Greenmount Ltd, an ASX listed consumer goods corporation aims to acquire a fashion business to generate...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Greenmount Ltd, an ASX listed consumer goods corporation aims to acquire a fashion business to generate new growth opportunities. Following a formal search process, external advisors have identified the following two businesses as best matching entitiesfor a potential take-over: Tallows Ltd and Bilgola Ltd. Only one will be selected. To move forward with the selection process, the external advisor has estimated that both firms have the same entity value of $2m based on a Discounted Cash Flow (DCF) model, i.e. acquisition price of $2 million (excluding advisor fees), which will be paid as cash consideration. The external advisor will charge $5,000 finder's fee and $3,000 legal fees paid in cash to prepare all required due diligence. You have been given access to the following information about the assets, liabilities, and shareholders' equity for both potential target firms: Tallows Ltd: Historical costs Carrying amount Remaining useful life Cash and cash equivalents $12,000 $12,000 S Accounts receivable $21,000 $21,000 S Inventory $250,000 $220,000 $ Property Plant and Equipment (net) $2,000,000 1,200,000 5 years Total Assets $1,453,000 S Accounts Payable $145,000 $ Bank Loans $200,000 $ - Shareholder's Equity $1,108,000 $ - Liabilities & shareholders' equity $1,453,000 S Additional information for Tallows Ltd: Taking into account current market information and historical data of the firm, you determine the following fair values: Accounts receivables: $18,000, Inventory: $180,000, Property Plant and Equipment: $1,000,000. Bilgola Ltd: Historical Costs (S) Carrying Amount (S) Remaining useful life Cash and cash 6,000 6,000 equivalents Accounts receivable 230,000 230,000 Inventory 600,000 600,000 Property Plant and 3,500,000 1,000,000 10 years Equivalent (net) Total Assets 1,836,000 Accounts Payable 200,000 Bond Payable 360,000 Shareholders' Equity 1,276,000 Liabilities and 1,836,000 shareholders' equity Additional information for Bilgola Ltd: Considering current market prices and further historical information from the company, you determine the following fair values: Accounts receivable $200,000, Inventory $500,000, Property Plant and Equipment $2,000,000. Nicholas Less, the CFO of Greenmount Ltd has been under pressure to increase the companies'earnings as soon as possible. He has to provide a recommendation on which firm to acquire at the next board of directors meeting in two weeks. In preparation for the meeting, Nicholas has asked you to prepare a fact sheet that evaluates the acquisition of the two potential target firms, Tallows Ltd and Bilgola Ltd from an accounting perspective. 1. You remember an in-class discussion from your studies about the use of fair value accounting versus historical cost accounting. Provide arguments for and against the use of both methods and explain the trade-off between the two methods in the context of the objective and fundamental characteristics of financial reporting. Greenmount Ltd, an ASX listed consumer goods corporation aims to acquire a fashion business to generate new growth opportunities. Following a formal search process, external advisors have identified the following two businesses as best matching entitiesfor a potential take-over: Tallows Ltd and Bilgola Ltd. Only one will be selected. To move forward with the selection process, the external advisor has estimated that both firms have the same entity value of $2m based on a Discounted Cash Flow (DCF) model, i.e. acquisition price of $2 million (excluding advisor fees), which will be paid as cash consideration. The external advisor will charge $5,000 finder's fee and $3,000 legal fees paid in cash to prepare all required due diligence. You have been given access to the following information about the assets, liabilities, and shareholders' equity for both potential target firms: Tallows Ltd: Historical costs Carrying amount Remaining useful life Cash and cash equivalents $12,000 $12,000 S Accounts receivable $21,000 $21,000 S Inventory $250,000 $220,000 $ Property Plant and Equipment (net) $2,000,000 1,200,000 5 years Total Assets $1,453,000 S Accounts Payable $145,000 $ Bank Loans $200,000 $ - Shareholder's Equity $1,108,000 $ - Liabilities & shareholders' equity $1,453,000 S Additional information for Tallows Ltd: Taking into account current market information and historical data of the firm, you determine the following fair values: Accounts receivables: $18,000, Inventory: $180,000, Property Plant and Equipment: $1,000,000. Bilgola Ltd: Historical Costs (S) Carrying Amount (S) Remaining useful life Cash and cash 6,000 6,000 equivalents Accounts receivable 230,000 230,000 Inventory 600,000 600,000 Property Plant and 3,500,000 1,000,000 10 years Equivalent (net) Total Assets 1,836,000 Accounts Payable 200,000 Bond Payable 360,000 Shareholders' Equity 1,276,000 Liabilities and 1,836,000 shareholders' equity Additional information for Bilgola Ltd: Considering current market prices and further historical information from the company, you determine the following fair values: Accounts receivable $200,000, Inventory $500,000, Property Plant and Equipment $2,000,000. Nicholas Less, the CFO of Greenmount Ltd has been under pressure to increase the companies'earnings as soon as possible. He has to provide a recommendation on which firm to acquire at the next board of directors meeting in two weeks. In preparation for the meeting, Nicholas has asked you to prepare a fact sheet that evaluates the acquisition of the two potential target firms, Tallows Ltd and Bilgola Ltd from an accounting perspective. 1. You remember an in-class discussion from your studies about the use of fair value accounting versus historical cost accounting. Provide arguments for and against the use of both methods and explain the trade-off between the two methods in the context of the objective and fundamental characteristics of financial reporting.
Expert Answer:
Answer rating: 100% (QA)
Fair Value Accounting Arguments for Fair Value Accounting Relevance Fair value accounting provides more relevant and uptodate information to users of ... View the full answer
Related Book For
Introduction To Health Care Management
ISBN: 9781284081015
3rd Edition
Authors: Sharon B. Buchbinder, Nancy H. Shanks
Posted Date:
Students also viewed these accounting questions
-
Implement a generic Map that supports the put and get operations. The implementation will store a hash table of pairs (key, definition). Figure 5.55 provides the Map specification (minus some...
-
System projects are notorious for being late and over budget. When should management stop a project that is late or costing more than the intended budget? Consider this case: Valley Enterprises opted...
-
Journalize the following transactions of Cramer, Inc., which ends its accounting year on June 30: Apr 1 Jun 6 30 Loaned $20,000 cash to R. Simpson on a one-year, 8% note. Sold goods to Friday, Corp.,...
-
The financial statements of Columbia Sportswear Company are presented in Appendix B. Financial statements of VF Corporation are presented in Appendix C. Instructions for accessing and using the...
-
Jack submitted his 2 0 2 1 / 2 2 tax return on 1 December 2 0 2 2 . He deliberately omitted to include a new source of income - rental income - of 1 5 , 0 0 0 as he did not think that HMRC would find...
-
Identify specific sections of the Criminal Code to locate specific offences. Determine the classification of offences. Identify the elements of an offence for specific offences. | Explain the...
-
https://youtu.be/5RocT_OdQcA?si=3FVu1_WmpqM_VmQH https://youtu.be/aKf0Qkp14qQ?si=gQB5-3JuT-5z37r2 Traditionally IT Industry has been following Waterfall Methodology for years. In the recent Past...
-
The outstanding share capital of Sheng Inc. includes 5 1 , 0 0 0 shares of $ 9 . 6 0 cumulative preferred and 8 6 , 0 0 0 common shares, all issued during the first year of operations. During its...
-
The function f(x) = ex is called the natural equal to exponential function. The number e is approximately (Round your answer to five decimal places.)
-
A farmer plans to install fencing around a certain field. If each side of the hexagonal field is 320 feet long and fencing costs $1.75 per foot, how much will the farmer need to spend on fencing...
-
How do digital platforms and social media algorithms influence agenda-setting processes by shaping information flows, amplifying certain issues, and facilitating collective action and mobilization...
Study smarter with the SolutionInn App