Explain the accounting treatment of the shares issue if the issued shares are undersubscribed due to the current impact of COVID-19 pandemic affecting many economies across the world.

Business Accounting

Questions
Select two public companies which have been in a takeover or merger transaction in
recent years.

Question 1. Ratio analysis (30 marks)
Analyze the financial statements of these two companies in the year prior to the transaction, and the consolidated financial statements 1 year and 3 years after consolidation using:
(a) Calculation of ratios:
(i) 3 Profitability and solvency (liquidity) ratios.
(ii) 2 Efficiency ratios
(iii) 3 Shareholder ratios
(iv) 3 Capital structure ratio

(b) Critically interpret and discuss the ratios in point (i) to (iv) above 1 year before and 3 years after the takeover and merger transactions. Besides your qualitative explanations, use figures, tables and graphs to present your data.

(c) Compare the ratios of consolidated financial statements with two of the main competitors of the firm within the same industry and also with those of the industry.

(d) Would you invest in the company after the transaction? Why or why not? How does the company compare to its competitors and the industry? Justify your answer by writing a short recommendation to a potential investor. Structure your answer properly.

Question 2. Consolidation (30 marks)

a. Investment
b. Intra–group Assets and Liabilities
c. Intra–Group dividends (if any)
d. Unrealised profits
e. Non–controlling interest

Your task in this question is to:
(i) Identify the above elements in a statement of financial position from your case study company and provide the excerpt where they are specifically shown (a print screen supported by reference is sufficient). Where any of them is not clear or explicitly shown, you can explain where they ought to be shown in the consolidated statement of financial position.

(ii) Based on the lessons you learned in this chapter, explain how each of these
elements (‘a to e’ above) are determined/calculated so as to be shown in the
statement of financial position as illustrated in your case study statement of financial
position. Provide qualitative explanations based on what you learned in this chapter
i.e no need for calculations.

B. Calculate the goodwill that has been explicitly explained or has implicitly been paid in the transaction (State your assumptions). Elaborate on the acquiring company’s (explicit or implicit) argumentation on the determined goodwill. In addition, show how much of this goodwill has materialized in the results in the three years following the transaction.

A. Describe the various types of shares which the company issued to raise capital. Illustrate your answer with relevant examples (including the composition of the amount of capital raised by each type of shares) as shown in respective section in the Balance sheet.

B. Based on your assessment of the company’s financial statement, what is your advice to the Board of Directors in considering a rights issue. Provide a clearly argued rationale consistent with the relevant IAS (International Accounting Standards) and the company’s financial structure.

C. Explain the accounting treatment of the shares issue if the issued shares are undersubscribed due to the current impact of COVID–19 pandemic affecting many economies across the world. How will this affect the company’s shareholders? How will this be different if you advice on the issue of a convertible debenture on the company’s capital structure and the shareholders?

D. What is your comment on your case study company’s equity capital when you compare its two consecutive financial years?

Question 4. IAS, Accounting concepts, IFRS
Select and answer ONLY one question out of the two given below. Each question carries (10 Marks)

Question 4. Based on the case study company you identified, explain with reference to the specific sections of the consolidated financial statements, how the following accounting concepts have been reflected in the financial statements (Demonstrate your answer with reference to specific category items shown in the financial statements):
i. Accrual concept
ii. Matching concept
iii. Going concern concept