Financial Reporting: Goodwill Impact, Acquisition Analysis, Journal

This report provides an analysis of financial reporting, focusing on the impact of goodwill, acquisition analysis, and journal entries. It discusses the implications of goodwill recorded by Sunshine Ltd on the group's reputation and the reasons for dividend payable by subsidiary Valley Ltd. The report includes a detailed explanation of how goodwill is computed and its effects on a company's financial position, highlighting the importance of accurate financial reporting to maintain credibility and attract investors. It also addresses the impact of dividend payable on acquisition analysis and presents corrected journal entries with justifications for eliminating intercompany transactions. The report emphasizes the need for accurate recording of goodwill, proper application of accounting concepts, and elimination of intercompany transactions to enhance the clarity and effectiveness of financial reporting. The conclusion reinforces the importance of financial reporting for strategic decision-making and recommends the use of proper acquisition analysis methods.

FINANCIAL REPORTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Explaining impact of goodwill recorded on group's reputation and reason for dividend
payable by subsidiary valley Ltd impact acquisition analysis..................................................3
Presenting correct journal entries and reason for eliminating the same....................................6
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Financial reporting is concerned with standard accounting practices that utilizes
statement to disclose the information and performance of the company. In the current era, it is
essential for the companies to focus on its financial reporting so that accurate & reliable
information can be obtained to take strategic decision. Current study w ill involve evaluation
of actual goodwill & reason for it. It will present letter for providing information to board.
MAIN BODY
To Sunshine Ltd.
Subject : For presenting issues and justifications for the transaction conducted by company
Dear Directors
Explaining impact of goodwill recorded on group's reputation and reason for dividend
payable by subsidiary valley Ltd impact acquisition analysis
The company has recorded the goodwill $35,000 which is recorded in the financial
statement. $100,000 has been derive by deducting the made up capital from issued shared
value which is higher than the mentioned amount in the financial position. There are various
factors which affect the computation of goodwill which need to be understand for proper
financial reporting (Glaum, Landsman and Wyrwa, 2018). In order to compute the values of
goodwill it can be articulated that the below formula has been mentioned below:
Particulars Amount $

Equity purchase price 800000
Less: share capital 500000
retained earning 200000
Goodwill 100000
From the above table it can be identified that sunshine Ltd should considered the above
mentioned goodwill in its subsidiary's financial statement as it has been obtained by deducting
stated figures as per the goodwill calculating figures. Acquisition analysis is concerned with
evaluating several distinct factors through assessing company's financial position.
There are various reasons which need to be specified in order to compute the values of
goodwill which has been mentioned in financial statement. There are several factors which are
need to be taken into consideration for estimating good in fair manner. It includes efficient
management , location of business, quality of goods & services, access to suppliers, customers
satisfaction, patents owned by the firms, patents rights,etc. In order to purchase the subsidiary
it is essential for the sunshine limited to pay attention on the accurate computation of goodwill
a sit play large role in affecting the financial position of organization in adverse manner (Mohr,
Konara and Ganotakis,, 2020). It can impact by declining the credibility & trustworthiness
among customers, lenders, financial institutions. In addition to this, it will affect by influencing
the fund raising capacity, declined liquidity generated from sales, bad image in industry, etc.
on the basis of this it can be assessed that firm is having immaterial goodwill information in

Valley Ltd as it can be result in decreased overall reputation of industry. In order to neglect
the negative impact on its stakeholders it becomes essential for the organization to record
accurate reputation by considering the factor like time value of money so that net present
value can be taken into practice. It will provide assistance in recording the accurate figures
which can aid in retaining investors, lenders, etc by validating organizational decision a
strategic via fair presenting of goodwill.
Acquisition analysis can get affected by dividend payable by the subsidiary entity
Valley Ltd. As it has invested into the subsidiary by purchasing the specified organization on
the basis of cum dividend. This particular analysis provides guidance in assessing the market
position and likelihood success so that higher profitability from investment can be derived.
Sunshine Ltd. Can get affected from the dividend payable of Valley Ltd. In negative manner
as while making acquisition it has paid large amount and have to incur specified addition
amount to overcome liability. In acquisition analysis market size, segmentation , share of
major competitors, company's strengths & weakness, key trends , factors affecting growth,
regulations, substitute, liabilities, credibility, trustworthiness, etc. These are evaluated in
deeper pattern to get the proper knowledge and effectiveness of company to make assessment
that acquiring firm will be beneficial from the specific decision making or not (Castellano,
Del Gobbo and Corsi, 2019). From the above it can be evaluated that Valley Ltd capital
structure comprises higher proportion of equity which is positive sign of finial health so that
significant profitability can be derived. Valley's acquisition analysis it can be defined that
Sunshine will be able to derive positive influence on its goodwill by giving emphasis on its
higher make value in firm which can ultimately increase overall profitability and

sustainability.
On the basis of evaluation of acquisition evaluation it can be stated that goodwill play
important role in impacting organizational potential growth. In addition to this, dividend
payable can increase Sunshine Ltd's current liability but can give longer term profitability
which validates that company's growth will positively get affected.
Presenting correct journal entries and reason for eliminating the same
Particulars L.F Debit Credit
1 Cash A/c Dr. 260000
Accumulated Depreciation Dr. 20000
Gain on assets 130000
Machinery 150000
2 Cash A/c Dr. 6000
To sale 6000
COGS Dr. 9000
inventory 9000
From the above illustrated table it can be identified that recording of two mentioned
journal entries are presented in corrected which has been given wrongly. The reason behind

interpreting them wrong is that in case of machinery sole the gain on selling assets is always
credited which has been provided incorrectly in given journal entry (Faccia and Mosteanu,
2019). In the provided entry it can be articulated that accumulated depreciation has been
determined for fourteen months.
In the second journal entry is information given in which COGS has been given as
credit side where as according to accounting principles it should be recorded as debit amount.
The partial inventory has been sold where as in remaining inventory is existing within the
company. As there is still remaining inventory with Sunshine which has been earlier
purchased has been recorded by debiting the COGS and Inventory is credited to derived
proper summarization of this complex transaction.
There are various reasons for which the entries of inter company are eliminated. This is
exerted by the company from the financial statement of a group of firms involving between
the same. There are basically distinct types of inter company eliminations which need to be
understand for deriving deeper knowledge (Zhou and Wang, 2020). It comprises inter firm
debt, revenue , expenses, stock ownership m etc. which majorly becomes difficult for the
parent company to identify so so require a system of control to ensure proper financial
recording are done on the basis of this it can be interpreted that it is essential for the Sunshine
Ltd to eliminate these transaction in turn higher effectiveness in gaining clarity of financial
reporting in turn higher ability to make strategic functioning can be derived. It is advised to
the firm to eliminate both the mentioned transaction in turn higher effectualness in order to
make clarity by eliminating eliminating stated kinds of transaction.
From the assessment it can be said that organization required to eliminate these three

types of inter company transaction in turn higher accuracy of making proper decision through
taking this steps into acquisition analysis in order to derive proper functioning through taking
strategic decisions. It will give convenience to the Sunshine Ltd to have proper knowledge
regarding prevailing circumstances so that significant data can be derived. It can be
interpreted that company need to make few changes by excluding mentioned journal entries
so that proper material information can be achieved to have significant decision making.
This letter is to inform you tat company has taken few actions which are being corrected
in order to derive proper financial reporting turn higher accuracy for decision making can be
done. In respect to goodwill firm should consider $ 100000 as Valley Ltd firm has charged this
amount for the reputation made by it. It will highly benefit the company in order to accomplish
its objectives. The reason behind considering this is as the goodwill of subsidiary firm as it
will affect the group organization's financial position. The reason behind specified amount of
goodwill is several factors like time value of money, market trends, etc. Dividend payable is
current liability of the firm which is can highly affect positioning of Sunshine Ltd that will
positively affect group firm in longer duration. These both the part contribute in assessing
acquisition analysis so that higher sustainability can be derived by taking all crucial measures.
The basic issue identified is improper recording of goodwill in financial statement which can
affect stakeholders to certain extent. It is advised to the entity to have proper functioning by
recording actual and current goodwill amount as it has appreciated. Dividends due are
suggested to pay so that satisfaction to investors can be provided.
Recording of journal entries were incorrect as reasons includes improper application of

accounting concept which ha lead to record wrong data . Elimination of inter company
transaction is found to be important as it creates complexity, etc. One of the main reason is
that firm can not recognize revenue from sales as subsidiary is no more external entity. It is
suggested to the company has taken right action of eliminating the same.
Sincerely,
Sharp Accounting Group Co
CONCLUSION
From the above report it can be concluded that financial reporting is crucial for decision
making. Present report has evaluated that group firm should utilize proper method of acquisition
analysis so that accurate recording can be done. I t has given emphasis on recording importance
of eliminating inter company transaction.

REFERENCES
Books and journals
Castellano, N., Del Gobbo, R. and Corsi, K., 2019. Analysis of disclosure determinants: a local-
relation approach. Meditari Accountancy Research.
Faccia, A. and Mosteanu, N.R., 2019. Accounting and blockchain technology: from double-entry
to triple-entry. The Business & Management Review. 10(2). pp.108-116.
Glaum, M., Landsman, W.R. and Wyrwa, S., 2018. Goodwill impairment: The effects of public
enforcement and monitoring by institutional investors. The accounting review. 93(6).
pp.149-180.
Mohr, A., Konara, P. and Ganotakis, P., 2020. Explaining the performance of divested overseas
subsidiaries. International Business Review. 29(1). p.101602.
Zhou, N. and Wang, H., 2020. Foreign subsidiary CSR as a buffer against parent firm reputation
risk. Journal of International Business Studies. 51(8). pp.1256-1282.