Mr$.$ Ahmed is the CEO of XYZ Company, a manufacturer and retailer of Omani Dishdasha brand. The company imports the raw material from countries like UAE, India and Bangladesh and then manufactures various types of Dishdasha and other dress materials $($jeans$,$ shirt, etc$)$ for male customers. The target market for the firm is Oman. However, the sales manager of the firm Mr$.$ Mohammed is insisting in entering other GCC market $($like UAE, Saudi Arabia, Bahrain, Qatar and Kuwait$)$ and Asian market $($like India, Pakistan, Bangladesh, etc$).$ Mohammed is optimistic about entering into GCC and Asian markets and is of the opinion that these markets will act as a sustainable growth model for the firm. The demand in the local Omani market is stagnant and competition has increased manifold. The finance manager of the firm Ms$.$ Aisha is pessimistic about Asian market and is recommending entering only GCC market. One of her reservations for GCC market is that OMR is pegged with USD and so are other GCC currencies. This will reduce the currency exposure compared to other currencies. However, the HR manager Ms$.$ Samia is averse for any foreign investments, as it will create various issues like requirement of new employees, a lot of capital expenditure and risk exposure in these foreign markets. Ms$.$ Samia proposes to emphasize more on the local market and instead diversify the business portfolio within Oman. Mr$.$ Ahmed has identified a UAE based firm Star LLC$,$ a retailer of men$$s clothing brand.

Year Ending $31$ Dec $2022$

XYZ LLC

$($figures in $$)$ Star LLC

$($figures in $$)$

Revenue $55,00065,000$

Expenses $45,00061,000$

Net income $10,0004,000$

Cash $12,00011,000$

Receivable and inventory $77,00095,000$

Patented technology $($noncurrent assets$)90,00065,000$

Equipment $($noncurrent assets$)120,00075,000$

Total assets $299,000246,000$

Liabilities $25,00026,000$

Common stock $90,00080,000$

$($book value is $ $1$ per share$)$

Additional paid up capital $77,00095,000$

Retained earnings $107,00045,000$

Total liabilities & equity $299,000246,000$

Star LLC$$s equipment was actually $ $55,000$ and patented technology as $ $75,000.$ Fair value of receivables and inventory for Star LLC was $ $105,000.$ XYZ LLC acquired all common stock of Star LLC by issuing $12,000$ shares of $ $1$ par value and having $ $16$ as fair value and taking a loan of $ $75,000.$

Any undervalued noncurrent assets should be amortized spanning a five year period. Any access of consideration transferred over fair value should be amortized over ten years.

Following figures are assumed for the next two years:

XYZ LLC Star LLC

Net income for $202320,0008,000$

Dividends declared for $20235,0004,000$

Net income for $202422,0009,000$

Dividends declared for $20246,0004,000$

Next month there is a board meeting and you have to present a plan of action for the above scenario.

Requirement:

Task $1$: In the board meeting, highlight the motives of business combination. $($LO $2\mathrm{.}1)$ Task $2$: Does the consolidation of financial statements referred in the above case study require a single set of information? Justify. $($LO $2\mathrm{.}2)$

Task $3$: Define business combination in the given context and differentiate various forms of business combination. Which form of business combination is suitable for the given scenario? Justify. $($LO $2\mathrm{.}3)$

Task $4$: $($LO $2\mathrm{.}4,$ LO $2\mathrm{.}5$ & LO $2\mathrm{.}6)$

A$.$ Calculate goodwill from the above information. Show goodwill calculation with both the methods of accounting equation.

B$.$ Prepare statement of consolidated retailed earnings $($for years $2023$ & $2024).$

C$.$ Prepare balance sheet for XYZ LLC $($for year ending $31$ Dec $2022).$

Task $5$: Defend the query raised by Ms$.$ Aisha. Why currency risk is an important benchmark for businesses pursuing foreign trade. $($LO $3\mathrm{.}1)$

Task $6$: What are various assumptions and limitations of current rate and temporal rate of translation exposure. Which method is suitable for the given scenario? $($LO $3\mathrm{.}2$ & LO $3\mathrm{.}3)$

Task $7$: Give a summary of the case study and identify various proposals made in the case study. Which proposal is recommended by you? Which market$/($s$)$ should be targeted and why? Use secondary information and give proper recommendations for any mitigation strategies. $($use key words like currency risk, foreign exchange exposure, etc$)$