Corporate and Financial Accounting

Running head: CORPORATE AND FINANCIAL ACCOUNTING 1
Corporate and Financial Accounting
Name:
Institution

CORPORATE AND FINANCIAL ACCOUNTING 2
Executive Summary
Financial reporting of business combinations through mergers and acquisition is an
essential element in accounting. This paper will describe the various aspects involved in business
combinations as prescribed by the AASB standards. The report will highlight the principles of
both consolidated and equity method of accounting when preparing consolidated financial
statements. The report will also describe the aspect of intragroup transactions and how they
should be handled in different scenarios. The issue of non-controlling interest disclosure
requirements and the challenges faced in consolidations will also be tackled. The report
concluded by noting that business combinations can be a challenging issue if not properly
handled, which can ultimately result in misrepresentation of financial statements.

CORPORATE AND FINANCIAL ACCOUNTING 3
Table of Contents
Introduction..................................................................................................................................4
Part A response............................................................................................................................4
Part B response............................................................................................................................5
Part C response............................................................................................................................7
Conclusion...................................................................................................................................9
References..................................................................................................................................10

CORPORATE AND FINANCIAL ACCOUNTING 4
Introduction
Business acquisition and mergers are considered an important aspect in the growth of any
business entity. The accounting guidelines which govern the same is important in ensuring that
fair representation of facts is captured when presenting financial statements. There are various
scenarios which will be explained in this paper that highlight how different factors in businesses
combinations should be handled; including the consolidation of financial statements between
parent and subsidiary entities. Intra-group trading and disclosure requirements of non-controlling
interests are also important issues which should be considered when dealing with business
combinations as will be described in the report.
Part A response
Business mergers and acquisitions are important aspect either from a strategic point of
view or from a growth perspective. In light of this, the type of business acquisition strategy is an
important aspect for the company to consider with regards to how accounting for the
combination is going to be done. A business combination in simple terms is regarded as the
acquisition of a business by another party (Nelson, 2018). In this case, the proposed methods
being a direct takeover and the long term take over by gradual acquisition of interest. In each
instance stated by the shareholders in the board, the combination is going to be accounted for and
treated differently. According to AASB, all business combinations are expected to be accounted
for using the purchase method. The AASB section 3 further states that the one acquiring the
business should be able to identify the assets, liabilities which are measured at the fair value as at
the date of acquisition, non-controllable interest in that business, goodwill among other interests
so as to gauge the true value of the business. In the case given by the shareholders of JKY
limited, then the first option, i.e., the purchase/acquisition method, then the consolidated method
of accounting is going to be applied. Depending on the number of shares or control gained by
JKY limited using the second method, then the equity method of accounting will be used. Using
the equity method, the terminology of parent and subsidiary, which is used in the consolidated
method is not used. Instead, associate is a term used for the investee, in this case, FAB limited.
With regards to both equity and consolidated accounting, the main aspect to be
considered is the amount of stock and/or controlling interest the acquirer has on the business
acquired as indicated by Lemus, (2016). If the acquirer or the parent entity has 50% or more of