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Group Accounting Homework 7:
IGNORE VAT AND TAXATION
Peazy purchased 100% of the equity shares (and voting rights) of Simple in exchange for a
cash payment of R900 000 on 1 September 2020. At acquisition date, the total assets of Simple
had a carrying value of R2 500 000 and its total liabilities had a carrying value R2 000 000.
The equity of Simple at acquisition date consisted of share capital and retained earnings
amounting to R200 000 and R300 000 respectively. The fair values of Simple’s property, plant
and equipment was undervalued by R500 000 and provisions (liabilities) amounting to
R100 000 was not recognised at the acquisition date.
REQUIRED:
a) Calculate the fair value of the net asset acquired as part of the business combination at
acquisition date.
(5 Marks)
b) Process the pro forma journal entry/ies required to prepare the consolidation trial balance
at acquisition date.
(5 Marks)
ABC Acquired 80% of XYZ shares on 1 January 2019. The purchase consideration was Sh. 11 million cash upfront and an additional Sh. 800,000 payable if XYZ maintains profit margin of 30% for the period ending 31 December 2019. XYZ has one million shares and was trading at Sh. 14 per share prior to acquisition. The fair value of net identifiable assets of XYZ on acquisition date was Sh. 12 million. Required: Calculate Goodwill recognized on 1 January 2019 using the fair value method.
Company ABC Ltd operates in the Health services sector and employs mainly contract doctors and nurses for subcontracting out to local hospitals.
You have used your skills acquired in BUS106 and have found that Health services sector averages for financial ratios/information are as follows:
Overheads = are generally high due to the high cost of employing medical professionals including doctors and surgeons
Operating margin = 40%
Net profit margin = 15%
Quick ratio = 2.5
On average entities in this sector have very little debt.
Required:
Company ABC has a current ratio of 0.5, a debt ratio of 65% and a net profit margin that is negative. Discuss the position and performance of Company ABC in no more than 250 words.
A firm’s demand curve in period 1 is Q=25 - P. Fixed costs are 20 and marginal costs per unit are 5. (5 marks) a. Derive equations for total revenue and marginal revenue. b. At what output will marginal revenue be zero? c. At what price will total revenue be maximized? d. At what price and output will profit be maximized? e. Calculate the maximum profits the firm makes.
Concept of revenue from operations and other income
1. A plant Asset acquired on January 2 at a cost of 275,000 has an estimated useful life of 10 years. Assuming that it will have no residual value, determine the depreciation for each of the first Five years
a. By the Straight Line Method
b. By the Double Declining Balance Method
c. By the Sum of years digits Method
If money is worth 7% compounded continuously, find the equated time for paying a loan
of P 200,050 due in 2 years and P 315,000 due in 4 years.
Company ABC Ltd operates in the Health services sector and employs mainly contract doctors and nurses for subcontracting out to local hospitals.
You have used your skills acquired in BUS106 and have found that Health services sector averages for financial ratios/information are as follows:
Overheads = are generally high due to the high cost of employing medical professionals including doctors and surgeons
Operating margin = 40%
Net profit margin = 15%
Quick ratio = 2.5
On average entities in this sector have very little debt.
Required:
Company ABC has a current ratio of 0.5, a debt ratio of 65% and a net profit margin that is negative. Discuss the position and performance of Company ABC in no more than 250 words.
Suppose Ethiopian Electric Light and Power Corporation (EELPC) is a multi plant
monopolist having two plants, Tekeze plant (plant1) and Fincha plant (Plant2). The
operating costs of the two plants are given as follows:
Tekeze Plant: TC1 = 10 Q1
2 and where Q1 - Amount of electric power produced in
Tekeze
Fincha plant: TC2 = 20 Q2
2 Q2 – amount of electric power produced in Fincha
EELPC estimates the demand for electric power by the following function
P= 700 – 5Q where P - is price (total in million birr) per Giga watt and
Q – is the total amount of Giga watt sold and Q = Q1 + Q2
Note that a Giga watt of electric power, whether it comes from Fincha or Tekeze plant worth
equal price
a) What level of output (electric power) should EELPC produce and what price per Kilowatt
should it charge to maximize its profit?
b) How much of the total output should be produced in each plant?
Given Qd = 60 – 15P + P², the (point) price elasticity of demand at a price of 5.
