Corporate Accounting and Reporting

There have been many Australian demergers in the past 15 years. Generally, demergers take place as management expect a demerged company will be worth more as an independent entity rather than being part of a larger business. Sometimes the motivation for a demerger comes from the desire to separate out a "bad" business so that an unfettered "good" business can shine through to investors.

Wesfarmers is described as a diversified industrial. The business has a significant list of subsidiaries. In 2007, Wesfarmers acquired Coles Group for $22 billion. It was the largest corporate takeover in Australia at the time. The acquisition was $17 ex dividend per share. This represented a 48.4% premium on Coles shares.

(a) What is meant by goodwill and what was the goodwill Wesfarmers recorded on the acquisition of the Coles Group?

(b) In 2018, Coles was spun off from the Wesfarmers family. What will happen to the goodwill that was previously recognised from the acquisition?

(c) Explain the differences between the terms, cum div and ex div in context of the purchase consideration of share acquisition.

(d) Explain how 'control' can be identified in a business combination.

(e) How much did Wesfarmers earn in 2018? What is the NCI portion of the income?

They also have investments that are not considered subsidiaries. The Wesfarmers group exert "significant influence" on these entities.

(a) Explain the term 'Significant influence' and list indicators of significant influence.

(b) List the businesses in which Wesfarmers is an associate. How does Wesfarmers treat the

goodwill in these investments?

Present your answers to the above question as a report to existing or potential shareholders who are interested in the actions of the company through their investment strategies.