ST MARY’S UNIVERSITY
DEPARTMENT OF ACCOUNTING AND FINANCE
ADFA-II Group Assignment (Max 4 members)
Submission Date: May16, 2025
1) On 31st December 2017 SVM company acquired 95% of ownership interest of JGB Company.
The terms of acquisition were as follows. SVM Company issued 30,000 shares of Br 5 par (fair
value Br 10) each to the JGB Company for their common stock of face value Br 1 per share.
Contingent consideration paid by the SVM Company on acquisition date was Br150,000. The
finder’s and legal fees paid by the SVM was Br 10,000 and Br 25,000 respectively. SVM also
paid SEC registration and printing and stationary charges of Br 20,000. In a fair value of balance
sheet of the JGB Company all the assets and liabilities of JGB company remained same except
Inventory – Br 400,000, Building- Br 200,000 and Patents Br 130,000, Creditors Br 100,000
Statement of Financial position of JGB Company Before combination
Liabilities &Equity Amount Assets Amount
Common stock (@Br 1 per share) 100,000 Inventory 350,000
Creditors 300,000 Building 150,000
Long term debt 200,000 Patents 90,000
Bills Payable 50,000 Other currents assets 60,000
Total 650,000 Total 650,000
Required: Calculate the goodwill/Gain on Bargain purchase, Non- Controlling Interest and pass
the necessary journal entries in the books of Combiner?
2) Following are the account balances of P Company and S Company as of December 31. The fair
values of Richmond Company’s assets and liabilities are also listed.
P Company S Company S Company
Book Values Book Values Fair Values
Cash. . . . . . . . . . . . . . . . . . . . . . . . $ 600,000 $ 200,000 $ 200,000
Receivables. . . . . . . . . . . . . . . . . . . 900,000 300,000 290,000
Inventory . . . . . . . . . . . . . . . . . . . . 1,100,000 600,000 820,000
Buildings and equipment (net) . . . . 9,000,000 800,000 900,000
Unpatented technology . . . . . . . . . –0– –0– 500,000
In-process research
and development . . . . . . . . . . . . –0– –0– 100,000
Accounts payable . . . . . . . . . . . . . . (400,000) (200,000) (200,000)
Notes payable. . . . . . . . . . . . . . . . . (3,400,000) (1,100,000) (1,100,000)
Totals . . . . . . . . . . . . . . . . . . . . . $ 7,800,000 $ 600,000 $ 1,510,000
Common stock—$20 par value . . . $ (2,000,000)
Common stock—$5 par value . . . . $ (220,000)
Additional paid-in capital . . . . . . . . (900,000) (100,000)
Retained earnings, 1/1 . . . . . . . . . . (2,300,000) (130,000)
Revenues . . . . . . . . . . . . . . . . . . . . (6,000,000) (900,000)
Expenses . . . . . . . . . . . . . . . . . . . . 3,400,000 750,000
Additional Information (not reflected in the preceding figures)
On December 3 P issues 50,000 shares of its $20 par value common stock for all of the
outstanding shares of S Company.
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As part of the acquisition agreement, P agrees to pay the former owners of S company
$250,000 if certain profit projections are realized over the next three years. P calculates the
acquisition date fair value of this contingency at $100,000.
In creating this combination, P pays $10,000 in stock issue costs and $20,000 in accounting
and legal fees.
Required
a. P Co.’s stock has a fair value of $32.00 per share. Using the acquisition method:
1. Prepare the necessary journal entries if P Co. dissolves S Co. so it is no longer a separate
legal entity.
2. Assume instead that S Co. will retain separate legal incorporation and maintain its own
accounting systems. Prepare a worksheet to consolidate the accounts of the two
companies.
b. If P Co.’s stock has a fair value of $26.00 per share, describe how the consolidated balances
would differ from the results in requirement (a).
3) On October 5, 2010, an Ethiopian Company exported 100 ton of coffee which had a cost of
Birr 2,700,000, to an Indian Company at a price of $2,500 per ton (in U.S. dollar), with
payment due on January 5, 2011. The Indian Company’s measurement currency is Rupee (₨).
The following spot rates were observed from the transaction date to the settlement date:
October 5, 2010 December 31, 2010 January 5, 2011
Birr 1 = ₨ 31.25 Birr 1 = ₨ 35 Birr 1 = ₨ 32
$ 1 = Birr 20 Birr 1 = $ 0.0625 $ 1 = Birr 18
₨ 1 = $ 0.0016 $ 1 = ₨ 560 $ 1 = ₨ 576
Required: Show the journal entries to be recorded by the Ethiopian company as well as the
Indian Company on the date of transaction, at the end of the accounting period, and on the
settlement dates. Assume that both companies use a calendar base accounting period (January -
December).
4) On 1st January 2010 Josh Company which is an US based company purchased goods from an
Ethiopian company Nanny ltd. on credit for $ 100, 000 and the credit period allowed was
180 days. On the 1st January 2010 the exchange rates were $1 = ETB 27.40. In order to hedge
the foreign exchange risk the Josh Company takes 180 days forward contract At the rate ETB
27.55 = $ 1. The Josh Company’s financial year ends on 31st March 2010, on this date the spot
rate was $1=ETB 27.45. On the date of maturity of the forward contract i.e on 30th June 2010,
birr depreciated by 2% as compared to the forward contract rate.
Required: Record the necessary journal entries to record this foreign exchange transaction,
gain/loss on foreign exchange transaction /forward contract on the books of both Josh Company
and Nanny Ltd
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5) On June 26, 2011, L.A., a U.S. Company, purchased merchandise from British Company for
10,000 British Pounds, terms net 30 days. On June 30, 2011, L.A. Company prepared financial
statements. On July 26, 2011, L.A. Company electronically transferred 10,000 British Pounds
to Brit Company. Relevant spot exchange rates for British Pound Sterling were as follows:
1 Pound Sterling =
Buying Rate Selling Rate
June 16, 2011 $1.63 $1.67
June 30, 2011 1.64 1.68
July 26, 2011 1.62 1.66
Prepare journal entries to be recorded by L.A.
