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Finance

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Table of Contents

Part 1. 2

Introduction. 2

Main Context 2

Conclusion. 3

Part 2. 3

Question 1. 3

Question 2. 4

References. 8

Part 1

Introduction

The United States in the year 2007 was suffered from the crises which started due to the fluctuations in the mortgage lending markets. The Federal Home Loan Mortgage Corporation stated that they would be not going to buy high-risk mortgages (Savona, Oldani & Kirton, 2016). The New Century Financial Corporation, a well-known mortgage lender was bankrupted. The fall of the large financial institutions in the year 2008 of United States became the major reason for the occurrence of the financial crisis. The economies of many countries were being affected by this crisis.     

Main Context

The economies of the European Union were being affected by the financial crisis. The European Union took a step to strengthen its policy by coordinating the member states.  A legislation pack named "Six-pack" was being adopted by the European Parliament on the basis of the economic governance (Berlatsky, 2010). The “Stability growth and Pact stronger was introduced by the package and focused on monitoring the deficits in the budget set by the member states. "The two-pack", a new package was introduced which consists of two objectives. The objectives were developing budgetary coordination and improving economic and financial reconnaissance by enhancing inspection of the member states (Barnett, 2015).

The financial sectors were not able to respond to the debt crisis which led to the financial crisis. The European Union for avoiding such incidents in the future established new authorities for supervising the financial institutions. The institutions include the European Banking Authority (EBA), the European Insurance and Occupational Pension Authority (EIOPA), the European Systematic Risk Board for the Macro-prudential Supervision (SRBMS) and the European Securities and Markets Authority (ESMA) (Hofmann, Rowe & Türk, 2013). The financial institutions were responsible for regulating the financial market in an appropriate manner.   

The council made efforts for managing the financial markets by adopting key pillars such asthe  Single Supervisory Mechanism for banks and Capital Requirements Directive to set a standard requirement for the financial institutions. The economic stability is very much important for the development of a country. In the year 2010,the  European Union set a common goal for boosting the growth of the economy (Lannoo, 2011). “Europe 2020 strategy” was implemented for delivering smart, sustainable and inclusive growth. European Union also took initiative for growth and jobs.

European Union was more competitive in comparison to itsneighborss.  Furthermore,the  council also enter into n aagreement for increasing the employment for young people through the Youth Empowerment Programme of European Union (Olsson, 2014). The European Union had promised to provide jobs and ensurethe  growth of the economy. The new structure for the government was used for coordinating the economic and fiscal policy. However, the European Union had made adequate efforts for dealing with the debt crisis.    

Conclusion

The supervisory and banking structures at the European Union level depicted that they have responded adequately to the debt crisis. The goal of the Union was to ensure that the debt crisis would not occur inthe  future. For the European Union, the growth of the supervisory structured and banking unions would remain the key agenda (Sum, 2016).   

Part 2

Question 1

Year

Project X (Rs.)

Project Y (Rs.)

0

-70000

-70000

1

10,000

50,000

2

20,000

40,000

3

30,000

20,000

4

45,000

10,000

5

60,000

10,000

     
     

Net present value

46,150

36,578

Profitability index

1.659288052

1.522543436

The internall rate of return

27%

38%

Question 2

1.The capital acquired by Nick Ltd is $270000.

The identifiable assets of Wing Ltd are $345000.

The liabilities of Wing Ltd are $120000.

The net identifiable assets = Identifiable assets-liabilities

                                                = $345000-$120000

                                                = $225000

Goodwill = $270000-$225000

                  = $45000

2. Journal entry in the book of Nick Ltd as on 1 July 2011

Date

Particular

Debit ($)

Credit ($)

1 July 2011

Share capital

270000

 

 

Wing Ltd

 

270000

Journal entry in the books of Wing Ltd as on 1 July 2011

Date

Particular

Debit ($)

Credit ($)

1 July 2011

Nick Ltd

270000

 

 

Share capital

 

270000

3.Consolidated worksheet

 

Nick Ltd ($)

Wing Ltd ($)

Total

Dr

Cr

Consolidated

Shareholders’ equity

           

Share capital

4,50,000

1,80,000

6,30,000

180000

 

450000

General reserve

45,000

25,000

70,000

25000

 

45000

Retained earnings

1,40,000

20,000

1,60,000

20000

 

140000

Total shareholders’ equity

6,35,000

2,25,000

8,60,000

   

635000

             

Assets

           

Current assets

           

Goodwill

     

45000

 

45000

Cash at Bank

50,000

30,000

80,000

   

80000

Accounts Receivable

20,000

10,000

30,000

   

30000

Inventory

100000

25000

1,25,000

   

125000

             

Non-current assets

           

Investment in Wing Ltd

2,70,000

 

2,70,000

 

2,70,000

 

Land

2,50,000

2,00,000

4,50,000

   

450000

Plant & Equipment

100000

80000

1,80,000

   

180000

             

Total assets

790000

345000

1135000

   

910000

             

Liabilities

           

Current liabilities

           

Accounts Payable

40,000

10,000

50,000

   

50000

Interest Payable

15000

8000

23,000

   

23000

             

Non-current liabilities

           

Bank loan

1,00,000

1,02,000

2,02,000

   

202000

Total liabilities

1,55,000

1,20,000

2,75,000

   

275000

Note:

Goodwill= $45000

Net asset value of Wing Ltd= $225000

4.Consolidated statement of financial position as at 1 July 2011

 

Nick Ltd ($)

Wing Ltd ($)

Total

Dr

Cr

Consolidated

Shareholders’ equity

           

Share capital

4,50,000

1,80,000

6,30,000

180000

 

450000

General reserve

45,000

25,000

70,000

25000

 

45000

Retained earnings

1,40,000

20,000

1,60,000

20000

 

140000

Total shareholders’ equity

6,35,000

2,25,000

8,60,000

   

635000

             

Assets

           

Current assets

           

Goodwill

     

45000

 

45000

Cash at Bank

50,000

30,000

80,000

   

80000

Accounts Receivable

20,000

10,000

30,000

   

30000

Inventory

100000

25000

1,25,000

   

125000

             

Non-current assets

           

Investment in Wing Ltd

2,70,000

 

2,70,000

 

2,70,000

 

Land

2,50,000

2,00,000

4,50,000

   

450000

Plant & Equipment

100000

80000

1,80,000

   

180000

             

Total assets

790000

345000

1135000

   

910000

             

Liabilities

           

Current liabilities

           

Accounts Payable

40,000

10,000

50,000

   

50000

Interest Payable

15000

8000

23,000

   

23000

             

Non-current liabilities

           

Bank loan

1,00,000

1,02,000

2,02,000

   

202000

Total liabilities

1,55,000

1,20,000

2,75,000

   

275000

Net assets

6,35,000

2,25,000

8,60,000

   

635000

References
  • Barnett, J. (2015). Global Financial Crisis. Hauppauge: Nova Science Publishers, Inc.
  • Berlatsky, N. (2010). The global financial crisis. Detroit, MI: Greenhaven Press/Gale Cengage Learning.
  • Hofmann, H., Rowe, G., & Türk, A. (2013). Administrative law and policy of the European Union. Oxford: Oxford University Press.
  • Holton, R. (2012). Global finance. London: Routledge.
  • Lannoo, K. (2011). The EU’s response to the financial crisis – A mid-term review. Retrieved from https://www.files.ethz.ch/isn/128683/PB241_K_Lannoo_.pdf
  • Olsson, S. (2014). Crisis Management in the European Union. Berlin: Springer Berlin.
  • Savona, P., Oldani, C., & Kirton, J. (2016). Global Financial Crisis. Florence: Taylor and Francis.
  • Sum, K. (2016). Post-Crisis Banking Regulation in the European Union. Cham: Springer International Publishing.
  • Wolf, M. (2010). Fixing global finance. Baltimore, Md.: Johns Hopkins University Press.Parliament

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