Advanced Financial Accounting

Access the Nestlé home web page and download: Corporate Governance & Compensation Reports, Financial Statements for 2021 Note: this file is available at: https://www.nestle.com/sites/default/files/2022-03/2021-corp-governance-compensation-financial-statements-en.pdf Answer the following questions: 1) Explain in details how does Nestlé Company account for goodwill and other intangible assets? Support your answer by writing the page number (s) in annual report. (10 Marks) 2) State the amounts of goodwill and intangible assets as it appears in the annual report for 2020 and 2021. Support your answer by writing the page number in the annual report. (5 Marks) 3) Does Nestlé Company make any acquisitions during 2021? How do these acquisitions affect the goodwill? Support your answer by writing the page number in annual report. (5 Marks) 4) From 2021 annual report: 1. Determine the total amount of non-controlling interest in 2020 and 2021 2. State in which statement it is disclosed and in which section. 3. State the amount of controlling interest share and non-controlling interest share in Nestlé Company’s profit and dividends for 2020 and 2021 4. Nestlé Company prepared its consolidated financial statements in accordance with the International Financial Reporting Standards (“IFRS”), as mentioned in its annual report. Assuming that it was not mentioned in the annual report that the company is following IFRS; provide evidence from annual report (related to course subjects studied) that indicate that the company is following IFRS and not following GAAP? 5. State the amounts of impairment losses of goodwill and intangible assets in 2021. 6. Which cash generating unit suffered an impairment loss related to goodwill in 2021? 7. What were the underlying business reasons that required Nestlé to record a goodwill impairment in 2021 and what are the implications of that on Nestlé Company? 8. How did Nestlé reflect the goodwill impairment in its income statement and cash flow statement? 9. Which method did Nestlé use in preparing its cash flow statement? Provide a proof for your answer from the annual report. Write your answer in the space provided in the following table: Answer Page(s) in Annual report 1- Total non-controlling interest 2020 and 2021 2- In which statement it is disclosed and in which section? 3- - Controlling interest share - Non-controlling interest share in Nestlé Company’s profit and dividends for 2020 and 2021 4- Evidence from annual report (related to course subjects studied) that indicate that the company is following IFRS not GAAP 5- Amounts of goodwill and other intangible assets impairment losses 2020 and 2021 6- cash generating unit/division/segment suffered an impairment loss of goodwill in 2021 7- What were the underlying business reasons that required Nestlé to record a goodwill impairment in 2021 and what are the implications of that on Nestlé Company? 8- How did Nestlé reflect the goodwill impairment in its income statement and cash flow statement? 9- Which method did Nestlé use in preparing its cash flow statement? Prove your answer. PART B 1) Provide examples from the real world for successful and unsuccessful mergers and acquisitions cases in recent years and state the specific reasons behind their success or failure. Notes:  Do not provide general reasons behind success or failure [as it will not be considered] Provide only one example for each case.  Examples dated before 2003 will not be considered. 2) There are differences between the IFRS and GAAP (after FASB issued ASU 2020-04 to simplify the accounting for goodwill impairment) regarding the following: - Assignment/allocation of goodwill. (i.e., The levels at which goodwill is assigned /allocated) - Impairment of goodwill and test(s) applied and its steps (i.e., Methods of determining impairment of goodwill) - How impairment loss is recognized and allocated. (i.e., impairment loss[charge] calculation and allocation) - Amortization and impairment of intangible assets other than goodwill Discuss the accounting treatment of the preceding points under IFRS only. (Comparison is not required) 3) What is the difference between upstream sale of inventory and a downstream sale? Why is it important to know the direction of sale (Upstream/Downstream) when preparing the consolidated financial statements? (5 Marks) PART C 1) On January 2, 2021, Paro Corporation acquired 70 percent interest in Saro Corporation for $2,800,000. Paro's capital stock and retained earnings were $7,200,000 and $3,200,000 respectively, while Saro's capital stock and retained earnings were $2,000,000 and $400,000 respectively. Net income and dividends for 2021 for the affiliated companies were as follows: (in thousands): Paro Saro Net income $1,200 $360 Dividends declared 720 200 Dividends payable December 31, 2021 360 100 Required: Calculate the amounts that should appear in the consolidated balance sheet on December 31, 2021 for the following items (Provide explanation as needed): a. Capital stock c. Noncontrolling interest b. Goodwill d. Dividends payable. (10 Marks) 2) At December 31, 2021, The Comparative income statements of Polo Corporation and Solo Corporation show the following (in thousands): Polo Solo Sales $3,200 $1,300 Income from Solo 384 Cost of goods sold 1,800 400 Operating expenses 800 400 Additional information 1. Polo Corporation acquired 80 percent of Solo for $1,600,000 on January 1, 2019, when Solo’s stockholders’ equity at book value was $1,400,000. 2. The excess of the cost Polo’s investment in Solo over book value acquired was allocated $60,000 to undervalued inventories that were sold in 2019, $80,000 to undervalued equipment with a four-year remaining useful life, and the remainder to goodwill. Required: Prepare a consolidated income statement for Polo Corporation and Subsidiary for the year ended December 31, 2021. Show all your calculations. (Working paper is not required).