When carrying out the analysis of a company to add to your portfolio what considerations do you take into account? explain how you will build a portfolio based on your knowledge acquired in the last 7 weeks.

ABC Company has the following information pertaining to its biological assets for the year 2020:

A herd of 150, 3-year old animals was held at January 1, 2020. Eight animals aged 2.5 years were purchased on July 1, 2020 for P 3,400, and ten animals were born on July 1, 2020. No animals were sold or disposed of during the period. Per unit fair values less estimated point-of-sale costs were as follows:

Instructions:

21. How much is the balance of biological assets as of January 1, 2020?

22. How much of the increase in the fair value of the biological asses due to price change?

23. How much of the increase in the fair value of the biological assets due to physical change?

24. What is the fair value of the biological assets as of December 31, 2020?

25. If four 2.5 years old animal was sold on July 1, 2020, how much is the balance of biological assets as of December 31, 2020?

Question 3

A. J & B Company uses the percentage of sales approach to estimate its uncollectible accounts. The company’s annual sales for its first financial year of operations ending July 31, 2020 was $500,000, cash sales contributed to 2% of the overall sales and the accounts receivable balance at year end was $75,000. Based on industry expectations, it estimated that 3% of its credit sales would be uncollectible.

Required:

a. Calculate the bad debt expense at July 31, 2020.

b. Calculate the net receivable balance that would be reported in the Statement of Financial Position as at July 31, 2020.

B. Tosh and Sons Inc. uses the percentage of receivables approach to estimate its uncollectible accounts. The company had sales of $100,000 at the end of its financial year on June 30, 2020. The allowance for doubtful debts account had a debit balance of $400, the accounts receivable balance was $30,000 at year end and the company estimates the uncollectible percentages as follows:

Current (1 - 30 days)   $15,000           0.5%

31 - 60 days                 $10,000           2.0%

61 - 90 days                 $3,000             10.0%

Over 90 days               $2000              60.0%

Required:

a. Calculate the bad debt expense at June 30, 2020.

b. Prepare the necessary journal entry to record the bad debt expense for the year.

C. During the financial year ending May 31, 2020 the Board of Directors of Chung Sa Corporation authorised the write off of a $3,000 two-year debt belonging to a previous customer Jap Inc. On July 2, 2020 Chung Sa Corporation received an electronic funds transfer from Jap Inc. in the amount of $3,000.

Required:

Prepare all necessary journal entries to record this transaction.

Windsor Park Dominica is owned and operated by a private company, Windees Ltd. You work as the Facilities Manager of the Park and the CEO of the company has asked you to evaluate whether Windees should embark on the expansion of the facility given there are plans by the Government to host Cricket World Cup in 2020. The project seeks to increase the number of seats by building four new box seating areas for VIPs and an additional 4,000 seats for the general public. Each box seating area is expected to generate $300,500 in incremental annual revenue, while each of the new seats for the general public will generate $2,500 in incremental annual revenue. The incremental expenses associated with the new boxes and seating will amount to 70 percent of the revenues. These expenses include hiring additional personnel to handle concessions, ushering, and security. The new construction will cost $15 million and will be fully depreciated (to a value of zero dollars) on a straight-line basis over the 5-year life of the project. The company will have to invest $1.5 million in additional working capital immediately, but the project will not require any other working capital investments during its life. This working capital will be recovered in the last year of the project. The company’s marginal tax rate is 15 percent.

A. What are the incremental cash flows from this project? In other words determine the free cash flow of the project over its life. (You may use the table below to work out this part of the problem)

B. What is the Net Present Value if the project is assessed at a discount rate of 15% and should the project be accepted and why?

C. What is the Internal Rate of Return of the project and should the project be accepted and why?

D. In addition to the above information, you were told that Windees Ltd. has 5,000 bonds issued and outstanding with a 7.0 percent coupon rate compounded semi-annually. These bonds have 7 years left to maturity and they currently sell for 92 percent of par value. The company has 100,000 shares issued and outstanding with a market value of $3.85 per share. The company’s stock has a beta of 1.20. The expected return on the market is 8.0 percent and the yield on the risk-free asset is currently 6.0 percent. The CEO would like to know a fair rate which can be used to assess its cost of capital. You have therefore been asked to calculate the WACC for Windees Ltd

Acquisition at Other than Fair Value of Net Assets

Mason Corporation acquired 100 percent ownership of Best Company on February 12, 20X9. At the date of acquisition, Best Company reported assets and liabilities with book values of $420,000 and $165,000, respectively, common stock outstanding of $80,000, and retained earnings of $175,000. The book values and fair values of Best’s assets and liabilities were identical except for land which had increased in value by $20,000 and inventories which had decreased by $7,000. The estimated fair value of Best as a whole at the date of acquisition was $295,000.

  Required:

Give the eliminating entries required to prepare a consolidated balance sheet immediately after the business combination assuming Mason acquired its ownership of Best for $280,000.

Discuss the approach described in HKFRS 13 ‘Fair Value Measurement’ to measure the non- financial asset.

Carina Ltd has acquired all the shares of Finn Ltd on 1 July 2019 for $ 225 000. The accountant for Carina Ltd, having studied the requirements of AASB 3 Business Combinations, realises that all the identifiable assets and liabilities of Finn Ltd must be recognised in the consolidated financial statements at fair value. Although he is happy about the valuation of these items, he is unsure of a number of other matters including pre-acquisition entries and business combination valuation reserves associated with accounting for these assets and liabilities. He has approached you and asked for your advice.

The financial statements of Finn Ltd showed the equity of Finn Ltd at acquisition date to be:

                                Share capital — 20 000 $5.10 shares                         $102 000

                                General reserve                                                                   40 000

                                Retained earnings                                                               60 000

All the assets and liabilities of Finn Ltd were recorded at amounts equal to their fair values at that date.

During the year ending 30 June 2020, Finn Ltd undertook the following actions:

•    On 10 September 2019, paid a dividend of $20 000 from the profits earned prior to 1 July 2019.

•    On 28 June 2020, declared a dividend of $20 000 to be paid on 15 August 2020.

• On 1 January 2020, transferred $15 000 from the general reserve existing at 1 July 2019 to retained earnings.

Required

Write a report for the accountant at Carina Ltd advising on the following issues:

1.      Should the adjustments to fair value be made in the consolidation worksheet or in the accounts of Finn Ltd?                                                                                                                                             

2.     What is the purpose of the pre-acquisition entries in the preparation of consolidated financial statements? Explain.                                                                                                                            

3.      How to prepare the pre-acquisition entries at 1 July 2019.                                                     

4.      How to prepare the pre-acquisition entries at 30 June 2020.