ACO 421-Advanced Accounting- Dr. Sandra khalil Advanced Accounting (ACO 421) PROJECT Due on May 4, 2020 Purpose Several methods to record investments in other companies were discussed in this course....

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Answer To: ACO 421-Advanced Accounting- Dr. Sandra khalil Advanced Accounting (ACO 421) PROJECT Due on May 4,...

Preeta answered on Apr 09 2021
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BUSINESS COMBINATION
BUSINESS COMBINATION
Student Name –    Student ID –    
Contents
1. INTRODUCTION:    2
2. ADVANTAGES OF BUSINESS COMBINATION:    2
3. INVESTMENT IN MONDELEZ:    4
3.1. Appropriate Accounting Method:    4
3.2. Calculation of purchase price and its allocation:    5
3.3. Journal Entries:    6
3.4. Consolidation/Elimination Entries:    6
4. INVESTMENT IN RECKET:    6
4.1. Appropriate Accounting Method:    6
4.2. C
alculation of purchase price and its allocation:    7
4.3. Journal Entries:    7
4.4. Consolidation/Elimination Entries:    8
5. INVESTMENT IN FOODICA:    8
5.1. Appropriate Accounting Method:    8
5.2. Calculation of purchase price and its allocation:    8
5.3. Journal Entries:    9
5.4. Consolidation/Elimination Entries:    10
6. CONCLUSION:    11
REFERENCES:    12
1. INTRODUCTION:
Business organizations make investment to increase their wealth and net worth. Acquisition and mergers are a part of business investment in other companies. It is important to do the accounting for those in the books of the companies involved. Acquisition or mergers are the kind of business settlements where the ownership of a business organization is partly or fully transferred to some other companies in return of cash, equity in the other company or any other kind of asset (Vazirani 2012). Generally the operating units of the companies involved in the transaction are either transferred or are consolidated. Acquisition and mergers are done for the benefit of all the companies or business organizations involved in the transaction.
In this research project, assessment will be done on Poultrade Inc. which is a US based company. It operates in FMCGs (Fast Moving Consumer Goods) industry. The board of directors of the company in 2017, decided to venture into new markets. There are different ways of venturing into new market but the company chose business combination as the tool to attain the goals and objectives.
So, Poultrade Inc. purchased the shares of three companies, which are Mondelez, Recket, and Foodica. The details of the transaction of business investment with each of the three companies have been presented below.
2. ADVANTAGES OF BUSINESS COMBINATION:
There are several advantages of business combination (Nelson 2018), some of which have been discussed below:
· In a very competitive market, often business houses are combined to remove cut throat competition. After the business combination, the companies seize to be each other competition. But other competitors in the market also come to a tough position since the resources and the experiences of two competitors are combined. When two or more companies in the same industry with high market share is combined then it becomes difficult for other companies to survive and the combined companies are at a position to take advantage of their position and can achieve monopoly.
· As is evident in this case, business combination can serve the purpose of venturing into new market. Often the companies try to venture into new profitable market but they lack both the experience and the expertise for that and so they combine with a company which is already in that market and have both expertise and experience.
· Economies of scale are one of the major reasons for most of the business combination. When two or more companies merge together and operate together their resources are also merged together. The sales volume increases automatically and so the overall cost of production and management is reduced. Amount of capital available or investment is also increased. The overall operating costs also get reduced and the company gets in a better position to enhance its research and development facilities.
· Price stability can be easily maintained by the companies for their goods and services since the material for production can be purchased in bulk and some discount can be negotiated with the vendors, which ultimately reduce the cost. Other unnecessary production cost can also be removed and so eventually the profits become higher. There is full elimination of the risk of overproduction when two or more business organizations combine.
· When the...
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