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1.Selected information regarding a company's most recent quarter follows (all data in thousands). Beginning work in process inventory $240 Cost of goods manufactured $670 Direct materials used $250 Direct labor $190 Ending work in process inventory $210 What was manufacturing overhead for the quarter? A. $200 B. $460 C. $700 D. $210
2.Assume that there are only two shareholders in a company; the controlling shareholder holds 90% of the equity shares of the company whilst the other non-controlling shareholder holds the remaining 10%. The non-controlling shareholder is reading the consolidated financial statements of the controlling shareholder but could not understand why:
? The balance shown as non-controlling interest is different from the amount he paid to purchase the 10% equity shares of the company nor the market value of the shares of the company as at the date of the financial statements.
? The amount of profit attributable to non-controlling interest is not equal to 10% of the net profit of the company for the financial year.
Suppose you are the Group Accountant of the company. Draft a short memorandum explaining the above to the non-controlling shareholder to help him to understand the amounts and balances related to non-controlling interest in the consolidated financial statements.
3.Identify the different forms of purchase consideration which may be used by an acquirer and describe potential issues in relation to the valuation of those forms of consideration.
1.
|
Particulars |
Amount (in thousand) |
|
Cost of goods manufactured |
$670 |
|
Less: Beginning work in process inventory |
$240 |
|
Add: Ending work in process inventory |
$210 |
|
Total Manufacturing cost(Note 1) |
$640 |
|
Less: Direct material |
$250 |
|
Less: Direct labor |
$190 |
|
Manufacturing overhead(Note 2) |
$200 |
|
Correct option |
A)$200 |
Note: 1) Cost of Goods manufactured=Total manufacturing cost+Beginning Work in process- ending work in process.
2.Total manufacturing cost= Direct labor+ Direct material+ Manufacturing overheads.
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3.
Purchase consideration can be paid by aggregate of the shares and other securities issued and payment made in the form of cash or other assets by transferee company to the shareholders of the transferor company.
There are different methods of paying purchase consideration i.e
1) net asset method: purchase consideration = total assets taken over at agreed price - liabilities assumed at agreed price= net assets
2) net payment method
Purchase consideration= total payment to equity shareholders and preference shareholders of vendor company.
3) intrinsic value method
= Number of equity share of vendor company × intrinsic value of one share of vendor company/ intrinsic value of one share of purchasing company
4) lump sum method in which purchase consideration will be given in the question
In all these form generally one issue occur it is notable that purchase consideration does not include the sum which transferee company will directly pay to the debenture holders or creditors of the transferor company.
Second issue is that sometimes there is difficulty in making adjustments in purchase consideration in light of one or more future events.
