Corporate and Financial Accounting

The report discusses the consolidation method in accounting for mergers, intragroup sales, and non-controlling interest disclosure in the consolidated financial statement.

Running head: Corporate and Financial Accounting
Corporate and Financial Accounting
Name of the Student
Name of the University
Author Note

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Corporate and Financial Accounting
Executive Summary
The report has been based on the consolidation as it shows how the company
should use the method of accounting for the merger so that it can able to do the
proper accounting transaction. It also explains about the intragroup sale and how it
has been recorded the unrealized profit in the company. Lastly, it shows the non-
controlling interest and how it should do the disclosure in the consolidated financial
statement of the company

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Corporate and Financial Accounting
Table of Contents
Introduction...................................................................................................................3
Part A:...........................................................................................................................3
Part B............................................................................................................................5
Part C............................................................................................................................6
Conclusion....................................................................................................................7
Reference.....................................................................................................................9

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Corporate and Financial Accounting
Introduction
Financial accounting let the company know about how they should prepare the
financial statement of the company as it shows all the guidelines which the company
have to perform in order to get the better presentation in the financial statement of
the company. This assignment deal with the acquisition details of the FAB limited by
JKY Limited (Ijiri 2018). The first part shows the concept of equity and consolidation
accounting. The next section shows the intragroup transaction with some example,
and the last part of the report deals with disclosure related to the non-controlling
interest.
Part A:
The case study which is been given show that the company JKY Limited want
to take over the company FAB Limited but its not sure about which method its should
select in order to do the consolidation as there are two methods of doing the same
as equity method and consolidation method. As both methods have their own ways
of making the financial statement of the company, so the company have to decide
about which means they have to use in order to take over the company. So the
difference between two means is shown below:
Equity accounting method
Company should check the amount of investment which it has in the subsidiary
company and than it can able to record the same amount of the profit which are able
to get from the investment After recording the same, it is disclosed in the income
statement that is upon the size of equity investment (Warren and Jones 2018). As
per the standard, AASB 128 contains a paragraph 10 which suggest that the
company record the investment in initially at cost and if there is some increase or
decrease so it can be recorded as profit or loss to the investors after they have
acquired the organization. The company should take the goodwill upon the acquired
interest only and should take any other interest for the valuation (Aasb.gov.au 2019).
Let assume that the company JKY Limited took 15% share of FAB Limited for
$10000 and later it was found that the company has earned a net income of $30000
and dividend of $10000. So when JKY Limited records the purchase, it will pass the
journal entry as
Dividend Entry will be
Net Income entry will be

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Corporate and Financial Accounting
Consolidation Method of Accounting
As per this method the company should record the proportion of the interest in the
joint venture as the percentage it help should only be recorded. The company has to
show all the expenses and income which they have been displayed in the financial
statement as to when the time of valuation of the asset and liabilities have come in
the balance sheet. As per AASB 10 contain a paragraph B86 which state that the
company consolidation statement is a combination of all the items of the parent
company with its subsidiary companies as it includes things like an asset, liability,
equity and many other activities. It even able to minimize the risk of double
accounting as it does not take into consideration about the intercompany transaction,
so it helps the company to keep accounts as simple they can keep.
As per the AASB 10 which have a paragraph B88 which contain details about
the measurement of the requirement which is to do in the set of different lines items
of the company financial statement which is been related to the income and
expenses of the subsidiary company that are directly related to the asset and
liabilities so the amounts which is been realised in the statement of consolidation at
the time of the acquisition. As per the AASB 3, it contains a paragraph 32 which
state about how the company is able to recognize the goodwill in the financial
statement and to recognize it have to select higher of the same and should record it
after it able to get the value of it
The example is that let take JKY Ltd have invested $60 million for the start-up so it
will show it as
So it invested in FAB Limited sum of $50million so entry will be
In the books of FAB Limited
Part B
As the company wants to prepare the consolidated accounts so to do that, it has to
eliminate all the operation which happen in between the two entity, and it has to
remove the also part of the equity which the parent organization holds in the body
(Paterson et al ., 2018). As per the AASB 127, it contains a paragraph which says
that the company has to eliminate the intra-group balances and also all the income
and expense related to the same. The intra-group can be classified as:
The transaction which are done between the parent company and the subsidiary
company it can be anything such as some payments in between the two or some
amount of sale transfer.

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Corporate and Financial Accounting
As per the adjustment related to the consolidation of the intra-group transaction
eliminate all the deal by doing the reversal of the transaction of accounting, which
has been done by the company.
As per the case study, it can be seen that the company JKY Limited want to
make the purchase of inventory from its one of the owned subsidiary company.
As the company is concerned, it cannot record the revenue as it can be only able
to do after the sale has been made to the external parties. So if there is some
unrealized profit so it should be removed from the consolidated accounts, the
unrealized gain is the profit which should be taken in the inventory form the gain
at the end of the year. As per the AASB 127, it contains a paragraph 25 which
say about the if the company is able to have some amount of profit or losses
which arise from the intra-group transaction so it should be recorded in the
financial statement as a non-current asset and the part of the inventory is totally
eliminated.
As per the case study, it can be seen that the subsidiary has sold some
inventory to JKY Limited, and it is considered as that it should have a mark-up
portion included in the stock. It can be said as the external sale has been made
so it should be fine as a group transaction point. As the company have not done
the deal to the external customer so does not able to earn profit, but as the
subsidiary has sold them to JXY Limited, so it was recorded as an unrealized
profit, so it directly affects the overall group profit, and it will show a high amount
of profit which is not really happening in the company. As per assumption is
made that the company have purchased the inventory from subsidiary as
$15000, at it is kept at the end of the year. Next assumption which can be made
is the subsidiary keeps 25% of the margin and so is able to earn a profit on
inventory as $3000 (25/125 * $15000). So as per the group profit is consider the
overvalued amount in profit is $3000, so the adjust the amount is should pass this
entry as:
Consolidated Profit Account Dr $3000
To Consolidated Inventory Account $3000
The sales of the non-controlling interest to the group which has been done by
the subsidiary than it should eliminate the unrealized profit of the same. So this
transaction led to make the question about the gain which should be reported in
the non-controlling interest. The approaches can be different; one method can be
that it should assign a share of un-recognized profit to the non-controlling
interest. So, as a result, it directly removed all the profit which is generated by the
selling entity. The different method which can be used by the company is that it
should not record any portion of the unrecognized profit in the non-controlling
interest and as a result of it, the figure related to non-controlling interest should
be included in the reserves and share capital which is in regards of the subsidiary
company (Jefrey 2018).
Part C
Separate items effects upon NCI Disclosures

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Corporate and Financial Accounting
In the standard of AASB 127 in the paragraph 27 states that it should state
about the consolidated financial statement so that the company should do the
presentation separately in regards of the noncontrolling asset which have been
related to the interest that the company gets from the equity of the parent company.
Non-controlling interest cannot be included to the parent firm as it is the equity
related to the subsidiary. So this standard was beneficial in regards to the
development of the accounting and the reporting associated with the non-controlling
interest in regards to the financial statement of the company. There is a separate
reporting in regards of the non-controlling interest in the consolidation process, and
also it should record the change which is reconciled in considerations of the
shareholder's equity which has been in the parent company and as per even the
non-controlling interest. As per the ASA 101, the paragraphs contain state that it
should able to recognize the amount. This compliance of the better presentation is
being done so that it can able to give the proper amount of understanding to the
stakeholder as well to the person who owns their claims in the group of the
company.
The variation which is related to the ownership interest of the parent company is
termed as an equity transaction. It also is seen that it is not able to take place when
the parent company loses its control over the subsidiary company. So if the interest
is changed in the portion of the equity that change represents the adjustments upon
the carrying values of the controlling and non-controlling interest, as the transaction
is being done, then it should consider the correction about the fair value and non-
controlling interest should directly recognize and should be recorded in the
shareholders to the parent organization.
Changes in order to ensure the accurate representation of the consolidated
financial statement:
AS per the standard of AASB 101 state, there should be some change in the
description of the consolidated financial statements. It states that all the transaction
which are happening in the subsidiary and the parent company should be
appropriately adjusted and also it says that the preparation of the statement should
not be done in the same reporting time. It too so that the investment which the
company has done in the subsidiary it should be eliminated and even the equity
portion which the subsidiary company holds in the parent company should also be
eliminated.
The amount of the asset which is done as impairment in the associated should be
recognized as the intragroup losses. So it should eliminate all the transaction related
to the intragroup such as income, expense, and other transaction in the company
(Aasb.gov.au 2019). The consolidation should record all the transaction of the parent
as well as the subsidiary company as items such as balance sheet, and also other
activities. It should also take into consideration AASB 1112 while doing the
consolidation. The group should use proper accounting policy and which is used in
all the company and it should also show about the different adjustment which should
be done by the company in regards of the statement so that it can help the user to
get proper details of the same (Braam and Peeters 2018).
The company should have to record the overall income in regards to the non-
controlling interest and the parent owners; it should be done even there is some

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Corporate and Financial Accounting
harmful effects f the same in the non-controlling interest. If the company have some
preference share so it should make the adjustment of the dividend and as the
preferences share are cumulative in nature.
Changes in disclosure in the annual report:
As per the AASB 127, it contains a paragraph 10 which state that when the
company has to prepare the separated financials statement that in should the show
the investment in the joint venture as in cost. The company should able to disclose
all the related information in the consolidated financial statement of the company as
it should what is the estimation of the company is done and also about the
accounting policy is associated with the same (Aasb.gov.au 2019). It should also
disclose the nature of the transaction related to the subsidiary so that it can be able
to know all the details of the consolidation.
If the company is having different accounting date as both the parent and subsidiary
company have different reporting date so the proper disclosure is made in regards of
the same so that the user can able to understand the reason of the various reporting
date (Aasb.gov.au 2019), it is also be done that if the company is not having more
than 50% share than proper disclosure is to be done so that the company
shareholder can able to know the reason and able to take a necessary decision
about the same.
Conclusion
On the final note, it can be said that the consolidation can be done by the two
methods equity and consolidation method. The report concludes about the Company
JXY Limited as it wants to acquire the FAB Limited so which purpose is to be used
by the company. It also shows the intra purchase in the group of the company and
how it should be treated in the account. Lastly, it reveals about the consolidation
which is done as the non-controlling interest as to how it should be treated and how
it can affect the disclosure of the consolidated financial statement.

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Corporate and Financial Accounting
Reference
Aasb.gov.au., 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB3_08-15.pdf [Accessed 28
May 2019].
Aasb.gov.au., 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB128_08-11.pdf [Accessed
28 May 2019].
Aasb.gov.au., 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB10_08-11.pdf [Accessed 28
May 2019].
Aasb.gov.au., 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB127_08-
11_COMPjan15_07-15.pdf [Accessed 28 May 2019].
Aasb.gov.au., 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB101_07-15.pdf [Accessed
28 May 2019].
Braam, G. and Peeters, R., 2018. Corporate sustainability performance and
assurance on sustainability reports: Diffusion of accounting practices in the realm of
sustainable development. Corporate Social Responsibility and Environmental
Management, 25(2), pp.164-181.
Ijiri, Y., 2018. An Introduction to Corporate Accounting Standards: A
Review. Accounting, Economics, and Law: A Convivium, 8(1).
Jefrey, C. ed., 2018. Research on professional responsibility and ethics in
accounting. Emerald Publishing Limited.
Paterson, A., Yonekura, A., Jackson, W. and Jubb, D. eds., 2018. Contemporary
Issues in Social Accounting. Goodfellow Publishers Limited.
Warren, C. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.