Q.1 The Balance sheet of AB Co. and PQ Co. as of 31st March 2021 was as follows. AB co. took over PQ co. for Rs 450000 and paid equity shares for settlement of PC AB Co. took over all the assets and Liabilities of PQ Co. Identify the method of Purchase consideration and explain it and discuss the entries to be passed in AB Company. (10 Marks)
Introduction
There are several different purchase consideration methods that people use. One of the most common is the cost-benefit analysis. While it originates with making purchases, close by are many altered aspects that arise into play. One of the most important of these factors is the purchase consideration method. This refers to how individuals evaluate and compare different products or services before deciding to buy.
To conclude, many other factors can influence purchase consideration. These might include brand reputation, product quality, customer service, and environmental or social impact. For example, someone might choose to buy a product from a company with a good reputation for sustainability, even if it is more expensive than other options.
2 There are various methods used for the valuation of goodwill. However, the selection of a valuation method depends on different business practices adopted by the company. So you are required to discuss commonly used methods for the valuation of goodwill in detail with suitable examples. (10 Marks)
ANS:
Introduction
The premium salaried for the attainment reflects the worth of the developed business’s intangible resources, such as its reputation, customer base, and brand recognition. Therefore, goodwill is the change amid the acquisition worth of a business & the reasonable marketplace worth of its tangible resources.
Valuing goodwill can be complex and requires a thorough understanding of the company’s financial statements, market position, and the industry in which it operates.
Concepts and Applications
Goodwill is an imperceptible strength that signifies the worth of a business’s brand name, client base & other imperceptiblere sources that donate to its capability to produce revenue. The valuation of goodwill is important for financial reporting, taxation, mergers, and acquisitions. There are several commonly used methods for the valuation of goodwill, including:
Income Approach: This method estimates the worth of goodwill by analyzing the upcoming economic benefits that the corporate is predicted to produce. This approach’s most commonly used techniques are discounted cash flow (DCF) and capitalized earnings.
Conclusion
Goodwill can have a significant impact on a business’s balance sheets. Valuing goodwill accurately is essential for companies to understand their overall financial position and make strategic decisions. An accurate valuation can also help companies attract potential investors and secure financing for future growth.
Q.3 Shell Ltd furnishes the following information. Calculate the Value value of closing inventory as of 31st March and the cost of goods sold during March Month Using the FIFO method under a periodic inventory system and explaining the concept of the FIFO Method (5 Marks)
ANS:
Introduction
The FIFO (First-In, First-Out) scheme is a popular account estimate technique used by many companies. It is based on the principle that the 1st items bought or formed are the 1stitems vented or used, and the most recent items are left in inventory.
Concepts and Applications
When using the FIFO (First-In, First-Out) technique for record assessment, you are expected to sell the goods that were bought first.That means that the price of the earliest record items is matched against the revenue from the first goods sold. In other words, the price of the items vended is founded on the price of the earliest units available in the record.
Conclusion
Companies that sell or use perishable goods or items with a limited shelf life benefit from the FIFO method. By selling or using the oldest items first, the companies can avoid spoilage or obsolescence of inventory, reducing the likelihood of inventory losses.
b) Under the Perpetual Inventory system and interpret it. (5 Marks)
ANS:
Introduction
An inventory method called Perpetual Record Administration keeps a real-time record of inventory movements, including purchases, sales, and adjustments. This system provides an up-to-date history of inventory levels.
Concepts and Applications
By using the perpetual inventory system:
1st March: The opening stock on 1st March is 1000 units at a rate of $10 per unit. This means that the value of the opening stock is $10,000 (1000 units x $10 per unit).
5th March: This purchase costs $40,000 (2000 units x $20 per unit).
16th March: This purchase costs $62,500 (2500 units x $25 per unit).
20th March: The cost of goods sold for this sale could be calculated utilizing the weighted average method as follows:
Conclusion
In conclusion, the perpetual inventory system provides accurate and up-to-date inventory levels, purchases, and sales records. By maintaining a continuous history of inventory movements, businesses can track inventory costs and ensure they have the necessary stock to meet customer demand.
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