Accounting Issues: Business combination and consolidation

MEMORANDUM
To: Board of Directors.
From: Julia Edwards ([e-mail]).
Sent: 20th March 2019.
CC:
RE: Accounting Issues: Business combination and consolidation
The memo is meant to address concerns raised by the board of directors
regarding the information on the acquisition. The concerns are in the
disclosure of accounting information on financial reports. According to the
FASB fair value is a relevant aspect of consolidation accounting as it ensures
the parent entity investment in an acquisition are eliminated, prior to any
adjustments all entries in assets and arising liabilities acquired are reported
at a fair value. According to IPSAS 1 there set out rules and a lot of
considerations for the presentations of financial statements, and in this case
consolidation statements the content to de disclosed includes the changes in
net assets, equity and cashflow of the business group. According to AASB
10/IFRS 10 it is a requirement for all parent entities to prepare consolidated
statements that are available to the public for use in which the subsidiaries
are measured at fair value through the profit or loss in accordance with the
standard.
The following issues raised have been explained further, to clarify any
doubts regarding the disclosure requirements and the amounts presented in
our consolidated statements.
Issue 1

The Board of directors has been wondering on whether the adjusted
made to fair value should be done in the consolidated worksheet or
in the Cargo Ltd accounts.
According to the FASB (financial accounting standards board,2009), fair
value is used to show present participant in the market and the assumptions
made on the future in-flow that is attached to the asset and outflows inline
with the potential liabilities. The choice of the accountant to prepare the
information and the inclusion of the adjustments to fair value made on the
consolidate sheet were justified since the failure to record such adjustments
will result to a need for revaluation to be done before eliminating the
subsidiary investments. One of the biggest challenges that is faced with
acquisition accounting is the basic requirements to the estimation of the fair
values of the assets that have been acquired and the liabilities assumed
from the same. The fair value accounting requirement are to be considered
in the process to value the assets, it is based on flow of cash model.
According to Shamkuts (2010) he conducted a study on accounting for fair
value, through a theoretical analysis, he found out that the application of fair
value gives fast hand information which can reflect the market value which
increases the transparency.
From the above raised issue, the workings made on the consolidation
worksheet don’t affect the accounts of the parent company or the subsidiary
firm. The fair value measured should ensure it is market based rather than
entity specific, the consolidated financial reports are a representation of the
healthy position financially for the firm and outcomes of undertakings for a
parent (entity in control) and one or more subsidiaries (entities controlled) as
if the individual entities were a single company or entity , in so reporting the
adjustments to the consolidated statement ensures that full disclosure ,
Furthermore the regulatory frameworks expect firm to fully disclose fair
value measurement. The additional disclosure allows users to be able to

know the actual changes in the balance of assets, where cashflows has
changed based on the financing activities.
Most of the assets and liabilities are required to be reflected in the reports of
the books of the parent company that it meant to show the significant
influence on the dealings of the company acquired. The fair value of the
market of the firm acquired should be allocated between the net of the
tangible assets and the intangible assets on the balance sheet of the
acquirer, thus the need to disclose such information to the consolidated
reports of cargo ltd. Unlike an associate company it is the due diligence of
the to consolidate the reports.
Issue 2
Which accounts of equity could be used when assets are being
revalued and can the difference be shown on different accounts of
equity for example income and a potential liability recognition?
The exchanged cost of asset is usually measured at a fair value unless there
is lack of substance commercially, or neither the asset acknowledged or can
be measured reliably. In measuring the asset value, we must recognize the
benefit of the gain or a loss in the period that they occur to give proper
market value for the investment. (Moyer,2008). In charging the revaluation
amounts to the revaluation account is one of the probable ways of
accounting for assets. The asset revalues of an asset on sale or buying, the
value is measured based on the available price in the active market.