Sun Ltd has acquired all the shares of a major manufacturer Moon Ltd. The CFO of the company,…

Sun Ltd has acquired all the shares of a major manufacturer Moon Ltd. The CFO of the company, Ms. Tania, has shown the board of directors of Sun Ltd, the financial information regarding the acquisition. The directors are not sure whether all the identifiable assets and liabilities of Moon Ltd must be recognised in the consolidated financial statements at fair value. Although the directors are happy about the valuation of these items, they are unsure of a number of other matters associated with accounting for these assets and liabilities.

Issue 1 The Board of directors is wondering should the adjustments to fair value be made in the consolidation worksheet or in the accounts of Moon Ltd.

Issue 2 What equity accounts should be used when revaluing the assets, and should different equity accounts such as income (similar to recognition of an excess) be used in relation to recognition of liabilities?(Hint: This issue is related to BCVR adjustment required to ensure all assets and liabilities are recorded at fair value on the consolidated financial statements)

Issue 3 Do these equity accounts remain in existence indefinitely, since they do not seem to be related to the equity accounts recognised by Moon Ltd itself?

Could you please explain this to the Board (most of them are not accountants)? Please respond by memo (not email) as I would like to present this to the Board. I look forward to hearing from you shortly.

Regards,

Jackson Smith

Director, Sun Ltd

510 William Street,

Melbourne, VIC 3000

Attachments:

A4300.docx

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