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CORPORATE FINANCE

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Introduction

 

Corporate finance is a process of dealing with the finance and funding of the organization. The managers here are mostly involved in maximizing the value of the shares of the organization. It takes the decision of allocating the inventories and retained resources among the shareholders and maximizes profit there from. In the following context, the company and Tuna ltd want to analyze its transaction between 2015 to 2017 due to the acquisition and merging by Brim Ltd. for analyzing the acquisition various related transactions of the inventory, goodwill, and retained earnings are to be calculated. The journal entry is required for the details view of the Tuna's transaction within these years with Brim Ltd.

1. Acquisition analysis

Brim acquired the business of Tuna Ltd on 1st July 2015 and in return paid cash of $30,000 and shares of $20000 at the rate of per share $3. The currently listed share of Tuna ltd was $66,000 and its retained earnings were $6000. The carrying amount of the identifiable value of assets was expected to be similar to the fair value of the company assets (Yücel and Görener, 2016, p. 75).

Thus the fair value of the plant is $2100 (120000-123000), the value of Patent is $10,500 ( $105000-90,000), the value of inventory is $3,150 (22500 - 18000). The transferred consideration amount of the fair value of identifiable assets is $90,000.

2. Consolidated Journal entries of Tuna Ltd

  1. The sale of the plant is classified as inventory in the current period where the proceed plant sale is $9000 and the total cost of sale is $1500. The carrying amount of the sale of plant and inventory is $ 7500.

  2. The plant cost $200 and the retained earnings in 1st July 2016 is $ 1400 where the deferred tax incurred on tax is $600. The depreciated accumulation on plant and machinery is $1000 where the depreciated expenses are $400 and the retained earning os the accumulation is $600. The retained earnings is calculated by the cost of the plant at the rate of 20% for me and half year. The expenses on income tax are $120 and the retained earnings on the income tax are $180, the deferred tax on assets incurred is $300.

  3. According to Pickering and ME, (2017, p. 950), the profit on opening inventory of Tuna Ltd is$600 where the expenses incurred on Income tax is $180and the retained earnings on 1st July was $420.

  4. The closing inventory profit by the company is $21000. The revenue on sale is $4500 where the cost of sale is $4200 and the value of inventory is $300. The expenses on income tax are $90 and the deferred tax on assets is $90.

  5. Current sale on the plant is $15000. The deferred tax on assets in current sale s $300 and the accumulated plant depreciation is $100 the income tax expenses is $30.

  6. Pre-requisition entry of the business merging valuation is $90000 at the beginning of 1st July 2015. The retained earnings by the company is $600 the share capital retained in the current period was$66000 and the reserve on the valuation of the business merging is $18000. The total current share by the company was $90000. Prerequisite acquisition of the company on 30th June 2016 is $90000. The retained earnings of the company were $19650 calculated as $6000+ $ 3150 + $ 10500.

  7. As per Foley and Manova, (2015, p. 119), the accumulated depreciation on the company valuation was 4 30000. The value of the plant was $ 27000, the deferred tax on the liability was $ 900 and the valuation reserve on the combination of the business with Brim Ltd is $2100. He depreciated expenses by the combination of the company was $600 similar to the earnings retained by the company $600. The accumulated depreciation calculated by ⅕ multiplied to $3000 per annum for 2 years. The liability tax was $360 when the income tax expense was $180 and the retained earnings were $180.

3.  Consolidated worksheet of acquisition of Tuna Ltd by Brim Ltd.

The aggregate revenue of the sale by both the company was $ 142500. After the acquisition, the value of the revenue on sale became $25 500. The total cost of sales by the company was $77250before the acquisition which is now $27 300. The rate of the cost of sales is higher than the previous sales cost. Thus the gross profit of the valuation of the combination of the business is $67050 which is lower than the aggregate gross profit of both the company $33600 of tuna Ltd and $316540 of Brim ltd (Foley and Manova, 2015, p. 119).

Conclusion

Corporate financial statements involve the identification of the transactions that are going to maximize the value of the shareholders. This assignment further fosters the need for the shareholders that are to be used for enhancing the return paid to the shareholders. The assignment further focuses on the consolidation journals that are used for enriching the long-term efficiency of Tuna ltd and Brim Limited has been highlighted. The assignment further focuses on the consolidation entries that are required for further implementation of the aforesaid task of merger more effectively.

Bibliography

Cohen, S., Natanzon, A., Veprinsky, A. and He, X., EMC International Co and EMC Corp, 2015. Storage recovery from total cache loss using journal-based replication. U.S. Patent 9,146,878.

Erel, I., Jang, Y. and Weisbach, M.S., 2015. Do acquisitions relieve target firms’ financial constraints?. The Journal of Finance, 70(1), pp.289-328.

Foley, C.F. and Manova, K., 2015. International trade, multinational activity, and corporate finance. economics, 7(1), pp.119-146.

Lee, T.A. and Parker, R.H., 2014. Company financial statements: an essay in business history 1830–1950. In Evolution of Corporate Financial Reporting (RLE Accounting)(pp. 27-51). Routledge.

Lubbe, I., Modack, G. and Watson, A., 2014. Financial accounting GAAP principles. OUP Catalogue.

Meyer, K.E., Ding, Y., Li, J. and Zhang, H., 2018. Overcoming distrust: How state-owned enterprises adapt their foreign entries to institutional pressures abroad. In State-Owned Multinationals (pp. 211-251). Palgrave Macmillan, Cham.

Pickering, M.E., 2017. Postacquisition integration processes in publicly owned professional service companies: Senior professional behaviour and company performance. Journal of Organizational Behavior, 38(7), pp.950-976.

Rocheteau, G., Wright, R. and Zhang, C., 2018. Corporate finance and monetary policy. American Economic Review, 108(4-5), pp.1147-86.

Wu, J., Liu, Q. and Lou, L., 2017. The Effect of Chinese Listed Company Manager’s Inrrational Merger and Acquisition Decision on the Performance. In Proceedings of the Fourth International Forum on Decision Sciences (pp. 787-795). Springer, Singapore.

Yücel, M.G. and Görener, A., 2016. Decision Making for Company Acquisition by ELECTRE Method. International Journal of Supply Chain Management, 5(1), pp.75-83.

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