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Dear Steve, I am reaching out to you for assistance as our Chief Accountant is currently on long service leave. I need to understand the
Dear Steve, I am reaching out to you for assistance as our Chief Accountant is currently on long service leave. I need to understand the accounting implications of our recent takeover of Precisi Medical Ltd so that I can present the consolidated financial statements to the Board of directors and respond to any further questions they may have concerning the accounts for the year ended June As I do not have any accounting experience, please explain the principles and concepts for me in simple language. As you know, we have recently acquired of the issued shares of Precisi Medical Ltd on July on a cumdiv basis. Precisi Medical Ltd was established in specialising in the provision of health advice to customers. The terms of the acquisition were that shareholders of Precisi Medical Ltd would receive $ cash per share plus one share in Ferengi Ears Ltd for every four ordinary shares of Precisi Medical Ltd The cash would be payable to shareholders in two instalments, with half payable at the date of acquisition and the balance payable on July The statement of financial position of Precisi Medical Ltd as at July included the following information: Cash $ Accounts receivable net Inventories Property, plant and equipment net Goodwill $ Accounts payable $ Wages payable Dividend payable Loan payable Share capital $ share Retained earnings $ All the assets of Precisi Medical Ltd were recorded at fair value except for some equipment and inventories whose carrying amounts were each $ less than the fair values. The equipment consisted of audiomebots used to test for hearing loss. Due to rapid changes in technology, it was estimated that the useful life of the equipment was only a further three years. It was also discovered that Precisi Medical Ltd had developed a business magazine containing health advice for consumers. This magazine was widely sought after. Ferengi Ears Ltd placed a value of $ on the masthead of this magazine. The intangible asset was not recognised by Precisi Medical Ltd at acquisition date as it was internally generated and was considered to have an indefinite life. On June a major competitor sued Precisi Medical Ltd for alleged damaging Page Kaplan Business School Assessment Outline statements made in the magazine, and the court case was in progress at the date of acquisition. No monetary amount was disclosed in the financial statements, but the companys lawyers believed that the probable payout to settle the case was $ The case has yet to be settled. One of the key rules of acquisition is to never spend more for an acquisition than you have to Our Accounts Clerk prepared an acquisition analysis and determined a gain on bargain purchase of $calculated as $ cash paid minus the subsidiarys equity acquired of $ to be reported as income in the accounts. Can you check that this right and help me with the acquisition analysis? It was a fantastic bargain and we managed to sell all of Precisi Medical Ltds existing inventories to one of our main customers within the first month of acquiring the company, resulting in significant profits for our group. What journal entries if any do I need to make for June to prepare the consolidated financial statements? Please show all workings and explain each journal entry, as I need to be able to respond to questions from the Board of Directors. Prior to going on long service leave, The Chief Accountant identified two intercompany transactions for further consideration when preparing the consolidated accounts. Specific details of these transactions are as follows: On the th of June we sold some of our older hearing implants from our Freedom range of stock costing $ to Precisi Medical Ltd for $ on credit, recognizing a profit of $ from the sale. At yearend, of these goods had been sold by Precisi Medical Ltd to external entities at a markup. Is there anything else we need to do Please provide any necessary journal entries. On January Ferengi Ears Ltd sold some diagnostic equipment on favorable terms to Precisi Medical Ltd for $ Ferengi Ears Ltd had originally paid $ for this asset, and at the time of sale had charged accumulated depreciation of $ This asset is to be depreciated on a straightline basis at pa on cost and it is still on hand with Precisi Medical Ltd at June Please explain what I need to do with this transaction and show any journal entries necessary for the preparation of Consolidated financial statements. Please respond by letter not email as I would like to present this to the Board. I look forward to hearing from you shortly. Regards, Anna Sunana
Dear Steve,
I am reaching out to you for assistance as our Chief Accountant is currently on long service
leave. I need to understand the accounting implications of our recent takeover of Precisi Medical
Ltd so that I can present the consolidated financial statements to the Board of directors and
respond to any further questions they may have concerning the accounts for the year ended
June As I do not have any accounting experience, please explain the principles and
concepts for me in simple language.
As you know, we have recently acquired of the issued shares of Precisi Medical Ltd on
July on a cumdiv basis. Precisi Medical Ltd was established in specialising in the
provision of health advice to customers. The terms of the acquisition were that shareholders of
Precisi Medical Ltd would receive $ cash per share plus one share in Ferengi Ears Ltd for
every four ordinary shares of Precisi Medical Ltd The cash would be payable to shareholders in
two instalments, with half payable at the date of acquisition and the balance payable on July
The statement of financial position of Precisi Medical Ltd as at July included the following
information:
Cash $
Accounts receivable net
Inventories
Property, plant and equipment net
Goodwill
$
Accounts payable $
Wages payable
Dividend payable
Loan payable
Share capital $ share
Retained earnings
$
All the assets of Precisi Medical Ltd were recorded at fair value except for some equipment and
inventories whose carrying amounts were each $ less than the fair values. The equipment
consisted of audiomebots used to test for hearing loss. Due to rapid changes in technology, it
was estimated that the useful life of the equipment was only a further three years. It was also
discovered that Precisi Medical Ltd had developed a business magazine containing health advice
for consumers. This magazine was widely sought after. Ferengi Ears Ltd placed a value of
$ on the masthead of this magazine. The intangible asset was not recognised by Precisi
Medical Ltd at acquisition date as it was internally generated and was considered to have an
indefinite life. On June a major competitor sued Precisi Medical Ltd for alleged damaging
Page Kaplan Business School Assessment Outline
statements made in the magazine, and the court case was in progress at the date of acquisition.
No monetary amount was disclosed in the financial statements, but the companys lawyers
believed that the probable payout to settle the case was $ The case has yet to be settled.
One of the key rules of acquisition is to never spend more for an acquisition than you have to
Our Accounts Clerk prepared an acquisition analysis and determined a gain on bargain purchase
of $calculated as $ cash paid minus the subsidiarys equity acquired of
$ to be reported as income in the accounts. Can you check that this right and help me
with the acquisition analysis? It was a fantastic bargain and we managed to sell all of Precisi
Medical Ltds existing inventories to one of our main customers within the first month of acquiring
the company, resulting in significant profits for our group.
What journal entries if any do I need to make for June to prepare the consolidated
financial statements? Please show all workings and explain each journal entry, as I need to be
able to respond to questions from the Board of Directors.
Prior to going on long service leave, The Chief Accountant identified two intercompany
transactions for further consideration when preparing the consolidated accounts. Specific details
of these transactions are as follows:
On the th of June we sold some of our older hearing implants from our
Freedom range of stock costing $ to Precisi Medical Ltd for $ on
credit, recognizing a profit of $ from the sale. At yearend, of these
goods had been sold by Precisi Medical Ltd to external entities at a markup.
Is there anything else we need to do Please provide any necessary journal
entries.
On January Ferengi Ears Ltd sold some diagnostic equipment on
favorable terms to Precisi Medical Ltd for $ Ferengi Ears Ltd had originally
paid $ for this asset, and at the time of sale had charged accumulated
depreciation of $ This asset is to be depreciated on a straightline basis at
pa on cost and it is still on hand with Precisi Medical Ltd at June
Please explain what I need to do with this transaction and show any journal entries
necessary for the preparation of Consolidated financial statements.
Please respond by letter not email as I would like to present this to the Board. I look forward to
hearing from you shortly.
Regards,
Anna Sunana
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