This document provides advice to the directors of Moonraker Ltd for the requirements of AASB-10, explains why it is necessary for making adjustments for intra-group transactions, and analyzes the consolidation accounting concept and other relevant issues that might be faced by the directors.
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ADVANCED FINANCIAL ACCOUNTING Table of Contents Introduction:...............................................................................................................................2 Part A:........................................................................................................................................2 Providing advice to the directors of Moonraker Ltd for the requirements of AASB-10:..........2 Stating why it is necessary for making adjustments for intra group transactions:.....................3 Analyzing the consolidation accounting concept and other relevant issues that might be faced by the directors:..........................................................................................................................4 Part B:.........................................................................................................................................5 Conclusion:................................................................................................................................9 References:...............................................................................................................................11
ADVANCED FINANCIAL ACCOUNTING Introduction: The overall assessment mainly helps in evaluating the requirements of AASB 10 that addresses the concern of control conditions that needs to be adopted by the organization having different subsidiaries. The system directly evaluates two organizations from different countries to detect the actual consolidated financial statement, which could be used for identifying the financial performance of the parent company after accommodating the values of subsidiary. The analysis also evaluates all the relevant calculations conducted with the help of exchange values to determine the actual value of Freesin Inc in Australian dollars after converting it from Hong Kong dollars. The analysis continues to understand and provide the necessary adjustments that are required for the intra-group transactions and help in providing a clear understanding of the consolidating accounting concepts and relevant accounting issues that need to be addressed by the directors of the organization. Part A: Providing advice to the directors of Moonraker Ltd for the requirements of AASB-10: The analysis of the accounting standard as b has a relatively help in detecting that the organization needs to meet certain objectives to prepare the overall consolidated financial statement for the entity or more entities. The relevant objectives that need to be met by the organization are depicted as follows. ï‚·Oneoftheforemostobjectivesdepictedinparagraph2ofAASB10isthe requirement of an entity that is parent to control one or more subsidiaries before allowing the consolidated financial statement in their annual report. This indicates that one company needs to control one or more than one companies to inductee the AASB 10 standard in their financial statement (Aasb.gov.au, 2019).
ADVANCED FINANCIAL ACCOUNTING ï‚·Thesecondobjectivethatneedstobemetbytheparentcompanybefore accommodating the AASB 10 standards is to establish the control on the subsidiary organization. This indicates that if the subsidiary organization is not under control by the parent company then the consolidated financial statement cannot be allowed. Hence, the principle of control needs to be present between the parent company and the subsidiary company (Aasb.gov.au, 2019). ï‚·The third objective that needs to be applied by the parent company is relevantly setup the application of principal of control and identifies the investors control over the investee (Aasb.gov.au, 2019). ï‚·Furthermore,theadequateaccountingrequirementsforthepreparationofthe consolidated financial statement needs to be set out by the parent company for the subsidiary organization as it helps in establishing the principle of control. Therefore, it is required for the subsidiary company to follow the accounting requirements that have been set out by their parent company while preparing their financial reports (Aasb.gov.au, 2019). Stating why it is necessary for making adjustments for intra group transactions: The intragroup transaction adjustment is relatively necessary for the parent and subsidiary organization for presenting the actual financial position in their financial report. The consolidated financial statements of the group has a relatively help in detecting the actual economic entity which benefits from the overall operations of the combined parent and subsidiary organization (Gray, 2014). Moreover, the consolidated financial statements can only contain profits assets and liabilities to the party's external of the group. Furthermore, the adjustments that are made with the help of intra-group transactions relatively help in assessing the internal conditions of the economic entity and do not reflect the effects of the
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ADVANCED FINANCIAL ACCOUNTING transactions on the overall external parties. Therefore, the adjustments help in supporting consistent with the entity concept of consolidation and define the net assets of the parent and the net assets of the subsidiary in the process. This helps in assessing the transactions that were between two parties before making the adequate adjustments in full to detect the actual value of the economic entity (Hoyle, Schaefer & Doupnik, 2015). Moreover, it is necessary to make adjustments for the intra group transaction as it helps insole define the monetary articulations that it comprises with both parent and subsidiary organization. In addition, it also helps in combining the positively explanation for theoverallcostbenefitsresourcesandliabilitiesthathasbeenusedbythegroup. Furthermore, it also helps in adjusting the exchange transactions that helps in detecting the financial substance and allows the group to obtain the exchange loss or profit from the transaction (Gillis, Petty & Suddaby, 2014). Therefore, it could be understood that with the help of intragroup entries elimination based on concept such as individual cannot on profit by entering into the transaction with him is adequately analyzed. Analyzing the consolidation accounting concept and other relevant issues that might be faced by the directors: This is the major difference between significant influence and control, which are depicted as follows. ï‚·Significant influence relatively allows the investor to hold at least 20% of the voting power, which directly helps them to analyze and evaluate the operating and financial policy decisions of entity. However, in case of control the control party for the entity collectively introduces the operating in financial policies. Therefore, under significant influence the investor is not viable to prepare the consolidated financial statement as a
ADVANCED FINANCIAL ACCOUNTING minimum amount of investment is conducted in the organization (Grossi, Mori & Bardelli, 2014). ï‚·Therefore,thesignificantinfluencethatisportrayedbytheinvestordoesnot comprehend with the control measure that is conducted by an organization with subsidiary. Due to the control conditions, the parent company is able to prepare consolidatedfinancialstatementsanddepictthefinancialpositionafter accommodating the transactionsconducted by the subsidiary organization. This mainly states that significant influence can be reversed through a clear demonstration with other investors, whereas it cannot be conducted under the control conditions (Gillis et al., 2014). ï‚·Therefore, consolidation accounting concepts is required for addressing other relevant issues that is faced by the directors of the organization, while preparing their financial statements. Part B: Particulars Cumbermes Ltd Freeson IncDebitCreditAmount Sales2,76,80,000 2,72,54,55 0 15,33,00 0 5,34,01,55 0 Purchases2,01,65,000 1,87,24,50 0 3,88,89,50 0 Gross profit75,15,00085,30,050 1,45,12,05 0 Administrative Expenses1,97,1001,97,100 Employee Benefits73,00073,000 Advertising18,50062,41580,915 Freight Out44,55072,2701,16,820 Phone Costs
ADVANCED FINANCIAL ACCOUNTING 58,70065,3721,24,072 Doubtful Debts Expense24,7901,02,9301,27,720 Rent Office Space1,27,00099,6452,26,645 Rent Warehouse3,88,0002,62,8006,50,800 Insurance1,48,77057,9262,06,696 Salaries4,40,7504,06,5748,47,324 Technical Expenses31,75531,755 Depreciation Expense5,90,0005,90,000 Other expenses4,30,6402,75,1747,05,814 Wages9,70,0006,88,86516,58,865 Sundry Income25,00014,23539,235 Dividend income1,01,400 1,01,400.0 0- Gain from currency exchange1,07,3501,07,350 EBIT43,26,70063,28,81290,21,112 Interest Expense1,10,0005,25,6005,28,8851,06,715 Interest Income2,75,00054,7503,29,750 EBT44,91,70058,57,96292,44,147 Income Tax Expense13,56,00011,55,99225,11,992 Net profit31,35,70047,01,97067,32,155 Retained Earnings 1/714,55,00016,20,00030,75,000 Interim Dividend5,00,00043,40043,4005,00,000 Final Dividend9,50,00058,00058,0009,50,000 Retained Earnings 30/631,40,70062,20,57083,57,155 General Reserve5,00,0005,47,50010,47,500 Share Capital20,00,00043,80,00043,80,00020,00,000
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ADVANCED FINANCIAL ACCOUNTING BCVR5,71,635 - 5,71,635 Total equity56,40,700 1,11,48,07 0 1,08,33,02 0 Bank Overdraft19,37,27419,37,274 Dividend Payable58,00058,000 Other Loans18,00,00032,56,68150,56,681 Tax Payable3,37,5001,88,8885,26,388 Trade Creditors19,86,44016,01,98535,88,425 Bank Mortgage32,50,00072,27,000 1,04,77,00 0 Provisions36,54,00036,54,000 Total Liabilities1,10,27,940 1,42,69,82 8 2,52,97,76 8 Total Equity and Liabilities1,66,68,640 2,54,17,89 8 3,61,30,78 8 Sundry debtors47,08547,085 Bank2,55,6802,55,680 Trade Debtors12,57,50021,35,25015,33,00049,25,750 Allowance for Doubtful Debts - 1,24,790 - 1,02,930 - 2,27,720 Plant & Equipment (Net)8,18,56073,91,25082,09,810 Land (Net)19,54,00076,65,00096,19,000 Inventory20,70,00017,82,50038,52,500 Dividends Receivable58,00058,000 Shares in Freeson Inc61,20,000 61,20,00 0- Buildings (Net)8,09,69051,30,99359,40,683 Depreciation13,68,750 13,68,75 0-
ADVANCED FINANCIAL ACCOUNTING I/Coy Loan34,50,00034,50,000 Total Assets1,66,68,640 2,54,17,89 8 3,61,30,78 8 ParticularsAmountAmount Sales5,34,01,550 Purchases3,88,89,500 Gross profit1,45,12,050 Administrative Expenses1,97,100 Employee Benefits73,000 Advertising80,915 Freight Out1,16,820 Phone Costs1,24,072 Doubtful Debts Expense1,27,720 Rent Office Space2,26,645 Rent Warehouse6,50,800 Insurance2,06,696 Salaries8,47,324 Technical Expenses31,755 Depreciation Expense5,90,000 Other expenses7,05,814 Wages16,58,865 Sundry Income39,235 Gain from currency exchange1,07,35054,90,939 EBIT90,21,112 Interest Expense1,06,715 Interest Income3,29,7502,23,035 EBT92,44,147 Income Tax Expense25,11,992 Net profit67,32,155 Retained Earnings 1/730,75,000 Interim Dividend5,00,000 Final Dividend9,50,00016,25,000 Retained Earnings 30/683,57,155 ParticularsAmountAmount Retained Earnings 30/683,57,155 General Reserve10,47,500 Share Capital20,00,000 BCVR-5,71,635
ADVANCED FINANCIAL ACCOUNTING Total equity1,08,33,020 Bank Overdraft19,37,274 Dividend Payable58,000 Other Loans50,56,681 Tax Payable5,26,388 Trade Creditors35,88,425 Bank Mortgage1,04,77,000 Provisions36,54,000 Total Liabilities2,52,97,768 Total Equity and Liabilities3,61,30,788 Sundry debtors47,085 Bank2,55,680 Trade Debtors49,25,750 Allowance for Doubtful Debts-2,27,720 Plant & Equipment (Net)82,09,810 Land (Net)96,19,000 Inventory38,52,500 Dividends Receivable58,000 Shares in Freeson Inc- Buildings (Net)59,40,683 Depreciation- I/Coy Loan34,50,000 Total Assets3,61,30,788 Conclusion: The overall assessment directly value research the requirements of the AASB 10 and helps the directors to detect that measures that needs to be adopted for preparing the consolidated financial statement. Furthermore, adequate analysis has been conducted on the necessity of making adjustments for the intragroup transactions. With the help of intra group transactions the parent company is able to portray actual financial position and benefits that was obtained during the financial year. The relevant issues relating to the consolidation accounting concept has been evaluated for the directors to help them understand the concept and reduce the occurrence of self-transaction. The consolidated financial performance of Cumbermes Ltd and Freeson Inc is conducted for detecting the measures that needs to be used by the parent companies for their actual financial position.
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ADVANCED FINANCIAL ACCOUNTING References: Aasb.gov.au.(2019).Aasb.gov.au.Retrieved24September2019,from https://www.aasb.gov.au/admin/file/content105/c9/AASB10_08-11.pdf Gillis, P., Petty, R., & Suddaby, R. (2014). The transnational regulation of accounting: insights,gapsandanagendaforfutureresearch.Accounting,Auditing& Accountability Journal,27(6), 894-902. Gillis, P., Petty, R., Suddaby, R., & Nobes, C. (2014). The development of national and transnationalregulationonthescopeofconsolidation.Accounting,auditing& accountability journal. Gray, S. J. (Ed.). (2014).International accounting and transnational decisions. Butterworth- Heinemann. Grossi, G., Mori, E., & Bardelli, F. (2014). From consolidation to segment reporting in local government: accountability needs, accounting standards, and the effect on decision- makers.Journal of Modern Accounting and Auditing,10(1), 32-46. Hoyle, J. B., Schaefer, T., & Doupnik, T. (2015).Advanced accounting. McGraw Hill.