Charles Moon, the managing director of your client Neptune plc, is negotiating with a view to Neptune plc acquiring the entire share capital of Sirius Group Ltd ('Sirius').

He has informed you that Sirius is the parent company of a diversified manufacturing group with overseas interests, and that he is considering making an offer at a price equivalent to the consolidated net assets disclosed by the most recent statutory accounts of Sirius as at 30 June 1987. He is also contemplating offering additional but deferred consideration based upon profits for the year ending 30 June 1988 as disclosed by the statutory accounts for that year.

\section*{Requirement}

Prepare a report for Charles Moon to brief him on:

(a) four principal areas of accounting policy that could have a significant impact on the accounts of Sirius and thus on the total consideration to be paid;

(b) the usefulness and limitations of using statutory accounts as the basis for determining the amounts of both the initial and the deferred consideration for Sirius. (10 marks)