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Accounting for Joint Ventures and Associates

   

Added on  2019-11-08

8 Pages2269 Words227 ViewsType: 227
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ANSWERQUESTION 1(a)Business Combination – It is defined as the contract or the happening by which anyperson receives the control of one or more than one businesses (AASB, 2015). Theperson or the entity which controls the business is known as acquirer and the entitywhose business is being obtained is known as acquire. AASB 3 as prescribed theacquisition method of accounting in case of the business combination. Following are thesteps involved in the acquisition method:-An acquirer shall be identified. Though it is very clear and precise but in some casesit requires the provisions of the standards to identify the same. For instance twoexisting Companies decide to form new company to acquire both the companies.-The date of acquisition of the business shall be identified. -All the assets acquired and all the liabilities considered shall be recognized andmeasured along with any non controlling interest.-After that the either the goodwill be recognized or gain from bargain purchase will berecognized. The company has disclosed the same method (Company official Website). (b)Goodwill – Yes, the company has reported the goodwill of $17240 thousands as on 30thof June 2016 and $11266 thousands as on 30th of June 2015 (Company official Website;Fridson, 2015). Goodwill is defined as the asset which is recognized after the businesscombination and it represents the amount of the economic benefits that will arise in futurefrom the assets acquired in business combination which are unidentifiable and nonseparable. Following are the circumstances in which goodwill can be recognized:-If there is probability that the economic benefits will accrue to the company in futureand -It consists of the value which can be easily and reliably measured. Goodwill is measured equivalent to the excess of amount paid for acquiring the assets ofbusiness of the other company measured which were fair values.
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(c)Gain from Bargain Purchase – The event of the bargain purchase is the very rarephenomena. As per Paragraph 34 of AASB3, the gain from bargain purchase is theamount equal to the fair value amount of net assets over the purchase cost that acquirer isready to pay including the non controlling interest. The situation generally occurs whenthe seller is under pressure to sell the entity. It is measured at value which is equal to the excess of (1) over (2):(1)The fair value of the net total assets identified on the date of acquisition (2)The cost of purchasing an entity including the amount for non controlling interest andthe minority interest (AASB, 2015; AASB, 2010). Gain from Bargain purchase is immediately recognized in the statement of income andexpenditure. In the given case, company has not accounted for any bargain purchase (Companyofficial Website). (d)Amortization and Impairment of Goodwill:No, the goodwill has not been amortized as per note number 11 of the annual report and itcannot be amortized as per the statement number 142 of the Financial AccountingStandards Board (FASB, 2012). As per the statement amortization of goodwill is againstthe conceptual framework of accounting. Yes, goodwill is subject to the impairment. As per note number 11 of the annual report,the goodwill is tested for impairment on an annual basis or on frequent basis dependingupon the nature of business and market conditions. It is tested when events indicates thatthe carrying value of the goodwill is impaired. The company has not impaired thegoodwill (Company official Website).(e)Reversal of Impairment Loss:No, as per the paragraph number 124 of the International Accounting Standards number36, the reversal of impairment loss on goodwill has been prohibited (IAS, 2004). Thereversal has been prohibited even when the indicators exists that impairment lossrecognized earlier are now does not exist. The reason for prohibition that the InternationalAccounting Standard Board has given is that increase in the goodwill after recognizing
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the impairment loss will not be considered as the increase in the purchased goodwillrather it will considered as increase in the internally generated goodwill. QUESTION 2(a)Application of AASB3 and AASB10Business Combination is defined as the transaction or the event through which anyperson receives the control of one or more than one businesses. The business combinationalso includes the two terms as true mergers and mergers of equals but they are very rarein the normal practice. (AASB, 2015).Financial Statements in the consolidated form are prepared in case where the one entityhas the control over other company in terms of the voting rights and have the significantinfluence through which it can affect the decision of the company (AASB, 2011) TheCompany carrying the control and power is the holding company and the another one isthe subsidiary company. There are two cases for Company A and Company B:-Company A obtains control through the purchase of all equity shares of Company B.In this case the AASB 10 on consolidated financial statements shall apply because thecompany A has not acquired the company rather gained the control over the othercompany in terms of the voting rights. -Company A purchased all the assets and assumed all the liabilities of Company B. Inthis case the AASB 3 on business combination shall apply as the company A hasacquired the company B in all respects. (b)Consolidated GroupYes the company is a part of the Consolidated Group. As per note number 17 of thefinancial statements of the company, there are nine group companies which havecomprised the group. The note number 16 of the financial statements has mentioned theparent entity information containing the financial position of the parent entity as on 30thof June 2016 and other related disclosures (Company Official Website).
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