NMIMS BBA – B.Com Advanced Financial Accounting Solved Answer Assignment

Advanced Financial Accounting

Q.1 The Balance sheet of AB Co. and PQ Co. as of 31st March 2021 was as follows. AB co. took over PQ co. for Rs 450000 and paid equity shares for settlement of PC AB Co. took over all the assets and Liabilities of PQ Co. Identify the method of Purchase consideration and explain it and discuss the entries to be passed in AB Company. (10 Marks)

NMIMS BBA – B.Com Advanced Financial Accounting Solved Answer Assignment

Introduction

There are several different purchase consideration methods that people use. One of the most common is the cost-benefit analysis. While it originates with making purchases, close by are many altered aspects that arise into play. One of the most important of these factors is the purchase consideration method. This refers to how individuals evaluate and compare different products or services before deciding to buy.

Concepts and Applications

The given Balance Sheet of AB Co. and PQ Co. shows that AB Co. has taken over PQ Co. for Rs 450000 and paid the settlement of the purchase consideration using equity shares. AB Co. has taken over all the assets and liabilities of PQ Co. The method of purchase consideration used in this case is Share Acquisition Method. An important method of purchase consideration is the emotional decision-making approach. This involves making purchasing decisions based on how a product or service makes an individual feel rather than on its practical benefits or cost. Consideration curation includes selecting and curating options to find the perfect purchase.

NMIMS BBA – B.Com Advanced Financial Accounting Solved Answer Assignment

Conclusion

To conclude, many other factors can influence purchase consideration. These might include brand reputation, product quality, customer service, and environmental or social impact. For example, someone might choose to buy a product from a company with a good reputation for sustainability, even if it is more expensive than other options.

NMIMS BBA – B.Com Advanced Financial Accounting Solved Answer Assignment

1. 2 There are various methods used for the valuation of goodwill. However, the selection of a valuation method depends on different business practices adopted by the company. So you are required to discuss commonly used methods for the valuation of goodwill in detail with suitable examples. (10 Marks)

ANS:

Introduction

The premium salaried for the attainment reflects the worth of the developedbusiness’s intangible resources, such as its reputation, customer base, and brand recognition. Therefore, goodwill is the changeamid the acquisitionworth of a business & the reasonablemarketplaceworth of its tangible resources.Valuing goodwill can be complex and requires a thorough understanding of the company’s financial statements, market position, and the industry in which it operates.

Concepts and Applications

Goodwill is an imperceptiblestrength that signifies the worth of a business’s brand name, client base & other imperceptibleresources that donate to its capability to produce revenue. The valuation of goodwill is important for financial reporting, taxation, mergers, and acquisitions. There are several commonly used methods for the valuation of goodwill, including:

Income Approach: This method estimates the worth of goodwill by analyzing the upcoming economic benefits that the corporate is predicted to produce. This approach’s most commonly used techniques are discounted cash flow (DCF) and capitalized earnings.

Conclusion

Goodwill can have a significant impact on a business’s balance sheets. Valuing goodwill accurately is essential for companies to understand their overall financial position and make strategic decisions. An accurate valuation can also help companies attract potential investors and secure financing for future growth.

NMIMS BBA – B.Com Advanced Financial Accounting Solved Answer Assignment

Q.3 Shell Ltd furnishes the following information. Calculate the Valuevalue of closing inventory as of 31st March and the cost of goods sold during March Month

1. Using the FIFO method under a periodic inventory system and explaining the concept of the FIFO Method (5 Marks)

ANS:

Introduction

 The FIFO (First-In, First-Out) scheme is a popular accountestimatetechnique used by many companies. It is based on the principle that the 1^st items bought or formed are the 1^stitems vented or used, and the most recent items are left in inventory.

Concepts and Applications

FIFO (First-In, First-Out) is a technique of recordassessment where the 1^st goods bought are expected to be the 1^stgoods vented. That means that the price of the earliest record items is matched against the revenue from the first goods sold. In other words, the price of the items vended is founded on the price of the earliest units available in the record.

Conclusion

The FIFO method benefits companies that sell or use perishable goods or items with a limited shelf life. By selling or using the oldest items first, the companies can avoid spoilage or obsolescence of inventory, reducing the likelihood of inventory losses.

1. b) Under the Perpetual Inventory system and interpret it. (5 Marks)

ANS:

Introduction

A perpetual Inventory Method is a method of recordadministrationthat involves keeping a continuous record of inventory movements, including purchases, sales, and adjustments, in real-time. This system provides an up-to-date history of inventory levels.

Concepts and Applications

By using the perpetual inventory system:

1st March: The opening stock on 1st March is 1000 units at a rate of $10 per unit. This means that the value of the opening stock is $10,000 (1000 units x $10 per unit).

5th March: This purchase costs $40,000 (2000 units x $20 per unit).

16th March: This purchase costs $62,500 (2500 units x $25 per unit).

20th March: The cost of goods sold  for this sale could be calculated utilizing the weighted average method as follows:

Conclusion

In conclusion, the perpetual inventory system provides accurate and up-to-date inventory levels, purchases, and sales records. By maintaining a continuous history of inventory movements, businesses can track inventory costs and ensure they have the necessary stock to meet customer demand.