Anchorage Retail Company December'09 part c

AAyu7y ago

Hi Sir, I was confused why the debt of Anchorage is not considered when calculating equity beta post acquisition. I have read your previous answer regarding the similar question that it's because there is no mention of them taking over the existing debt" But in the consolidation in accounting, I believe we have learnt that the whole liabilities of acquired will be taken over to acquirer if there's no specific mention(silent). Is it a difference between accounting standards and financial management? Then, is it correct to dismiss acquiree's liability when calculating post acquisition beta? Your reply would be much appreciated.

John MoffatTutor7y ago#1

Accounting standards are of no relevance whatsoever to financial management!! Also, you refer to consolidations. This is nothing to do with consolidations - here, one company is buying another company and only one company will exist after the acquisition. Consolidations occur when there remain two separate companies, but one company controls the other. (I trust that have found this question in a Revision Kit and that you are not looking at the original exam question? Part (b) of the original exam question (EVA) is no longer in the syllabus, and has therefore been changed in Revision Kits).

AAyu7y ago#2

Thanks for your reply. It helped me understand.

John MoffatTutor7y ago#3

You are welcome :-)

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