Advanced Financial Accounting (Assignment)
Added on 2021-06-16
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Running head: ADVANCED FINANCIAL ACCOUNTING 1Advanced Financial AccountingNameInstitution
Advanced Financial accounting 2ADVANCED FINANCIAL ACCOUNTINGQuestion 1a) Business combination is the process of transaction whereby the acquirer takes controlover another business. A business can also be described as a collection of integrated activitiesand assets which can be conducted and managed with the aim of giving out return to those whoinvested in the business or other participants, members and owners. Normally, businesscombination means a transactions where one firm gain Control, or acquire controlling interest, ina different company (Lusch Brown and O’Brien 2011). Business combination can also meanamalgamation of the properties of more than two business entities. It can be managed easilythrough a hostile takeover, a merger and voluntary acquisition. Such business combination mustuse the techniques of accounting known as the Acquisition method-This technique ofaccounting requires that liabilities assumed and assets acquired to be determined at the fair valuemostly at the date of the acquisition (Gokcen & Teraman, 2018).The application of the acquisition method involves the following steps:Identify acquirer- the first step is the identification of the acquirer. The acquirer is theorganization that takes control of another business (Silva, Sancovschi & Amaral, 2018). Thecontrol process is being dealt with under the international financial reporting standard. Aninvestor should have gain control after fulfilling the following: has gained power over theinvestee and has the ability of using the power in managing the return.The steps taken in applying the Acquisition method include the following:Determination of acquisition date- the second step is to determine the date when theacquisition was created through writing in the form of a contract, the date of the acquisition is
Advanced Financial accounting 3mostly the closing date, when the acquirer obtains legal possession of all the assets as well asassuming the liabilities of the target firm. The date of the acquisition can be earlier than theagreed date by the parties that are involved in the transaction. The reasons why the two partieshas to ascertain date of the acquisition is because it can be used in the determination of the fairvalue of items such as assets acquired, consideration paid, non- controlling interest and liabilitiesassumed. The date of the acquisition is essential because it help in considering the post and preacquisition dividends. Identify and measure liabilities, assets and Non- controlling Interest in acquire- thisis the third steps, it require acquirer to recognize liabilities assumed, assets acquire and any NCIin the acquire. Accounting standards should be taken into consideration when assessing andmeasuring the assumed liabilities and assets of the business.Bargain purchase/Goodwill- This is the last steps acquisition method and it involvecalculation of Bargain purchase or Good will. A bargain purchase mostly happens when an entityacquire an assets with lesser amount than the fair market value of the Assets.b) The report of the Netcomm Wireless suggests that it recognized Goodwill. Goodwill is defined as the intangible asset that emerges when a buyer obtains an existingbusiness. Goodwill is being recognized when the fair value is more than the purchaseconsideration (Negative good will) or when the fair value is less than acquisition costs.Good will is measured using this formula: Goodwill = price paid for the acquiredorganization minus fair market value.Goodwill= (fair value of non-controlling rate of interest + consideration paid) – (Assets-liabilities).
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