Dividend Impact Analysis on Sunshine Ltd's Acquisition of Valley Ltd

This report provides an analysis of the impact of subsidiary dividends on acquisition analysis, focusing on the case of Sunshine Ltd's acquisition of Valley Ltd. It addresses whether the dividend payable by Valley Ltd affects the acquisition analysis, including the calculation of goodwill and its implications for financial reporting. The report presents correct journal entries and explains the reasons for eliminating certain intercompany transactions. It also outlines concerns and arguments for the firm's acquisition, highlighting the importance of accurate financial statements and decision-making. The report recommends addressing issues such as incorrect goodwill reporting and cross-transactions to enhance the company's financial health and long-term sustainability. Desklib offers a wealth of similar solved assignments and study resources for students.

Statement of Advice

Contents
INTRODUCTION...........................................................................................................................................3
MAIN BODY.................................................................................................................................................3
Will the dividend payable by the subsidiary entity Valley Ltd impact the acquisition analysis?..............3
Presenting correct journal entries and reason for eliminating the same................................................5
PART B.........................................................................................................................................................6
REFERENCES................................................................................................................................................8

INTRODUCTION
Financial reporting is disclosing financial information to decision makers regarding the
firm's performance and corporate condition over a predetermined amount of time. Bankers,
lenders, the general public, loan suppliers, legislatures, and federal agencies are among the
participants (Ongayi and et.al, 2021). Financial reporting is done regularly and annually for
publicly traded firms. The present research will explore genuine goodwill and the reasons for it.
It will deliver a message to the board of directors in order to provide data.
MAIN BODY
Will the dividend payable by the subsidiary entity Valley Ltd impact the acquisition analysis?
The firm's goodwill is valued at $35,000 and is shown in the income report. Allow to
deduct the created equity from the distributed share value, which is larger than the fiscal position
comes particular quantity, yields $100,000. There are a number of elements that influence the
calculation of goodwill that must be understood in order to provide accurate financial reporting.
The following equations may be stated in calculating the quantities of goodwill:
Particulars Amount $
Equity purchase price 800000
Less: Share capital 500000
Retained earning 200000
Goodwill 100000
Sunshine Ltd should regard the above specified goodwill in its subsidiary's financial report, since
it was generated by subtracting stated amounts as per the goodwill calculation amounts, as
shown in the above figure. The goal of takeover study is to examine a variety of elements by
examining a financial position of a company (Botez and Enachi, 2021).

In attempt to decide the quantities of goodwill that have been indicated in the financial
report, a variety of explanations must be given. There are a number of elements that must be
considered while assessing good in a reasonable fashion. It covers things like effective
management, place of work, quality of products and services, benefits for businesses, customer
loyalty, and patents held by the firm, patent holders, and so on.
In order to buy a business, it is critical for Sunshine Limited to focus on the proper
calculation of goodwill, which can have a significant negative impact on the firm's economic
situations. It can have an effect on customers, borrowers, and financial firms by lowering their
reputation and reliability. Furthermore, it will have an impact on investments ability, decreased
liquidity produced from sales, a negative reputation in the sector, and so on. On this basis, it may
be concluded that Valley Ltd has immaterial goodwill knowledge, which may lead to a reduction
in the company's international popularity (Chuang, 2021). To avoid having a negative influence
on its customers, it is necessary for the company to keep good records of its image by taking into
account factors such as time worth of currency so that net present value may be applied.
It will aid in the proper recording of numbers, which will aid in the retention of
shareholders, borrowers, and other stakeholders by verifying organizational decisions and
displaying goodwill in a fair manner. The dividend payment by the subordinate entity Valley
Ltd, which has engaged in the subordinate by acquiring the designated organisation on the base
of cum dividend, may have an impact on the purchase assessment. This specific research aids in
determining the market dominance and possibility of achievement, allowing for increased
investment efficiency. Sunshine Limited is a company based in the United Kingdom.
Sunshine Ltd. may be impacted by Valley Ltd's dividend payment. In a bad way, because
it spent a significant sum for the purchase and now needs to pay a stipulated additional sum to
cover the responsibility. Addressable market, diversification, share of main rivals, corporate
strengths and weaknesses, significant findings, future trends, laws, substitutes, liabilities,
reputation, and reliability are all elements to consider in a purchase study. Those are all assessed
in a more detailed manner in order to obtain the required information and efficacy of the business
in order to determine if the buyer will be useful to the particular judgment process or not
(Committe, 2021). From the foregoing, it can be deduced that Valley Ltd's financial leverage
contains a greater amount of equity that is a favorable indicator of final health and the potential

for considerable revenue. According to Valley's purchase study, Sunshine will be capable to have
a favorable impact on its reputation by focusing on its greater make worth in the company, which
also will significantly improve general revenues and profits. Here on base of the purchase
review, it can be concluded that reputation has a significant influence on the firm's growth
prospects. Furthermore, dividends payable might raise Sunshine Ltd's present obligation while
also providing longer-term profits, indicating that the firm's development will be favorably
impacted (Siladjaja and Anwar, 2021).
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
To Gain on assets 130000
To Machinery 150000
(Being gain profit on selling of
machinery)
2 Cash A/c Dr. 6000
To sale 6000
(Being selling machinery in cash)
3 Cost of goods sold Dr. 9000
To Inventory 9000
(Being purchase of inventory)

The documentation of two specified journal entries is supplied in rectified, which has
been delivered incorrectly, as seen in the above shown figure. The explanation for this is that in
the situation of machinery alone, the benefit on selling assets is often credited, which was
supplied wrongly in the provided journal entry. It is stated in the given item that cumulative
depreciation has been calculated for 14 months.
The next journal entry includes details in which COGS is reported as both a credit side
when it is entered as a debit side as per reporting requirements. The firm's outstanding stock has
been liquidated, while the incomplete stock has been sold. Because there is still goods with
Sunshine that was previously acquired, the COGS has been debited and Stock has been charged
to obtain a correct summary of this complicated deal (Omotoso, Schutte and Oberholzer, 2021).
There are a variety of reasons why multi submissions are removed. This is derived from
the financial statements of a group of companies involved in the same. There are many other
sorts of transfer pricing competitions that must be studied in order to gain a complete
understanding. It includes cross debt, income, costs, stock holdings, and other items that are
tough for the parent business to track down. This needs a method of control to guarantee that
accurate accounting records are kept in accordance with nature. It may be interpreted as
necessary for Sunshine Ltd to remove certain activities, resulting in increased performance in
better decision making of revenue recognition and, as a result, increased capacity to make
decisions. It is recommended that the company delete both of the aforementioned transactions in
order to increase efficiency and simplicity by removing the aforementioned types of transactions
(Hunter and et.al, 2021).
According to the findings, a firm's requirement is to minimize such 3 kinds of inter-
company transactions, which will enhance the effectiveness of making appropriate choices by
incorporating such stages into procurement analyses in order to extract effective operation via
key choices. Sunshine Ltd will benefit from having a thorough understanding of the current
situation, allowing valuable data to be collected. It may be deduced that the firm has to conduct a
few modifications by omitting the stated journal entries in order to obtain adequate material
knowledge for key decision.
Technical issue

1. A incompatibility: Usually, the combined entity and the purchasing corporation both have
their own finance system, partnerships, apps, and so on, rendering seamless innovation
problematic. This can cause system requirements to slow down, ranging from ERP to marketing
to HR and everywhere in between. The need to synchronies and standardize as soon as feasible is
important.
2. A lack of transparency: Whereas if purchased and buying companies are in the same sector,
then may have identical customer data, but a lack of sight can make sales and business expansion
challenging.
PART B
To Sunshine Ltd.
Subject: For outlining concerns and arguments for the firm's acquisition
Dear Directors
This letter is to tell you that the firm has made just several measures that are now being
rectified in order to get accurate financial statements and therefore communication for making
decisions. Companies should regard $ 100000 in terms of goodwill, since Valley Ltd has
invoiced this sum for the image it has built. It will be extremely beneficial to the organization
success. The cause for this is that it will damage the group firm's economic state as well as the
goodwill of the subordinate business. Numerous elements, such as time worth of currency,
market dynamics, and so forth, account for the stated quantity of reputation. Dividend due is a
current responsibility of the company that may have a significant impact on Sunshine Ltd's
posture, which will benefit the group company in the long-term. These two parts work together
to analyses purchase evaluation so that better sustainable may be achieved by implementing all
necessary steps. The main problem highlighted is the incorrect reporting of goodwill in
accounting records, which can have an influence on the company. It is recommended that the
business maintain appropriate operating by documenting the present and real goodwill value as it
has increased. Dividend payments owed are advised to be paid in order to offer pleasure to
shareholders (Johnson, and Ejimofor, 2021).
Ledgers were incorrectly recorded for a myriad of purposes, including poor
implementation of accounting concepts, which resulted in erroneous data being recorded. Cross
transactions are determined to be crucial to eliminate since they add complication, among other

things. One of the most important reasons is that the company is unable to recognize income
from sales since the company is no longer an independent legal entity. It is recommended that
the firm has undertaken appropriate steps to eliminate the problem.
Sincerely,
Sharp Accounting Group Co

REFERENCES
Books and Journal
Ongayi, W. and et.al, 2021. International Financial Reporting Standards Compliance, Disclosure
and Relevance of Financial Statements as Perceived by Investors with Regards to their
Decision Making. International Journal of Economics & Business Administration
(IJEBA). 9(3). pp.154-162.
Botez, D. and Enachi, M., 2021. SOME ASPECTS REGRADING THE FUTURE OF
FINANCIAL REPORTING. STUDIES AND SCIENTIFIC RESEARCHES.
ECONOMICS EDITION, (33).
Chuang, Z., 2021. Unethical Consequences in the Financial Reporting Process. International
Journal of Ethics and Society. 3(2). pp.1-5.
Committe, B., 2021. Proposal to use the Financial Reporting Provisions of the US Securities
Laws to Implement Economic Equity and Social Justice Reforms. Global Journal of
Management And Business Research.
Siladjaja, M. and Anwar, Y., 2021. The Mapping Of Investor Perception On The High Financial
Reporting Quality. The Accounting Journal of Binaniaga. 6(1). pp.1-18.
Omotoso, M. O., Schutte, D. P. and Oberholzer, M., 2021. The effect of the adoption of
International Financial Reporting Standards on foreign portfolio investment in
Africa. South African Journal of Accounting Research, pp.1-23.
Hunter, K. E. and et.al, 2021. Standard precision and aggressive financial reporting: the
influence of incentive horizon. Accounting and Business Research, pp.1-19.
Johnson, N. and Ejimofor, P., 2021. Forensic Accounting and Quality of Financial Reporting of
Quoted Banks in Nigeria. Global Journal of Management And Business Research.