This report provides an overview of corporate accounting, focusing on consolidation, methods of accounting (equity and consolidation), and disclosure requirements for non-controlling interest. It discusses the importance of accurate representation in consolidated financial statements and the effects of changes on disclosure in the annual report.
Contribute Materials
Your contribution can guide someone’s learning journey. Share your
documents today.
Running head: Corporate Accounting Corporate Accounting Name of the Student Name of the University Author Note
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
1 Corporate Accounting Executive Summary The report show about the consolidated statement and show about the JKY Ltd which want to take over the FAB Ltd so it show the method which can adopted for the consolidation. It even show about the intra transaction and how the unrealised profit is to be deal with and it even show about the disclosure which is been required in regards of the non-controlling interest.
2 Corporate Accounting Table of Contents Introduction...................................................................................................................3 Part A............................................................................................................................3 Part B............................................................................................................................5 Part C............................................................................................................................6 Conclusion....................................................................................................................7 Reference.....................................................................................................................8
3 Corporate Accounting Introduction Consolidation is the method from which one company acquire the another company so it can be say that one is the parent company and other one is the subsidiary company so as per this report is been based (Albu,Albu and Alexander 2014). The report show about the company JKY Limited which wanted to take FAB Limited as their subsidiary company so it show about the method which was used by them and also show about the intra sale of the transaction and also how the company should disclose the non-controlling interest in the financial statement of the company. Part A Consolidation is been done by the company so that it can able to get more amount of the share in the market and this the reason why JKY Ltd want to takeover FAB Ltd. as consolidation is very big and complex concept so it also required a different level of accounting so the company have to select among the accounting which are been used by the company in regards of the consolidation as they can abletogofortheequityaccountingmethodortheconsolidationmethodof accounting. So as per the need and preference of the company they should select the method of accounting as both methods have their different principle and it should be followed by the company while doing the accounts of the consolidation. So an explanation of the both accounting method is been shown below: Equity Method of Accounting Equity means investment so this method suggest that in regards of the consolidation the company should the profit amount only as they have in the from of investment in the subsidiary company so this say that each parent company holds some sort of the investment so it should only record the amount of profit which it able to get from the part of the investment (Gillis, Petty and Suddaby 2014). The company shouldalwaysrecordthevalueoftheinvestmentwhichisbeenthereinthe subsidiary company as per cost. So it say that the company should record the value upon the amount which is been spend by them on the acquisitions of the investment. The changes which occur in the value of the investment should be directly charged to the income statement of the company and should be record as per the nature of the changes which have take place in the investment. Let take an example for the above equity of accounting as JKY Limited holds 45% share in the FAB Limited and it have got the share for 100000. The company FAB Limited able to earn a sum of $50000 as revenue and offered the dividend as $20000. As JKY Limited has the shares so the entry in the books of JKY Limited will be as: The entry in regards of the Dividend
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
4 Corporate Accounting The entry in regards of the net profit Consolidation Method of Accounting Consolidation means the combination of the asset and liability so as per this method it say only recording which the company have to do is related to the interest the company have in the joint venture as it will only record the amount of asset and liability as compare to the interest it won in the joint venture. For example if the parent company holds 70% in the joint venture than it should record the asset and liabilities for the proportion of 70% only(Gonget al., 2015). So this the recording is directly based upon the proportioned interest which the company have in joint venture. As per the consolidation statement is to be concerned its should record all the items of the parent and the subsidiary company but it does not included the amount of the investment which is been done by the company in their subsidiary company as it should record any amount related to the investment and should eliminate the same from the financial statement and it also does not take into consideration about the equity portion which is been hold by the subsidiary in the parent company so this method say that the company should record any amount of the equity which is been hold in the subsidiary company and should be eliminated by the subsidiary company so that it can able to eliminate both the investment and the equity portion and then it will able to make the consolidated financial statement. It also says that when the company is able to carry the value of the asset and liability than it should also show the amount of the expenses and the income which is been done in regards of the joint venture so that it can be record in the income statement of the company (Gray 2014). The standard also show about the valuation of the method which the company have to used in regards of the goodwill and should do the same and record it in the financial statement of the company. Example in related to the Consolidated Method of Accounting as let assume that the company JKY Limited have started is business with an investment of $50 million so the entry will be In 2019 in invested in the FAB Limited by $30 million so the entry will be The entry in the book of FAB Limited will be
5 Corporate Accounting Part B Company can only be able to make a proper consolidation statement only when it able to remove all the details of the transaction from the company as there should be no entry in the account related to the parent company and the subsidiary company as there is some entry it will directly affect the same and company will not able to make the consolidation statement (Hoyle, Schaefer and Doupnik 2015). So it is the primary duty of the organization to remove all the transaction as is shouldnot show any portion of the equity which is been hold by the company in their subsidiary company. There can be some sort if intra transaction so it should also be removed by the company as the intra transaction are the type of the transaction which happen betweenthetwocompanysothecompanyshouldremoveallthesetypeof transaction and also should not take part of any transaction in future with the subsidiary company. So to remove all the transaction company have to reverse the entry which it have passed in regards of the same so that it will able to make all the entry reversed and there will be no amount of the intra transactions in the company balance sheet. JKY Limited have enter into the agreement of purchase of the inventory from the subsidiary company so this show that it is an intra transaction. Subsidiary company must have sale the inventory by adding some sort of margin to JKY Ltd and recorded the same in their balance sheet. It can be seen that the company JKY Limited have not able to record the inventory as their revenue as they were unable to sale the same in the current year so it can be said that the portion of the inventory which lies in the financial statement of JKY Limited have cost + margin so as the company should not record the margin which can be termed as unrealized profit so it should not be recorded by the company as it should removed the same from the financial statement of the company (Hsu, Jung and Pourjalali 2015). As per the standard on accounting it suggest that the company should record the same as non- current and it should be eliminated from the inventory value so it can be said that the company should able to remove the unrealized profit which is been there in the inventory of the company. Group profit of the company will also be affected as it includes all the profit which thecompany earns from thesubsidiary or theparent company. As the subsidiary company have sold the goods to the parent company so the part of the unrealized profit is still there in the profit of the subsidiary company and as the profit is been carried forward in the group so as a result it also increase the group profit of the company so as per the standard it should removed the part of unrealized profit which is there in the group profit and can only be done with the help of the adjustment entry so an example which can help to know what entry the company have to do in regards of the removal of the unrealized profit (Aasb.gov.au 2019). For example the company have purchased the goods for $10000 and the subsidiary company have a margin of 10% so the amount of the unrealized profit will be (10/110)* 10000 = 909. So the amount of unrealized profit wills $909 so it should be removed and the entry will be Consolidated Profit AccountDr909 To Consolidated Inventory Account909 So this will removed all the unrealized profit which is there in the group account and will show a fair amount of profit which is been earned by them.
6 Corporate Accounting Part C Effects of NCI disclosure requirement in regards to the separate item in the process of consolidation To make a better presentation the company have to separately present the non-controlling which it had in the equity of the parent company. So it should disclose all the matter properly so that the company can able to know how to deal with them in the financial statement. As non-controlling interest is been made so this asset help the user to know how it is been implemented and also this standard help todevelopmoreeasyaccountingforthepurpose(Aasb.gov.au2019).The consolidated statement is a bit different with regards of the non-controlling interest so itshouldallthedetailoftheequityandnon-controllingassetproperlyinthe consolidated statement. The standard help the company to do the accounting in a more simple way so that the financial user can able to collect the information properly and also able to analysis the same and able to take proper decision in regards of the same. Each parent company have some kind of holding in the financial statement of the subsidiary company so that if the company is losing the interest upon the business of the subsidiary so it should report it properly in the financial statement as it is the most important p[art and each person should able to know the reason for such happening of the event. It should also able to know the amount of non- controllinginterestwhichshouldberecordbythecompanyinthefinancial statement. Changes in order to ensure the accurate representation of the consolidated financial statement As per the consolidated statement is there company should record all the adjusted amount of the asset and liabilities of both the company. It should not record any amount which is in related to the investments which are been done by the company in their subsidiary company and also it should not record the portion of the equity which the company holds in the parent company (Aasb.gov.au 2019).If the company have any kind of the loss so that should be reported and should be recorded in the consolidation statement. The company should able to follow all the regulation and the norms which are there in the standard related to the consolidation. It should do proper estimation of the policy while preparing the consolidated financial statement of the company. All the items so the both company should be there in the consolidated statement and should also show the valuation of the goodwill. Thecompanycandotheadjustmentofthedividendinregardsofthe preference share so that it can able to clear all its obligation before making the consolidated statement. Effects of the changes upon the disclosure in the annual report The company should give all the necessary disclosure of the method and the assumption which are been used by the company in regards of the consolidation of the financial statement (Aasb.gov.au 2019). As it should record the amount of the investment in the cost which is been done by the company in the joint venture. It should show all the adjustment entry which they have passed to remove the intra sale from the company transaction.
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
7 Corporate Accounting The both company should have same date of reporting the financial statement so if the date is been different than the company should give proper explanation about why the date are different and the reason should be clearly mention in the financial statement of the company. It is necessary for the company to hold at least 50% upon the subsidiary company so if the company is not able to hold the prescribed amount thatit should properly disclose it in the financial statement so that the user can able to know that it any happen the company may lose its control over the subsidiary company. So all these matters should be properly disclosed by the company in their notes on account. Conclusion On a conclusive note, the above discussion concludes as the how the consolidation is done between the two company and what are the methods which can be used by the company inregards of theconsolidation as it showabout theequity and consolidation method of accounting. It even shows the details of the accounting in regards of the intra sale and how the company can able to remove the unrealized profit from the same. It even shows about the disclosure which should be made by the company in regards of the non-controlling interest.
8 Corporate Accounting Reference Aasb.gov.au.,2019.[online]Availableat: https://www.aasb.gov.au/admin/file/content105/c9/AASB3_08-15.pdf[Accessed31 May2019]. Aasb.gov.au.,2019.[online]Availableat: https://www.aasb.gov.au/admin/file/content105/c9/AASB128_08-11.pdf[Accessed 31 May2019]. Aasb.gov.au.,2019.[online]Availableat: https://www.aasb.gov.au/admin/file/content105/c9/AASB10_08-11.pdf [Accessed 31 May2019]. Aasb.gov.au.,2019.[online]Availableat: https://www.aasb.gov.au/admin/file/content105/c9/AASB127_08- 11_COMPjan15_07-15.pdf [Accessed 31 May2019]. Aasb.gov.au.,2019.[online]Availableat: https://www.aasb.gov.au/admin/file/content105/c9/AASB101_07-15.pdf[Accessed 31 May2019]. Albu, C.N., Albu, N. and Alexander, D., 2014. When global accounting standards meet the local context—Insights from an emerging economy.Critical Perspectives on Accounting,25(6), pp.489-510. Gillis,P.,Petty,R.andSuddaby,R.,2014.Thetransnationalregulationof accounting: insights, gaps and an agenda for future research.Accounting, Auditing & Accountability Journal,27(6), pp.894-902. Gong, Q., Li, O.Z., Lin, Y. and Wu, L., 2015. On the benefits of audit market consolidation: Evidence from merged audit firms.The Accounting Review,91(2), pp.463-488. Gray,S.J.ed.,2014.Internationalaccountingandtransnationaldecisions. Butterworth-Heinemann. Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015.Advanced accounting. McGraw Hill. Hsu,A.W.H.,Jung,B.andPourjalali,H.,2015.Doesinternationalaccounting standard no. 27 improve investment efficiency?.Journal of Accounting, Auditing & Finance,30(4), pp.484-508.