Corporate Accounting (ACCT2006)

Make the journal entries for the following.

• The identifiable net assets of Charles ltd were recorded at fair value at the date of acquisition.
• In applying the impairment test for goodwill in the current year, the directors have determined that a write-down of $10 000 is required for consolidation purposes. The cumulative goodwill impairment write-downs for prior years amounted to $15 000.
• An item of plant and equipment owned by Charles (cost $30 000 and accumulated depreciation of $15 000) was sold to Diana Ltd for $13 000 on 1 July 2020. Charles depreciated the asset at 10% per annum straight-line on original cost (assuming a 10-year economic life). Diana, assuming a further economic life for the plant and equipment of five years from its date of acquisition, has applied a depreciation rate of 20% straight-line from the date of transfer of the asset.

How to calculate a) the capital gearing (debt divided by debt plus equity) using market values; 

b) the market value weighted average cost of capital.

Give formula

In 2007, Slater & Gordon (S&G) became the world’s first law firm listed on a stock exchange. S&G is headquartered in Melbourne, where William Slater and Hugh Gordon founded it in 1935. Progressively, S&G has become one of the industry’s most recognised brands, developing a reputation for defending the underdog and being regarded as “anti-globalist, anti-capitalist, pro-worker, pro-environment and pro-indigenous peoples”

(Full article; https:// www. crikey. com. au/ 2007/ 04/ 11/ slater- gordon- float-not- without- pitfalls/ ) (need to remove spaces)

Since listing, net fee revenue grew by over 10% per year and the share price rose from a $1 to $8.07, prior to crashing in 2015. This collapse started from the 2014 acquisition of Quindell PLC, a UK law firm. The acquisition cost GBP637million (about AUD1.3billion), funded by an AUD890million share issue and a AUD375million bank loan. Approximately AUD1billion of the acquisition price was recognised as goodwill. By the time S&G released its 2016 annual report, it had recorded about AUD787million of ‘badwill’ (impairment losses on goodwill).

Your group is required to research the Quindell acquisition and answer the following five questions:

Question 1

1. Identify the incentives S&G had to go public.
   
    
2. Read the first annual report published after S&G’s listing. Analyse if going public had served S&G’s stated IPO objectives.

For each incentive, you must provide sufficient evidence to justify your analysis. Evidence may include – but is not limited to - legislative changes, figures and proof from documents or media resources released by the company or any other reliable source. You must correctly reference all sources used.

Please prioritise references/sources

Provide the journal entries (hypothetical in this case) required to recognise the contingent assets and contingent liabilities.

What is the journal entry for if they are recognise in the financial statement (hypothetical figures):

A. Contingent Asset

B. Contingent Liability

The acquisition cost of a company by Slater and Gordon was GBP637million (about AUD1.3billion), funded by an AUD890million share issue and an AUD375 million bank loan. Approximately AUD1billion of the acquisition price was recognised as goodwill. By the time S&G released its 2016 annual report, it had recorded about AUD787million of ‘badwill’ (impairment losses on goodwill).

In 2016, the company incurred an AUD879.5million non-cash impairment charge. 

Required:

What would be the correct journal entry to account for this impairment loss? (With figures)

What caused the impairment loss?

The acquisition cost of a company by Slater and Gordon was GBP637million (about AUD1.3billion), funded by an AUD890million share issue and a AUD375 million bank loan. Approximately AUD1billion of the acquisition price was recognised as goodwill. By the time S&G released its 2016 annual report, it had recorded about AUD787million of ‘badwill’ (impairment losses on goodwill).

In 2016, the company incurred an AUD879.5million non-cash impairment charge. 

What caused the impairment loss?

Why it is a non-cash impairment charge? 

What would be the correct journal entry to account for this impairment loss?