Question

Assume that you are the CEO of one of the selected companies. You are responsible for gaining control over the other company. You have three (3) choices, any of which you believe that the Board of Directors will support.

• Choice 1: Your company acquires 35% of the voting stock of the target company.
• Choice 2: Your company acquires 51% of the voting stock of the target company.
• Choice 3: Your company acquires 100% of the voting stock of the target company.

Write a four to five (4-5) page paper in which you:

1. Provide a brief background introduction on both the company that you are working for and the company that you are responsible for gaining control over.
2. Specify the overall manner in which the acquisition fits into your company’s strategic direction. Next, identify at least three (3) possible synergies that could occur as a result of the proposed acquisition.
3. Select two (2) out of the three (3) choices provided in the above scenario and analyze the key accounting requirements for each of the two (2) choices that you selected. Next, suggest one (1) strategy with which you would prepare the financial statements for your company after the acquisition under each of the two (2) choices.
4. Select the choice that you consider to be the most advantageous to your company. Explain to the Board of Directors at least three (3) reasons why your selected choice is the most advantageous to the company.
5. Assume that two (2) years after the acquisition, your Board of Directors wants to offer the shares back to the public in hopes of making a large profit. Assume that in each of the two (2) years your company and the target company have had the same reported net income as they did in the year of acquisition. Determine the type of value (i.e., cost of fair value) that you would use to report the subsidiary’s net asset in the subsidiary’s financial statements, which the company will distribute to the public with the public offering. Provide support for your rationale.    

Answer 1

PRESENTATION In the given circumstance i have expected that i am CEO of Wal-Mart and the other organization for which i am incharge of picking up control is JC Penney. A brief back ground of wal mart and JC penney is given here under. WAL MART STORES INC Wal mart is a US based multinational retail organization working chain of markdown departmental stores and outlet center. The organziation was established on July 2 1962 by sam walton in rogers , Arkansas US. The organization has more than 11,500 stores in 28 nations. It is the worlds biggest organization by income. Walton family claims over 52% loads of the organization. Greogery B Penner is the director and Doug McMillionis the president and CEO of the organization. The primary results of the organization are hypermarkets, markets, money and convey , attire and footwear , e commerce and so forth. The income of the organization remained at $485.651 billion for the year 2014 with a net wage of $16.363 billion. Add up to resources of the organization are $203.706 billion. The motto of the organization is "Spare Money.Live better". JC PENNEY COMPANY INC JC Penney is a US based retail organization working mid go departmental stores. The organization was established by james cash penney and william henry McManus on April 14 1902 at kemmerer Wyoming US. The US organization works around 1050 departmental stores in 49 US urban communities. The organzation is headquartered at 6501 Legacy drive Plano Texas United states. The aggregate resources of the organization are $10.404 billion.

HOW ACQUISTION FITS WAL-MART STRATEGIC DIRECTION JC Penney is 113 year old organization having more than 1050 stores in various urban areas of US and the matter of the organziation is bound in US. The organization spends significant time in moderate size departmentals tores and its supervisors are much acquianted with the heartbeat of US Clients. The work constrain of 114,000 representatives of JC Penney is a maojor quality for the organization .The organization is bringing about misfortunes from recent years and furthermore confronted a decrease in deal in year 2013. Considering this defeat in deal pattern and misfortunes supported the procurement cost can be bartered with the administration of JC Penney. The income of the organziation is $12.527 billion which will additionally add to the incomes of wal-mart. Three conceivable Synergies from acquistion "The idea of cooperative energies is about making included an incentive by sharing assets and procure benefits that generally would not have been conceivable to accomplish, or conceivable to accomplish yet at a higher cost (December 2011). Cooperative energies allude to the additional esteem that one organization can make from the procurement. In the event that the acquirer organization is required to pay a sensible cost for the procurement that a large portion of acquistions are not ready to deliver collaborations as they expect at the season of declaration of merger in view of overestimation of cooperative energies.

Fetched energies : These allude that capacity of the obtaining organization to diminishing expense by uniting operations. The different wellsprings of cost cooperative energies are: Decrease in headcount Destroy additional offices • Decrease in overheads Increment in dealing power with provider Income synergies : These allude to the ability to deal increasingly or increment costs thus of securing. Different wellsprings of income collaborations are: Sharing of dispersion channels Access to another prepared market Diminished rivalry Offering of complimentary items Operational synergies: These allude to the adaptabilty and straightforwardness in operations with lessening cost.

DETERMINATION OF CHOICES In the given situation i will choose decision 2 : Your organization secures 51% of the voting load of the objective organziation and Choice 3: Your organization gains 100% of the voting supply of the objective organization. KEY BOOK-KEEPING REQUIREMENTS AND STRATEGY For both, decision 2 and decision 3, the securing organization i.e wal-mart will be dealt with as parent organization and those procured organization , ie JC Penny will be dealt with as its auxiliary. IAS 27.4 requires readiness of united monetary proclamations as a gathering introduced as those of a solitary financial element. According to IAS 27.13 the control is assumed when parent organization secures the greater part of the voting privileges of the element. The system for arrangement of records will be that solidified budgetary proclamations will be set up by passing combining and wiping out passages . IFRS 10 requires the parent organization to show united money related articulations. It likewise characterizes the way of applying the guideline of control to discover that if a speculator controls an investee and thus should combine the investee. STRATEGIES FOR ACCOUNTING FOR INVESTMENT IN EQUITY The different strategies for representing an interest in value shares of another organization are : Reasonable value method : This strategy is for the most part utilized when the contributing organization procures a little rate of value in investee. example 20% and the contributing organization cant influence the operations of the investee's operations widely.

Combination of Financial statements : It is utilized when the responsibilty for speculator organization surpasses over half of voting supplies of the association. In this technique one arrangement of money related proclamations is readied. Value method : This technique is utilized when the financial specialist organization has the capacity to impact the operations of the investee company extensively. It is for the most part utilized when the possession is between 20% to half. MOST ADVANTAGEOUS CHOICE As i would see it the most profitable decision will be decision 2 i.e procuring 51% of the voting stock supplies of JC Penny. The explanations behind my decision are given below- Obtaining of 100% voting stock will bring full control over the auxiliary yet then again it will require colossal assets. A similar control should be possible by securing 51% voting stocks.Further, investigating the need, the share of voting stocks can be expanded. Obtaining 51% of the coting rights will open to less hazard when contrasted with 100%. This decision will likewise fill in as division of hazard for the organization with different stockholders.On the off chance that if the misfortunes brought about bt JC Penney will expand , misfortune for wal- mart will likewise be less. In future if there is further need of capital it can be procured by issuing offers for the auxuliary organization.

TECHNIQUE FOR VALUATION OF ASSETS The technique for valuation of assets that i will use with the end goal of open offering is market esteem strategy. In this strategy the benefits of the organziation are esteemed at the market cost. This strategy will be helpful as JC Penney is having most extreme of its benefits as general stores and foundations and their reasonable worth can be resolved effortlessly. The other explanation for utilizing market esteem strategy is that following two years the estimation of the properties claimed by JC Penney will essentially increment and it will be a decent fascination for the overall population to put resources into the shares.