Accounting Financial Analysis Report

ACCOUNTING FINANCIAL ANALYSIS REPORT
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ACCOUNTING FINANCIAL
ANALYSIS REPORT

ACCOUNTING FINANCIAL ANALYSIS REPORT
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To: Daniel Ford ([e-mail])
From: Julia Edwards ([e-mail])
Re: Accounting Issues: Business combination and consolidation
Date: May 25, 2019
Question presented: fair value measurement of assets on consolidation
I do understand your concern with regard to the issues pertaining to the fair value accounting.
I will try to explain these as per the AASB framework as easily as possible.
All of the identifiable assets and the liabilities of Cargo Ltd shall be reported at their
respective fair values in the consolidated financial statements. And any amount of different
between the net identifiable assets and the purchase consideration shall be reported as
goodwill in the books of Power Ltd.
The following further explains these provisions of accounting:
Fair values in consolidation:
Fair value is defined as the amount which an asset or a liability would fetch in the market if
sold or bought. As per the AASB framework, whenever there is a company which is
purchasing shares of another company, then the acquirer shall revalue the assets of the
acquire at its respective fair values. And this amount shall be taken account when calculating
the amount of the goodwill.
When preparing the consolidated financial statements. The consideration which is paid to the
acquiree shall be reported and recorded in the final accounts at their respective fair values.
Since cash is never revalued, all the revaluations shall be done for the non-cash items only.
The example include inventory, property, land etc.

ACCOUNTING FINANCIAL ANALYSIS REPORT
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These assets and the liabilities are reported and are recorded at their fair values due to the
reason that the difference between the fair values and the book values are required for the
purposes of calculating their respective values and for the calculation of the amount paid for
them.
There is a need to report these assets and the liabilities at their respective fair values due to
the fact that the statement of the financial position has to be prepared using the fair values.
And as per the rules, the statement of financial position is usually prepared at the historical
costs. The assets are reported at their respective values less any amount of depreciation. This
would mean that the book value of the assets are very much different from their respective
current market or the fair values. The example include land and buildings.
All of the identifiable assets and the liabilities of the acquiree are included in the consolidated
statement at their respective fair values and this is done to the following reasons:
 The accounts of consolidation are prepared from the view point of the group and not
from the point of view of the individual companies. The book values of the assets and
the liabilities of the subsidiary are of an utmost importance since if the holding
companies goes to the market and sells its assets, then it would get the market value
of the assets and not the carrying values. Hence, these are of an utmost importance.
The fair values of the assets shall be the reported at their fair values that exists as on
the date of the acquisition of these assets and the liabilities of the subsidiary (BBVA,
2019).
 The goodwill which is bought by the company is the difference between the net
identifiable value of the assets and the liabilities of the subsidiary and the amount of
the consideration for which the subsidiary has been purchased. In case, there are no