In 2012, BHP Ltd made a business decision to acquire shale oil assets to expand its oil
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Question:
In 2012, BHP Ltd made a business decision to acquire shale oil assets to expand its oil and gas production. It made a bid for the United States firm, Petrohawk Inc, and paid $15 billion for the company. BHP assessed the fair value of the assets of Petrohawk to be $20 billion and its liabilities to be $8 billion.
Required:
- Prepare the general journal entry for the acquisition in 2012. A narration is required.
- Explain what the accountant is required to do each financial year with regards to the value recorded for the Petrohawk acquisition.
- Based on subsequent events, when BHP took an impairment charge and then sold Petrohawk for a significant loss, how would you describe the business strategy that BHP pursued when they purchased Petrohawk?
- Explain why an accountant may have made inaccurate valuations of the Petrohawk acquisition at the time of purchase?
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