Arthur is now worried about the accounting for this

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Arthur is now worried about the accounting for this acquisition because it is the first time that his company has purchased another business. Although Regina has always followed IFRSs, he is wondering whether now is the time to opt for a simpler approach. In particular, he is wondering whether the entire acquisition dif- ferential can be allocated to goodwill. This would keep it simple and would also avoid a charge to income over the first few years since goodwill does not need to be amortized. If the acquisition differential is allocated to patent, then Arthur would like to write off the patent over the maximum period of 20 years. Arthur has asked you, a CGA, to prepare a presentation on the accounting implications for the proposed acquisition. He wants to understand how to deter- mine the purchase price, how the purchase price would be allocated to individual assets and liabilities, and how this allocation would affect profit in the first year after the date of acquisition. Required: Prepare the presentation slides and related speaker’s notes for the presentation. Limit your presentation to five slides. Your presentation should provide recommen- dations related to the issues raised by Arthur. Use financial statement concepts to support your recommendations. Provide a detailed calculation to show the impact on profit for Year 15. State your assumptions. ( CGA-Canada adapted )
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158 CHAPTER 4 CONSOLIDATED STATEMENTS ON DATE OF ACQUISITION Case 6 Canadian Computer Systems Limited (CCS) is a public company engaged in the development of computer software and the manufacturing of computer hardware. CCS is listed on a Canadian stock exchange and has a 40 percent non-controlling interest in Sandra Investments Limited (SIL), a U.S. public company that was de- listed by an American stock exchange due to financial difficulties. In addition, CCS has three wholly owned subsidiaries. CCS is audited by Roth & Minch, a large public accounting firm. You, CA, are the audit manager responsible for the engagement. CCS has a September 30 fiscal year-end. It is now mid-November Year 11 and the year-end audit is nearing completion. CCS’s draft financial statements are included in Exhibit I. While reviewing the audit working papers (see Exhibit II), you identify Exhibit I CANADIAN COMPUTER SYSTEMS LIMITED EXTRACTS FROM CONSOLIDATED BALANCE SHEET As at September 30 (in thousands of dollars) Year 11 Year 10 Assets Current assets Cash $ 190 $ 170 Accounts receivable 2,540 1,600 Inventories, at the lower of cost and net realizable value 610 420 3,340 2,190 Plant assets (net of accumulated depreciation) 33,930 34,970 Property held for resale 1,850 1,840 Other assets 410 420 $39,530 $39,420 Liabilities Current liabilities Demand loans $ 1,150 $ 3,080 Accrued interest payable 11,510 10,480 Accounts payable 2,500 2,100 Mortgages payable due currently because of loan defaults 21,600 21,600 Long-term debt due within one year 290 1,780 Debt obligation of Sandra Investments Limited 50,000 55,420 87,050 94,460 Long-term debt 26,830 21,330 Other long-term liabilities 250 330 114,130 116,120 Share Capital and Deficit Share capital Issued: 261
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  • Fall '12
  • Smith
  • Balance Sheet, consolidated balance sheet, S Ltd, acquisition differential, hiL01537_ch04_120-169.indd Page

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