Fruitcorp Ltd Has Been Negotiating a Merger with a Company

question 19

Multiple Choice

Fruitcorp Ltd has been negotiating a merger with a company that is currently its major supplier.Subsequent to reporting date the merger agreement is finalised.The merger materially affects the size and structure of the new entity and should bring substantial economic benefits to all shareholders.How should this event be reported according to AASB 110?

• A) The size and significance of this event is such that it should be fully reflected in the financial accounts. New group accounts should be prepared to reflect the actual economic entity that exists at the time of completion of the financial reports.
• B) No disclosure is required.
• C) A description of the event, the fact that it occurred after reporting date and its financial effect on the company should be disclosed by way of a note to the accounts.
• D) Disclosure of the event in the Directors' Declaration is required.

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Definitions:

Complementary Inputs

Goods or services that are used together in production and whose use is interconnected, such that an increase in demand for one increases the demand for the other.

Marginal Physical Product

The marginal physical product is the change in output resulting from employing one more unit of a particular input, holding other inputs constant.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to replace more expensive items with cheaper alternatives.

Margin

Margin refers to the difference between the selling price of a good or service and its cost of production, also used to describe profit margin or markup.