section. What role do these components play in the company's liquidity and overall financial health? Discuss any potential risks associated with managing these assets as well.
b. Evaluate the importance of property, plant, and equipment (PP&E) in relation to the firm's industry and business model. What effect does the company's PP&E investment have on its operational effectiveness and its competitiveness?
C. Examine the balance sheet regarding the intangible assets. List the company's intangible assets, and how do they contribute to its overall value?

4. Examine the Liabilities section of the balance sheet and answer the following question
a. Identify and describe the various types of liabilities reported in the balance sheet. This should include both short-term and long-term liabilities. Explain the nature and purpose of each type.
b. Additional information on liabilities can be found in the financial statements' notes. Discuss the completeness and transparency of the liability disclosures.
c. Provide suggestions according to your analysis of the company's liabilities on how the company may enhance its liabilities management or enhance its overall financial position.

5. Check the Shareholders' Equity section of your company's balance sheet and answer the following questions:
a. Examine the component of the shareholders' equity, How has each component evolved over the years, and what factors have influenced these changes?
b. Assess the significance of retained earnings within the context of the company's financial stability and growth strategy. How do retained earnings reflect the company's historical profitability and reinvestment practices?
c. In reference to the additional paid-in capital. What are the transactions that contribute to this component, and how does it improves the company's financial position?
d. Discuss the function of shareholders' equity in the capital structure and the financial well-being of the company. How does an organization's capacity to obtain additional capital and manage risk benefit from a strong shareholder equity position?

Case Study 2: In reference to the company selected above in Case 1, identify the related party transactions reported in the notes to the financial statements and answer the following questions:

1. Discuss the meaning of related party transactions and explain why they are significant in financial reporting.

2. What are the related party transactions reported by the chosen company?

3. Discuss how the chosen company ensures that related party transactions are priced and structured on an arm's length basis.

4. How the related party transactions affect the company's financial statements?

5. Examine the notes to the financial statements of the chosen company. How are related party transactions disclosed? What information is provided about the nature of these transactions?

6. How the transparency in reporting related party transactions enhance stakeholder confidence?

7. How does the chosen company ensure compliance with relevant accounting standards or regulations for reporting related party transactions?

CASE 3: Consolidated FS on the date of acquisition
In this Case, you will prepare a comprehensive consolidation of financial statements for a parent company and its wholly owned subsidiary. You will create and assume the necessary financial data for both companies and complete various tasks related to the consolidation process.
Project Instructions: Assume an acquisition date and the following data:
1. Company Profiles (2 marks):
Parent Company: assume the following:
Name
Industry
Fiscal Year-End
Subsidiary Company: assume the following:
Name
Industry
Fiscal Year-End
Note: for simplicity assume that both companies have the same fiscal year end.

2. Assumed Financial Data: you must create the following financial data for both companies; the parent company and the subsidiary as of the assumed acquisition date:
Parent Company:
Cash
Accounts Receivable
Inventory
Equipment (net)
Intangible Assets (e.g., patents, or trademarks)
Accounts Payable
Long-term Debt
Equity: including common stocks, additional paid in capital, and retained earnings
Subsidiary Company:
Cash
Accounts Receivable
Inventory
Equipment (net)
Intangible Assets (e.g., patents, or trademarks)
Accounts Payable
Long-term Debt
Equity: including common stocks, additional paid in capital, and retained earnings

Note: make sure that the total assets equal the total liabilities and equity for both companies

3. Calculate the book value of the subsidiary's net assets based on your assumptions above.
4. Assume that the parent company has acquired all subsidiary's shares at a cost that is more than the book value of the assumed subsidiary's net assets by 30%. Calculate the cost of investment.
5. Assume that the following subsidiary's assets and liabilities have fair values more than their book values.
Inventory
Equipment (10 years remaining useful life)
Intangible Assets (5 years remaining life)
Long term debt
Note: Assume that 70% of the difference between the cost of investment and the book value of the subsidiary's net assets is due to the increase in the FV of the above assets and liabilities, and the remaining 30% is allocated to Goodwill.
Calculate the difference between the cost of investment and the BV of the subsidiary's net assets.
Allocate the difference to the increase in fair value of the above assets and liabilities, and the Goodwill.
6. Prepare the consolidation entries needed to prepare the consolidated financial statements.
7. Prepare the consolidation balance sheet work paper as the date of acquisition
8. Prepare the consolidated balance sheet as of the acquisition date.

Case 4: Consolidated FS subsequent to the date of acquisition
In addition to the facts you assumed above in case 3 Assume post-acquisition (at the end of the acquisition year) financial activity for the subsidiary and the parent companies:
Revenues
Cost of goods sold
General and administrative expenses
Depreciation expense
Dividends declared and paid (3 marks)
Note: Make sure that both companies generated income (Revenues are more than expenses)

Assume that the equity method is used to record the consolidation process.

1. Prepare the Journal entries recorded by the parent company for its investment in subsidiary company at the end of the acquisition year considering the facts you assumed above.

2. Adjust the parent company's investment account using the equity method to reflect the above entries.

3. Prepare the consolidation entries needed to prepare the consolidated financial statements at the end of the first year of acquisition.

4. Prepare the consolidation work paper at the end of the year

5. Present the consolidated financial statements, including:
Consolidated Balance Sheet
Consolidated Income Statement

Reference no: EM133784977

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