Global Corporate Accounting - Question 1

a) NPV =(13842.3) as calculated below in the working notes, indicates that Make Up Ltd should not manufacture the face wash. This is not going to be positive project and if directors accepts this project they will be decreasing the shareholder’s wealth, by putting the cash into an negative or highly risky project.

Working Notes:

Working:
WN 1:Tax benefit on capital Allowance	1	2	3	4	5
Asset balance(A)	650000	520000	416000	332800
Capital allowance(B=A 020%)	130000	104000	83200	90800
Tax benefit(C=B030%)	39000	31200	24960	27240
WN 2: Working CapitaI Cash Flows
	0	1	2	3	4
WC required		31500	39500	47500	55500
WC Cash Flow	-31500	-8000	-8000	-8000	55500

Year	0	1	2	3	4	5
No.of un its (i)		15000	15300	15606	15918
Selling price per un it( ii)	20.00	21.00	22.05	22.49	22.94
Material cost(i i i)	2	2.100	2.205	2.300	2.430
Labour cost( iv)	5	5.250	5.125	5.788	6.070
Sales{A= *iii)**		315000	337365	350994.5	365174.7
Direct Materials{B=i*i i i)		-31500	-33736.5	-36131.8	-38697.1
Direct Labour{C=i*iv)		-78750	-84341.3	-90329.5	-96742.9
Fixed Overhead{D)		-40000	-40000	-40000	-40000
Taxable Cash Flow{E=A+B+C+D)		164750	179287.3	184533.3	189734.7
Tax @ 30%{F=E*30%)			-49425	-53786.2	-55360	-56920.4
Tax benefit its on Capital a allowance{G=WN.1)			39000	31200	24960	27240
Working Capital Cash Flow{H=WN.2)	-31500	-8000	-8000	-8000	55500
Initial investment{I) Scrap Value(J)	-650000				242000
Net Cash Flow{K=E+F+G+H+l++J)	-681500	156750	160862	153947	456835	-29680.4
Df @ l1%{L)	1	0.9009	0.8116	0.73119	0.658731	0.593421
PV @ 11%{M=K *L)	-681500	141216	130556	112565	300931.1788	-17613
NPV{Sum of PV) -13842.3	-13845.3

b) Payback period is useful as follows:-

Simplicity – It is extremely simple concept to calculate and understand. It is first thing to know that by when our investment will be recovered so quite easy to predict the profitability, payback period method can even be used without a calculator or electronic mode.
Focus on Risk: This analysis is primarily focuses on how quickly the money can be recovered for an investment. which is nothing else but measurement of risk. So if to projects need to be compared anyone will choose the one will shorter payback period to reduce the risk.
Liquidity : Payback period method of analysis favours with shorter payback period which tends to result in investment with higher degree of liquidity.

c) In a decision making process it is financial analysis is a important step and the factors which are key for decision making other than financial are :-

Social – There are various objectives linked to doing things which are ethical and environmentally important. So, if an investment which might be profitable but not ethical or environmentally and socially. Illegal projects howsoever profitable it may be should not be accepted.

Personal Satisfaction - Any projects which aims to satisfy the personal ambition or wish of an entrepreneur even if NPV is negative will be given preference to get the desired output.

Challenge and Control: - Sometimes entrepreneur select a project to accept a challenge or take high risk project to prove and control the things may be sometimes to capture the market A company launch a project which may not be successful initial years of its operation of commencement. But the long term future is rewarding.

Independence- It relates to working for oneself , that is a entrepreneur thinks that they want to perform and take decisions independently they might choose a project without giving much importance to its viability.

Global Corporate Accounting - Question 2

a) And b) Answers

Consolidated Balance sheet as on 30^th June 2020

	Fx rate
	01-Jul	0.714285714
	30-Jun	0.757575758
	Kellar	Kellar	Eviar
Assets/liabilities	Z'000	E'000	Euro 000	Goodwill acquisition accounting (E000)	NCI allocation for profit made post acquisition (E000)	Consolidated figure (E000)

Non current assets
Property, plant and equipment	16805	12,731.06	31058	-	-	43,789.06
Investment in Kellar at cost	-		13650	-13650	-	0.00
Goodwill				8199.685	-	8,199.69
Total non-current assets	16805.00	12731.06	44708.00	-5450.32	0.00	51988.75

Current assets	5255	3,981.06	7875	-	-	11,856.06

Total assets	22060.00	16712.12	52583.00			63844.81

Share capital	3920	2,969.70	7875	-2289.37	-	8,555.33
Retained earnings	7890	5,977.27	29138	-4608.235	-840.45	29,666.59

Total shareholder's fund	11810	8946.97	37013.00	-6897.61	-840.45	38221.92
Non-controlling interest	0		0	1447.29	840.45	2287.74
Total equity	11810	8946.97	37013	-5450.315	0	40509.65

Current liabilities	10250	7,765.15	15570	-	-	23,335.15

Total equity and liabilities	11,500	7,130	28,175	-2,745.3	-	63844.81

Computation of goodwill on 01July-	Ziare 000	Fx rate	Euro 000
Consideration given			13650

Less:
Share capital acquired (65%) of Keller	2548	0.71	1809.08
Reserves of Kellor	5128.5	0.71	3641.235
Total net assets acquired	7676.5		5450.315

Goodwill on acquisition			8199.685

Following JV's shall be posted in Consolidation-

Share capital of Kellar A/c---Dr	1809.08
Retained earnings A/c--- Dr	3641.235
Goodwill A/c---Dr.	8199.685
To Investments A/c		13,650.00
(Being goodwill accounted)

Share capital of KellarA/c---Dr	480.29
Retained earnings A/c--- Dr	967
To Non Controlling Interest A/c		1447.29
(Being NCI accounted on 01 July)
Computation of Non Controlling Interest for profit made by kellar post acquisition-
Computation of NCI for profit made post 01 July to 30 June 2020-

Profit made- zaire	3170000
Fx rate	0.7575
Profit made- Euro	2401275
NCI share	35%
NCI- Euro	840446.25

Note-

Share capital of Kellar is converted at historical value i.e. 01 July
Reserve as on 01 July has been converted at July 01 Rate
Income statement and balance sheet is converted at closing rate of 30 June, 2020

c) Fair value of accounting is the concept of using current market value of the various tangible and intangible assets under the IFRS. IFRS is an international accounting standard which is getting popular because of its practical and realistic approach towards accounting treatments of transactions. Fair Value is estimated price of an asset in which it can be sold to a third party.

Fair Value adjustments are necessary while calculating goodwill to know the real worth of investment to adjust the investment to that extent, According to IAS 21, effects of changes in Foreign Exchange rates, treatment of goodwill is considered as an assets and re-translated at each reporting date. And accordingly the exchange gain and loss on goodwill valuation is also translated at each reporting date.. So when a company prepares its consolidated statement it is very much expected to show the real value of the investments and true value of its assets and liabilities. Goodwill is an intangible asset and it is very important to book it to its real value i.e current value. Generally, there are two approaches adopted to ascertain fair value of an asset

Market Approach
Income approach

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