B407F Week 10 Tutorial worksheet

B407F Week 10 Tutorial worksheet - consolidation is...

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B407F Week 10 Tutorial Worksheet – Merger Accounting Question 1 Management might prefer to use merger accounting for the following reasons: - Pre-acquisition profits of the subsidiary are not eliminated, so that there will be greater flexibility in post-acquisition dividend decisions. - Post acquisition profits are likely to be higher than under the acquisition method for: The subsidiary’s assets need not be revalued upwards to the fair value and it means a lower depreciation charge; No share premium created, any value attributed to goodwill on
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Unformatted text preview: consolidation is correspondingly reduced. On the other hand, management might prefer the acquisition method of accounting because post-acquisition profits are kept lower, which would be advantageous when negotiating with employees or government contracts. Question 2 Acquisition Merger $’000 $’000 Net assets Goodwill Share capital Share premium Retained earnings Question 3 Acquisition Merger $’000 $’000 $’000 $’000 Non-current assets 1 Current assets Current liabilities Goodwill Share capital Share premium Retained earnings 2...
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This note was uploaded on 02/24/2012 for the course ACT 407 taught by Professor Mshui during the Fall '11 term at The Open University.

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B407F Week 10 Tutorial worksheet - consolidation is...

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