a) Benefits for Clancy and Genesis:
(i) The success acquisition will bring Clancy a diverse and attractive portfolio of Australian exploration projects. Consequently, Clancy would hold significantly greater exploration properties than it presently holds. In addition, the Offer Document states that Petersons Securities Limited is interested in completing a capital raising to sufficiently support the Company if the Clancy is successful in the Genesis acquisition. This may assist in raising funds vital to ensure the success of the Plavica Project in particular.
(ii) Genesis Shareholders will benefit from being part of a larger ASX listed company with an increased capacity to develop projects. With the support from Clancy’s strong corporate governance, management capability, Genesis might get access to substantial funding to ensure the project’s success. Besides, for Genesis, Clancy is a large corporation and embraces plenty of resources. The exploration tenements of Clancy and Genesis are complementary. The diverse portfolio of tenements across numerous geographic regions is expected to reduce operational risks.
b) As mentioned, Patersons Securities Limited is interest in investing the new emerged entity. It is believed that this support and increased scale will also attract more investments. Besides, the share capital of both company should be included in the Clancy 30 June 2013 consolidated financial statement, therefore the share capital account will be predicted to show an increase.
On the other hand, the merged company seems to have the management and financial capacity to make effective progress with many projects in Genesis, especially with the Plavica Project. With successfully exploration and evaluation, these projects will result in an increase in PPE account, thus, an increase in asset account in the Clancy 30 June 2013 consolidated financial statement.
a) AASB 3.32 states that goodwill or gain on acquisition arises when the consideration for a business combination does not equal the fair value of identifiable net assets acquired and contingent liabilities assumed. From statistics abstract from the Offer Document, the amount of consideration is definitely exceeds the fair value of identifiable net assets, this positive difference would bring goodwill to necessary.
According to the provided article, the fair value of Genesis’s shares based on the worth of an ore deposit seems to be overestimated. This fair value issue will affect the amount of goodwill recognised at acquisition, that is, the amount of goodwill is highly likely to be understated. In the issue, the related consolidation adjusting journal entries in relation to fair value adjustment at acquisition date and at the first balance date after acquisition would be needed. Besides, the consolidation adjustments to DTA or DTL are affected. (AASB 112.19) Subsequently, consolidation worksheet adjusting entries neet to be repeated in next period consolidation. (Neal Arthur 2012, P52) In addition, goodwill must be tested at least annually for impairment in accordance with the requirements of AASB 136.
(i) Clancy and Genesis adopt different accounting policies in respect of exploration and evaluation expenditure in the statement of comprehensive income, Clancy recognised it as an expenditure while the Genesis has been to capitalise as assets on an area of interests basis.AASB127.24 requires the consolidated financial report to be prepared using uniform accounting policies for similar transactions and other events in similar circumstances. On a reasonable basis to produce and meaningful forecast financial information to financial statement users, post acquisition combined Clancy Group is to be advised to recognise exploration and evaluation costs as an expense in accordance with the accounting policies of Clancy.
(ii) Referring to Clancy’s and separately Genesis’s financial statements, both entities have suffered a loss, especially…