Assignment - All workings, when appropriate, must be shown to substantiate your answers.
Question 1 - Consolidation: Non-controlling interests
Pepsi Ltd acquired 80% of the shares of Soda Ltd on 1 July 2015 for $115 000. At this date the equity of Soda Ltd consisted of:
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$
|
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Share capital (100,000 shares)
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80,000
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Retained earnings
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29,600
|
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General reserve
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2,400
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All the identifiable assets and liabilities of Soda Ltd were recorded at amounts equal to their fair values except for:
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Carrying amount
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Fair value
|
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$
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$
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Inventories
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25,000
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28,000
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Plant (cost $65,000)
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52,000
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56,000
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Land
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40,000
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45,000
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The plant was expected to have a further useful life of 10 years. The land was sold on 1 January 2018. The inventory was all sold by 30 June 2016. Pepsi Ltd uses the full goodwill method. The fair value of the non-controlling interest at 1 July 2015 was $28,000. At 1 July 2015, Soda Ltd had unrecorded (internally generated) customer lists that had a fair value of $18,000. These customer lists had an indefinite life.
Financial information provided by the two companies at 30 June 2018 was:
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Pepsi Ltd
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Soda Ltd
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$
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$
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Sales
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252,800
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176,000
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Debenture interest
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4,000
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-
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Management and consultation fees
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4,000
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-
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Dividends
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9,600
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-
|
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Total revenue
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270,400
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176,000
|
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Cost of sales
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104,000
|
68,000
|
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Manufacturing expenses
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82,000
|
53,000
|
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Depreciation on plant
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12,000
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12,000
|
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Administrative expenses
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12,000
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6,400
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Financial expenses
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8,800
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4,000
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Other expenses
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11,200
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9,600
|
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Total expenses
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230,000
|
153,000
|
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Profit from trading
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40,400
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23,000
|
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Gains on sale of non-current assets
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10,000
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5,000
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Profit before income tax
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50,400
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28,000
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Income tax expense
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20,000
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13,600
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Profit for the year
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30,400
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14,400
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Retained earnings 1 July 2017
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40,000
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36,000
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70,400
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50,400
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Dividend paid
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8,000
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8,000
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Dividend declared
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8,000
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4,000
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16,000
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12,000
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Retained earnings 30 June 2018
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54,400
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38,400
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Share capital
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240,000
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80,000
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General reserve
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37,600
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8,000
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Other components of equity
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10,400
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8,000
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Debentures
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160,000
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80,000
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Current tax liability
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20,000
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13,600
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Dividend payable
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8,000
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4,000
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Deferred tax liabilities
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12,000
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5,600
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Other current liabilities
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60,000
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9,600
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Total equity and liabilities
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602,400
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247,200
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Shares in Soda Ltd
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115,000
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-
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Debentures in Soda Ltd
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80,000
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-
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Plant
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96,000
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81,600
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Accumulated depreciation - plant
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(52,000)
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(44,000)
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Intangibles
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60,800
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44,000
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Accumulated amortisation - intangibles
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(32,000)
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(20,000)
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Deferred tax assets
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58,600
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24,000
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Financial assets
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40,000
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48,000
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Land
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120,000
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45,600
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Inventories
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72,000
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44,000
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Receivables
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44,000
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24,000
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Total assets
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602,400
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247,200
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Additional information -
1. Soda Ltd had inventory on hand at 30 June 2017 that included inventory at cost of $8,000 that had been sold to Soda Ltd by Pepsi Ltd. This inventory had cost Pepsi Ltd $6,000. It was all sold by Soda Ltd by 30 June 2018.
2. During the 2017-18 year, Soda Ltd sold inventory to Pepsi Ltd for $48,000. At 30 June 2018, Pepsi Ltd still had some of this inventory on hand. This inventory had been sold to Pepsi Ltd by Soda Ltd at a profit of $4,000.
3. On 1 January 2017, Soda Ltd sold plant to Pepsi Ltd for $16,000. This had a carrying amount in Soda Ltd at time of sale of $12,000. Plant of this class is depreciated at 20% p.a.
4. Management and consultation fees derived by Pepsi Ltd are all from Soda Ltd and represent charges for administration of $1,760 and charges for technical services for the manufacturing section of $2,240.
5. All debentures issued by Soda Ltd are held by Pepsi Ltd and interests are accounted for appropriately by both companies.
6. Other components of equity relate to movements in the fair values of financial assets held by the entities. Gains and losses on these financial assets are recognised in other comprehensive income. The balance of the other components of equity account at 1 July 2017 was $8,000 (Pepsi Ltd) and $6,400 (Soda Ltd).
Required:
1. Prepare an acquisition analysis.
2. Prepare the consolidation worksheet entries for the year ended 30 June 2018.
Note: you are not required to prepare the consolidation worksheet and the consolidated financial statements.
Question 2 - Investment in associates
Ingram Ltd acquired 35% of ordinary shares issued in A Ltd for $300,000 on 1 July 2017. The equity of A Ltd at that date was as follows.
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$
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Ordinary share capital
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560,000
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Retained earnings
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54,000
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All assets were recorded at fair value at acquisition date, except for plant and equipment which had a fair value of $20,000 above its carrying amount. This plant and equipment was estimated to have a remaining useful life of 5 years.
On 1 July 2017, land was recorded in the books of A Ltd at $100,000. The fair value of this asset has since risen by $40,000, with $28,000 ($40,000 less 30% tax) being credited to a revaluation surplus account by A Ltd on 30 June 2018.
On 1 January 2018, A Ltd sold a motor vehicle to Ingram Ltd for $34,000. The vehicle had originally cost A Ltd $68,000, and had a carrying amount of $20,000 at 1 January 2018. The motor vehicle had a remaining useful life of 4 years.
At 30 June 2018, Ingram Ltd had inventory costing $40,000 on hand which had been purchased from A Ltd during the financial year. A profit before tax of $10,000 had been made on the sale.
As at 30 June 2018, the following relates to A Ltd:
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$
|
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Operating profit before income tax
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180,000
|
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Income tax expense
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54,000
|
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Dividends paid
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30,000
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The tax rate is 30%.
Required:
1. Prepare an acquisition analysis in relation to the acquisition made by Ingram Ltd.
2. Assume Ingram Ltd does prepare consolidated financial statements. Prepare the consolidated worksheet entries for the year ended 30 June 2018 for inclusion of the equity-accounted results of A Ltd.
Question 3 - Accounting for foreign currency transactions
Behappy Ltd is an Australian company with a reporting period ends on 30 June. The company has entered into two independent transactions denominated in foreign currency as follows.
1. Behappy Ltd sells some goods on credit on 13 June 2018 to a Singaporean company, Mother Kwan. The contract, denominated in Singapore dollars, amounts to $125,000. Mother Kwan settles the contract on 10 July 2018.
The relevant exchange rates are as follows:
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13 June 2018
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A$1.00 = S$1.2536
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30 June 2018
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A$1.00 = S$1.2875
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10 July 2018
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A$1.00 = S$1.3103
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2. On 15 June 2018, Behappy Ltd acquires plant and equipment on credit from Senang Bhd, a Malaysian company. The contract is denominated in Malaysian Ringgit and the acquisition amounts to MYR300,000. Behappy Ltd settles the contract on 20 July 2018.
The relevant exchange rates are as follows:
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15 June 2018
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A$1.00 = MYR2.8079
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30 June 2018
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A$1.00 = MYR2.9946
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20 July 2018
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A$1.00 = MYR2.7152
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Required: In accordance with AASB 121, prepare all relevant journal entries of Behappy Ltd to account for the above transactions.
Rationale - This assessment task will assess the following learning outcome/s:
- be able to explain the relationships that exist between a parent company and its subsidiary(ies), an investor and its investee, a company and its overseas subsidiaries.
- be able to prepare accounts for each of the above-mentioned business combinations in accordance with relevant professional and statutory reporting requirements.
- be able to discuss the relevant accounting standards and statutory reporting requirements for foreign currency dealings, segment reporting, and leases.