Task 3: Define business combination in the given context and differentiate various forms of business combinations. Which form of business combination is suitable for the given scenario? Justify. (LO 2.3)

Scenario: Mr. Rehman is the CEO of XYZ Company, a manufacturer and retailer of Omani Dishdasha brand. The company imports the raw material from countries like UAE, India and Bangladesh and then manufactures various types of Dishdasha and other dress materials (jeans, shirt, etc) for male customers. The target market for the firm is Oman. However, the sales manager of the firm Mr. Mohammed is insisting on entering other GCC market (like UAE, Saudi Arabia, Bahrain, Qatar and Kuwait) and Asian market (like India, Pakistan, Bangladesh, etc). Mohammed is optimistic about entering into GCC and Asian markets and is of the opinion that these markets will act as a sustainable growth model for the firm. The demand in the local Omani market is stagnant and competition has increased manifold. The finance manager of the firm Ms. Aisha is pessimistic about Asian market and is recommending entering only GCC market. One of her reservations for GCC market is that OMR is pegged with USD and so are other GCC currencies. This will reduce the currency exposure compared to other currencies. However, the HR manager Ms. Samia is averse for any foreign investments, as it will create various issues like requirement of new employees, a lot of capital expenditure and risk exposure in these foreign markets. Ms. Samia proposes to emphasize more on the local market and instead diversify the business portfolio within Oman. Mr. Rehman has identified a UAE based firm Star LLC, a retailer of men's clothing brand, Following portions reflect the financial details. Year Ending 31 Dec 2020 XYZ LLC (figures in S) Revenue 55,000 Expenses 45,000 Net income 10,000 Cash 12.000 Receivable and inventory 77,000 Patented technology (noncurrent assets) 90,000 Equipment (noncurrent assets) 120,000 Total assets 299,000 Liabilities 25,000 Common stock 90,000 (book value is $ 1 per share) Additional paid up capital 77,000 Retained earnings 107,000 Total liabilities & equity 299,000 Star LLC (figures in ) 65,000 61,000 4,000 11,000 95,000 65,000 75.000 246,000 26,000 80,000 95,000 45,000 246,000 Star LLC's equipment was actually S 55,000 and patented technology as $ 75,000. Fair value of receivables and inventory for Star LLC was $ 105,000. XYZ LLC acquired all common stock of Star LLC by issuing 12,000 shares of S 1 par value and having S 16 as fair value and taking a loan of S 75,000 Any undervalued noncurrent assets should be amortized spanning a five year period. Any access of consideration transferred over fair value should be amortized over ten years. Star LLC 8,000 Following figures are assumed for the next two years: XYZ LLC Net income for 2021 20,000 Dividends declared for 2021 5,000 Net income for 2022 22,000 Dividends declared for 2022 6,000 4,000 9.000 4,000