Acquisition Analysis of Ethan Ltd and Darren Ltd: Financial Report

This report provides a comprehensive acquisition analysis of Ethan Ltd's purchase of Darren Ltd. The analysis includes the measurement of assets and liabilities, business combination valuation entries, and the preparation of consolidated financial statements. The report details the fair market value calculations, consideration transferred, and the resulting gain on bargain purchase. It presents the journal entries for adjustments related to depreciation, deferred tax liabilities, and cost of sales. The document includes a consolidation worksheet and the consolidated financial statements, including the statement of profit and loss and other comprehensive income, and the statement of financial position. The conclusion interprets the financial performance, highlighting the improvement in Ethan Limited's financial position as a result of the acquisition, with a final profit of $78280 and increased asset values.

Running Head: ACQUSITION ANALYSIS 1
ACQUSITION ANALYSIS

Running Head: ACQUSITION ANALYSIS
Table of Contents
Acquisition Analysis...................................................................................................................................3
Measurement...............................................................................................................................................4
Business combination valuation entries......................................................................................................4
Financial Statements...................................................................................................................................7
Conclusion...................................................................................................................................................8
References...................................................................................................................................................9

Running Head: ACQUSITION ANALYSIS
Acquisition Analysis
Consolidation is a technical analysis and it the language of the business it is called as the merger
or acquisition of the companies of small nature into fewer large ones. In the context of the
financial accounting, acquisition means the aggregation of the financial statements. Under the
purpose of the taxation the entities are for the purpose of the calculation of the tax (Du and Sim,
2016).
The company needs to follow the method of the Acquisition for which the following steps are
required.
 Measurement of the assets and liabilities that are of tangible nature.
 The second step is to measure the intangible assets and the liabilities.
 The amount of the non-controlling interest that have been acquired in the business
 The seller gets the amount in return of selling of the business in the form of the
consideration.
 The goodwill or the gain must be recorded respectively (Tang, 2019).
Net fair value of the identifiable
assets and liabilities of Darren Limited
Equity
$
54,000.00
Retained earnings
$
36,000.00
Asset Revaluation Surplus
$
18,000.00
$
108,000.00
Plant
$
1,050.00
Inventory
$
1,400.00
Total
$
110,450.00
Consideration Transferred
$
110,000.00
Gain on bargain and $

Running Head: ACQUSITION ANALYSIS
purchase 450.00
The amount of the $450 is the gain on bargain and purchase of the assets from the Darren
Limited. The consideration given is of $110000 to the Darren limited (Loughran and McDonald,
2016).
Measurement
The fair market value is the value at which the measurement of the assets and the liabilities shall
be done on the acquisition date when there is a control over the acquiree. Same is the case with
the measurement of the intangible assets. The consideration is paid either in cash or kind in the
form of the shares, debt, stock and other types of the assets. Lastly the value of the goodwill or
bargain purchase gain is calculated in order to figure out the balancing figure (Maynard, 2017).
The following formula is used in order to calculate the results.
Consideration paid + non-controlling interest - Identifiable assets acquired + identifiable
liabilities acquired.
From the following case analysis the calculation of the Ethan and Darren Limited, the acquisition
analysis has been carried out to find out the gain on bargain and purchase to find out the net fair
value of the identifiable assets (Zeff, 2016).
Business combination valuation entries
Date Particulars Debit Credit
1st July
2014 Accumulated depreciation
D
r.
$
7,500.00
To plant and machinery
$
6,000.00
To deferred tax liability
$
450.00
To business combination valuation reserve
$
1,050.00
(for depreciation charged and adjusted against
BCVR)
1st July
2014
Depreciation
Expense
D
r.
$
300.00

Running Head: ACQUSITION ANALYSIS
To accumulated Depreciation
$
300.00
(for depreciation transferred to accumulated
depreciation)
1st July
2014
Deferred tax
liability
D
r.
$
90.00
To income tax
expense
$
90.00
for deferred tax liability is adjusted against the
income tax expense
1st July
2014 Cost of sales
D
r.
$
1,800.00
To income tax
expense
$
540.00
To transfer from business combination
$
1,260.00
for cost of sales are adjusted against the income
tax expense
1st July
2014 Inventories A/c
D
r.
$
200.00
To deferred tax liabilities
$
60.00
To BCVR
$
140.00
(For adjustments made)
Pre-Acquisition
Entries
1st July
2014 Retained earnings (1/7/14)
D
r.
$
36,000.00
Share Capital
$
54,000.00
Asset Revaluation surplus
$
18,000.00
BCVR
$
2,450.00
To gain on bargain purchase
$
450.00
To shares in Darren Limited
$
110,000.0
0
(for consideration given to Darren limited)

Running Head: ACQUSITION ANALYSIS
30th June
2015 Transfer from valuation Reserve
$
1,260.00
To BCVR
D
r.
$
1,260.00
for transferred from BCVR to BCVR
General Reserve 3000
To general
Reserve 3000
for excess transferred to general reserve
Table of Adjustments
Adjustments GROUP
Particulars
ETHA
N
DARRE
N Dr Cr
Profit before tax 120000 12500 300 450 130850
1800
Income tax expense 56000 4200 90 59570
540
Profit 64000 8300 71280
Retained Earnings 80000 36000 36000 80000
(1/7/14)
Transfer from BCVR - - 1260 1260 0
144000 44300 151280
Transfer to General
Reserve 0 3000 3000 0
Retained Earnings
(30/06/2015) 144000 41300 151280
Share capital 360000 54000 54000 360000
BCVR 2450 1050
140
1260
General Reserve 10000 3000 3000 10000
514000 98300 521280
Asset revaluation reserve
(01/07/14) 13500 18000 18000 13500
Gains 5000 2000 7000
Asset revaluation reserve

Running Head: ACQUSITION ANALYSIS
(30/06/2015) 18500 20000 20500
532500 118300 541780
Liabilities 42500 13000 90 450 55920
60
575000 131300 597700
Land 160000 20000 180000
Plant and Machinery 360000 125600 6000 479600
Accum Depreciation -110000 -33000 7500 300 -135800
Inventory 55000 18700 200 73900
Shares in Darren 110000 110000 0
Total 575000 131300 124600 124600 3369640
Financial Statements
ETHAN LIMITED
Consolidated Statement of the Profit and loss and other Comprehensive income
For the year ended 30th June 2015
Profit before tax 130850
Income tax Expense 59570
Profit for period 71280
Other Comprehensive income
Gain on revaluation of
assets 7000
Comprehensive income 78280
ETHAN LIMITED
Consolidated Statement of Financial position
As at 30th June 2015
Current Assets 73900
Inventories
Non-Current Assets
Plant and Machinery 479600
Accumulated
Depreciation -135800 343800
Land 180000

Running Head: ACQUSITION ANALYSIS
Total Non-Current Assets 523800
Total Assets 597700
Equity
Share capital 360000
Retained Earnings 151280
General Reserve 10000
Asset revaluation Surplus 20500
Total Equity 541780
Liabilities 55920
Total Equity and Liabilities 597700
Conclusion
Form the overall analysis it can be interpreted that the Ethan limited had a profit in acquiring the
Darren Limited. The statement of the financial position depicts the acquired value of the assets as
well as the liabilities and finally the company had a profit of $78280. This indicates that the
overall position of the Ethan Limited has been improved (Kieso, Weygandt and Warfield, 2016).

Running Head: ACQUSITION ANALYSIS
References
Du, K. and Sim, N., 2016. Mergers, acquisitions, and bank efficiency: Cross-country evidence
from emerging markets. Research in International Business and Finance, 36, pp.499-510.
Kieso, D.E., Weygandt, J.J. and Warfield, T.D., 2016. Intermediate Accounting, Binder Ready
Version. John Wiley & Sons.
Loughran, T. and McDonald, B., 2016. Textual analysis in accounting and finance: A
survey. Journal of Accounting Research, 54(4), pp.1187-1230.
Maynard, J., 2017. Financial accounting, reporting, and analysis. Oxford University Press.
Tang, C., 2019. Fair Value Accounting and Financial Contagion: An Analysis of Marking
Up. Available at SSRN 3358180.
Zeff, S.A., 2016. Forging accounting principles in five countries: A history and an analysis of
trends. Routledge.