Advanced Corporate Reporting: Consolidated Financial Statements, Fair Value Accounting, Financial Statement Analysis, IAS 28, IFRS 5

This article covers the topics of consolidated financial statements, fair value accounting, financial statement analysis, IAS 28, and IFRS 5. It includes calculations and working notes for better understanding. The article discusses the advantages and disadvantages of fair value accounting, the importance of financial statements for debt providers and equity investors, and the recognition of investments in consolidated financial statements. It also covers the difference between historical cost and value in use, and the accounting treatment of non-current assets held for sale.

Advanced corporate reporting

TABLE OF CONTENTS
QUESTION: 1.................................................................................................................................3
QUESTION 4...................................................................................................................................4
A..................................................................................................................................................4
B..................................................................................................................................................5
C..................................................................................................................................................5
QUESTION 5...................................................................................................................................5
A..................................................................................................................................................5
B..................................................................................................................................................6
C..................................................................................................................................................6
REFERENCES................................................................................................................................8

QUESTION: 1
Consolidated statement of financial position
Particulars Amount
Assets
Non – current assets
Property Plant and equipment [718750 + (350000 + 35000 – 7000)] £1096750
Goodwill £72900
Current Assets
Inventories [84000 + 52360 – 3600] £132760
Trade receivables [56250 + 38500] £94750
Cash and cash equivalents [11800 + 9940] £21740
Total assets £1418900
Equity and liabilities
Ordinary shares £625000
Retained earnings £127910
Non – controlling interest £128810
Long term liabilities 192500 + 11200 £203700
Current liabilities
Trade payables 64300 + 49280 £113580
Other current liabilities 207400 + 16520 £223920
Total equity and liabilities £1418900
Working Notes:
1. Calculation of net assets of Court Plc. on the date of reporting
Particulars At acquisition on 1st
April 2019
On reporting date as
at 31st March 2021
Post – acquisition
Equity Shares £280000 £280000 -
Retained earnings £31500 £71400 £39900
Building: Fair value
adjustment (less
Depriciation)
£35000 35000 – 3500 * 2
(35000/10) = 28000
(7000)
Fair value of the net
assets
£346500 £379400 £32900
2. Calculation of Goodwill
Goodwill = Consideration provided by Tennis Plc. + Fair value of Non – controlling interest at
acquisition – net assets at acquisition of Court Plc. = 310000 + 116000 – 346500 = 79500.
Goodwill to be shown in consolidated financial statement as at 31st March 2021 = 79500 – 6600
= 72900.

3. Calculation of Non – controlling interest
= Non – Controlling interest at acquisition + 30% Share of post – Acquisition profit – 30% Share
of Impaired goodwill = 116000 + 9870 (30% of 32900) – 1980 (30% of 6600) = 127850
4. Calculation of retained earnings of Tennis Plc.
Retained earnings on the date of acquisition + 70% of the post – acquisition profit – 70 of
goodwill impaired – unrealized profit = 114000 + 23030 (70% of 32900) – 4620 (70% of
6600) – (22500 * 80% * 20%) = 114000 + 23030 – 4620 – 3600 = 128810.
QUESTION 4
A
With the analysis of the different articles it was evaluated that fair value accounting is a
practice which assist business in measuring the asset and liabilities of the company at current
market value. For the business it is necessary that it implement the fair value principle at time of
analysing and evaluating the value of asset and liabilities (Seifzadeh and et.al., 2020). With the
analysis of different studies, it was evaluated that major benefit of using fair value system is that
it provides accurate valuation of the asset and liabilities of the company. the reason behind this
fact is that it records the asset and liabilities at market value. On the other hand, another benefit
is that it outlines a fair and true income of the business. the reason underlying this fact is that it
does not focus on book value and because of this the actual position of company is being
identified.
On the contradictory note, the major disadvantage of using fair value accounting is that
this can reduce the satisfaction of the investor. This is pertaining to the fact that many a times the
investor does not analyse the fair value of the company and rather prefer to analyse book value.
Hence, this may sometimes provide a negative impact over the working of the company. along
with this another drawback is that this method results in losing the historical cost. The reason
underlying this fact is that historical accuracy of the data need to be maintained.
The major impact of fair value accounting on analyst forecast accuracy is that fair value
method will definitely provide the actual information relating to all asset and liabilities. Hence,
this will provide fair and true picture of the company and its operations (Rengganis, 2019).

B
As per the IFRS 9 that is financial instruments, the Power plc will be measuring and recognising
the transaction on the basis of value of £950000. As per the IFRS 9 at time of hedging the risk,
forward contract is recorded at the price it is finalised and not at the current spot rate. Hence, in
the present case of company the forward will be recorded at the value of 950000 only and not at
any other rate.
C
2021 2022
EPS 2.6 2.99
DPS 1.25 1.25
p 20
g 0.09
return on equity = EPS / Book
equity
0.13 0.1495
residual income
formula
(EPS - Rate of return) * book
value
residual income 50.2 58
Thus, this the help of the above analysis it is clear that Bat plc is worth more or less than the
book value which is based on the forecasted return on equity. Thus, with the above calculation it
was evaluated that return on equity based on book value is far less than the future estimated
value.
QUESTION 5
A
the financial statement need to be prepared by business in order to assess the profitability of the
company. the reason behind this fact is that financial statements outline each and every

information which is helpful for business and other stakeholders to take effective decision. As
per the views of Ghosh, Liang and Petrova, (2020) the financial statement is used by debt
providers in order to analyse the risk of lending the money to the company. the reason underling
this fact is that with help of financial statement debt providers can assess the way how company
is repaying its debt. In addition to this, investor can also assess the credit worthiness of the
company by analysing the financial statements of company. On the other hand, van Zijl and
Hewlett (2021) argued that the equity investors also need to analyse and assess the financial
statements. The reason underlying this fact is that at time of investing the company they will
assess the return which is being provided to equity shareholders. This information can also be
analysed with help of financial statement analysis only. Along with this, equity investors need to
analyse the revenue, cost and expenses of the company. Hence, both the debt provider and equity
investors requires financial statements to meet their requirement and necessary information.
B
As per the IAS 28, the value of investment recognized in the consolidated financial statement of
Road Plc would be equivalent to the amount paid in the form of consideration to the subsidiary
company towards acquiring the shareholding in it. In the present case the value of investment
would be 2350000, which the Road Plc. has paid to Bridge Plc. for acquiring 35% of its ordinary
shares.
For calculating the inventory to be shown in the consolidated financial statement, the amount of
inventory would be equivalent to the unsold inventory remain with the Road Plc. at cost.
Profit earned by Bridge Plc. on transferring inventory to Road Plc. = 650000 – 520000 = 130000.
% of profit = 130000 / 520000 *100 = 25%.
Inventory to be shown in the consolidated financial statement
= 650000 * 85% * 75% (at cost) = 552500 * 75% = 414375.
C
i
With respect to 2018 IASB Conceptual Framework it was analysed that there is a difference
between the historical cost and value in use. The major difference is that the historical cost is the
measure of value which is records the asset on the original cost. The original cost here refers to

as the cost at which the asset was acquired. On the other hand, value in use if the net present
value of the cash flow. These are the other benefits which the asset of the company generates and
can also be referred to as the discounted value of future attributable cash flows.
ii
if the asset is highly probable of being disposed management must be committed to plan the sale
of asset. Thus, for accounting this sale firstly the buyer will be identified and the asset will be
marketed for sale at reasonable current fair value. Also, the sale is expected to be completed
within the time frame of 1 year and it will be recorded and accounted for on basis of fair value
method only. Hence, in accordance to ‘IFRS 5, non-current asset held for sale and discounted
operations’ it is mentioned to account the non- current asset on fair value method only (Summary
of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, 2021).

REFERENCES
Books and Journals
Ghosh, C., Liang, M. and Petrova, M. T., 2020. The Effect of Fair Value Method Adoption:
Evidence from Real Estate Firms in the EU. The Journal of Real Estate Finance and
Economics. 60(1). pp.205-237.
van Zijl, W. and Hewlett, V., 2021. An analysis of the extent and use of fair value by JSE Top 40
companies. South African Journal of Accounting Research. pp.1-24.
Seifzadeh, M. and et.al., 2020. The relationship between management characteristics and
financial statement readability. EuroMed Journal of Business.
Rengganis, R. M. Y. D 2019. The fraud diamond: element in detecting financial statement of
fraud. International research journal of management, IT and social sciences. 6(3). pp.1-10.
Online
Summary of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. 2021.
[Online]. Available through: <https://www.cpdbox.com/summary-ifrs-5-non-current-
assets-held-sale-discontinued-operations/>