Corporate Takeover Decision Making and the Effects on Consolidation Accounting
Verified
Added on  2023/03/31
|11
|3111
|82
AI Summary
This project examines the bookkeeping features involved in the acquisition of a small company and the effects on consolidation accounting. It discusses the differences between consolidation bookkeeping and equity bookkeeping, the analysis of intra-group transactions, and the impact of non-controlling interests on the consolidation process.
Contribute Materials
Your contribution can guide someone’s learning journey. Share your
documents today.
Running head: CORPORATE AND FINANCIAL ACCOUNTING Corporate Takeover Decision Making and the Effects on Consolidation Accounting Student Name: Student Number: Session Number:
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
1CORPORATE AND FINANCIAL ACCOUNTING Executive summary: The purpose of this project is to obtain a logical synopsis of the varying book- keeping features included in "acquisition" of a small company,"FAB Ltd" by "JKY Ltd". During the period of examining the dissimilarities between "consolidation book- keeping"and"equitybook-keeping"whileanorganisation"acquires"asmall business, there are different types of calculations and recognition of "principles". Furthermore, the evaluation of "intra group transactions" deals with the noteworthy dissimilarities in the "consolidated financial statements" of both businesses. Finally, it hasbeenanalysedthatthedeclarationsrequireexistenceof"non-controlling interests" as a typical item in the "consolidated financial statements" has impact on the all-inclusive "consolidation processes.
2CORPORATE AND FINANCIAL ACCOUNTING Table of Contents Introduction:..................................................................................................................3 Part A Response:..........................................................................................................3 Part B Response:..........................................................................................................5 Part C Response:.........................................................................................................6 Conclusion:...................................................................................................................8 References:..................................................................................................................9
3CORPORATE AND FINANCIAL ACCOUNTING Introduction: The aim of this paper is to obtain a systematic synopsis of the varying book- keeping features incorporated with the "acquisition" of a small company,"FAB Ltd" by "JKY Ltd". The first part of this paper would provide the dissimilarities between the primary methodological dissimilarities between"consolidation book-keeping" and "equitybook-keeping"withappropriateexamples.Thesecondpartwouldbe focusing on the key proposals of "intra group transactions" and their analysis by usingtreatedexamples. Finally,thestudy wouldbehighlightingtheimpactof revelations involved with the "non-controlling interests" in the form of a specific item in the methodology of "consolidations". Part A Response: From the provided testament, it has been identified that in order to gain "FAB Ltd", the authorities of "JKY Ltd" is in a dilemma with regards to the selection of the "acquisition" policies. The system of "consolidation" and the system of "equity" are "two" varieties of the "acquisition" systems utilised while "two" organisations are taking part in a joint project (Agrawal and Cooper 2017). The selection of applying any one of these is dependent on the way the operating statement and the "balance sheet statement" of the organisation "report" the cooperation. It prominently shows thatthose"two""book-keeping"methodshavesignificantdissimilaritiesin "techniques", it is depicted below- As stated in the"consolidation method of accounting","assets and liabilities" of joint project recorded in the "balance sheet statement" of a business depending on the proportion of participation of the organisation maintains in the venture (Atanasov and Black 2016). At the time of computing "assets and liabilities", the organisation would take into account every all the expense and income from the "acquisition" and those are going to be included in the profit and loss statement and "balance sheet statement". According to "Paragraph B86 of AASB 10", the combined financial statements are connected in a manner like- items of "equity", "assets", "liabilities", cash flow, income and expense of the "parent" organisation with their auxiliaries (Aasb.gov.au 2019). In addition, the system nullifies or eliminates the undermined value of the "investment" of the "parent" in all the auxiliaries and the portion of the "equity"keptbytheauxiliariesofthe"parent"organisation.Furthermore,the combined "book-keeping" system works on the removal of the adjustments with the purpose to nullify "inter-organisation transactions" so as to remove "double counting" of value at the combined part. The "Paragraph B88 of AASB 10" conveys the calculation requirements of the varying classifications of items of the income statements, in this the income and expenses of the auxiliaries are based on the "assets and liabilities" amount earned in the combined "financial statements" at the time of "acquisition". Hence, these items are computed at "fair values" during the period of "acquisition". The "Paragraph 32 of AASB3",depictsaparticularsituationintermsof"goodwill"recognition.The "claimant" has to recognise "goodwill" at the "acquisition" period as the higher of the "two" explained below: a. The aggregate of-
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
4CORPORATE AND FINANCIAL ACCOUNTING The practice of "consideration" gauged related to the "AASB 3" requiring "fair value" during the period of "acquisition". The "non-controlling interest" value in the "acquiree" gauged according to the standard. In a business combination accomplished in parts, the "fair value" of the "equity interest" kept earlier in the "acquiree" by the claimer at the "fair value" of the "acquisition" time. b. The sum of the identifiable "assets" amount gained and the anticipated "liabilities" gaugedinobediencewiththecodes(Aasb.gov.au2019).Forexample,itis anticipated that "JKY Ltd" initiated its business on "1stMay, 2018", owing to this "$20 million" were invested. The "journal entry" recorded is shown below: The following year "JKY LTD" again invested "$10 million" to "acquire" most of the shares of "FAB Ltd". The "journal entry" registered is discussed below; Thus, the cash "equity" of "JKY Ltd" sums to "$10 million", when "asset equity" is "$20 million". In the "books" of "FAB Ltd", the "transaction" is depicted below: At the end of the period, the "consolidated statement" would be showing the following: As per the "equity book-keeping process", it is used for the evaluation of the "profits" gained from the joint projects in other companies (Fuchset al., 2016). The company declares the income obtained from the joint project on the "operating statements", it is based on the "equity" "joint project" sum. As per the "Paragraph 10 of AASB 128", the joint project is to be recognised at cost in the beginning phase and there is increase in deduction in the shifting value for recognition of the shares of "profit or loss" of the stakeholder after the duration of the "acquisition" (Aasb.gov.au 2019). For "goodwill" recognition, the "fair value" of the "equity interests" of the "acquiree" is used during the period of "acquisition", rather than the "fair value" of the transferred "equity interests" during the period of "acquisition" regarding"Paragraph 33 of AASB 3" (Aasb.gov.au 2019). For example, it is expected that "JKY Ltd"
5CORPORATE AND FINANCIAL ACCOUNTING "acquired" "30%" shares of "FAB Ltd" for "$50,000" and the later has "reported" an aggregate of "$100,000" as income and "$50,000" as dividends. When "JKY Ltd" would perform the purchasing method, the "transaction" would be recorded at price in the following manner: As "JKY Ltd" would earn bonus of "$15,000", there would be deprecation in the "investment account". Finally, "JKY Ltd" would record the aggregate of "profit" of "FAB Ltd" as a raise in the "investment account". Part B Response: At the time of the "financial period", it is noticeable for particular legal parts within an "economic" business for "transacting" with each other. With respect to preparing "consolidated accounts", the impact of every "transaction" between the partswithintheorganisationiseliminatedfully,evenatthetimethe"parent" business retains only a part of the issued "equity" (Caskey and Laux 2016). Based on this "Paragraph 29 of AASB 127" requires "intra-group equities", "transactions", expenses and income to be eliminated completely (Legislation.gov.au 2019). Certain instances of "intra-group transactions" mainly associate the following- Management charges payment to a representative of the "group". Dividend payments to the "members" of the "group". "Intra-group" inventory selling. "Intra-group" "non-current assets" selling. "Intra-group" loans. The "consolidation" adjustments associated with "intra-group" "transactions" eliminate these kind of "transactions", through reversals of the actual "book-keeping" entries made for recognition of the "transactions" in particular legal organisations (Christ and Burritt 2017). Ithasbeenidentifiedfromtheprovidedtestament,that"JKYLtd"has purchased inventory from "one" of its partially owned auxiliary. From the viewpoint of the group, it is not suitable to "realise" "revenue" until they sale the inventory to the "outside group". Therefore, any "unrealised" "profits" require to be removed from the "consolidated accounts" (Kothari 2019). "Unrealised profits" happens from inventory sold within the "group" for gaining "profit", which it keeps at the closure of the period.
6CORPORATE AND FINANCIAL ACCOUNTING "Paragraph 25 of AASB 127", states that the "profits or losses" occurring from "intra- group transactions" recognised in "assets" like- "non-current assets" and inventory are eliminated fully. In the provided study, the partially owned auxiliary has shifted inventory to "JKY Ltd" and it is expected that the sale incorporates a "mark-up". While "JKY Ltd" sells the identical commodity to the outside parties, it is appropriate in the terms of "grouptransaction"level(Maas,K.,Schaltegger,S.andCrutzen,N.,2016). However, unless the items are disposed of to the outside parties by "JKY Ltd", the "profit" that the auxiliary has "realised" on inventory sold on "JKY Ltd" would lead to "unrealised profit" and therefore, the "group profit" would be extended inaccurately. It authenticates the elimination of "unrealised profit". Suppose, it is anticipated that "JKY Ltd" has purchased inventory from its auxiliary at "$12,500", it is kept at the closure of the duration. Additional anticipation is made that the auxiliary obtains "25%" extra hence, it earned a "profit" on inventory "equity" of "$2,500" [25/125 x $12,500]. Therefore, from the viewpoint of the "group", there is overemphasis on "consolidated profit" by "$2,500", for it the following adjustment entry is performed- Consolidated Profit Account......................................Dr$2,500 To Consolidated Inventory Account$2,500 While the auxiliary sells the commodities with "non-controlling interest" to the "group", there is the need to remove the full "unrealised profit" (Ntim 2016). It raises the query that regarding the "profit" to be "reported" for "non-controlling interests". The first path is to allot to the "non-controlling interests" the part of the share of unrecognised "profit". Thus, the entire "profit" in the selling parts are removed. Anotherpathistoallotnoportionofunrecognised"profit"to"non-controlling interests" and the amount of "non-controlling interests" cites authentication "share capital" and "reserves" associated with the auxiliary (Nwidobie 2016). Suppose, it is expected that "JKY Ltd" possesses "80%" shares in "D Ltd" and "75%" shares in "E Ltd". In an accounting session, "D Ltd" sells items valuing "$70,000" for "$100,000" to "E Ltd"; out of which "E Ltd" only sells "50%" of the items. While "JKY Ltd" would be calculating their "consolidated" "income statements" the unrecognised "profit" in inventory has to be eliminated. The transferring of "profit" from "D Ltd" to "E Ltd" is performed at "$50,000" and the "group" expenditure would be"$35,000".Thus,the"intra-groupprofit"toberemovedfrominventoryis "$15,000". By opting the first path, as "JKY Ltd" owns "80%" share in "JKY Ltd" and "20%" share in "non-controlling interest", the proportion of "non-controlling interest" would be "$3000" [$15,000 x 20%]. Part C Response: EffectsofNCIdisclosurerequirementasaseparateitemintheprocessof consolidation:
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
7CORPORATE AND FINANCIAL ACCOUNTING Itisevidentfrom"Paragraph27ofAASB127"thatnoticeableand "consolidated""operatingstatements"neednoteworthypresentationof"non- controlling interest" from the "equity" of the "parent" company in the "balance sheet statement"(Aasb.gov.au 2019). "Non-controlling interest" is the part of "equity" in auxiliary,whichmightnotberegarded"directlyorindirectly"tothe"parent" organisation. The above standard has been useful in improving "book-keeping" and "reporting" for "non-controlling interest" in the "financial statements". At the time there is noticeable "reporting" of "non-controlling interest" in the "consolidation" process, the varieties have to be incorporated in the shareholders "equity" giving the adjustments in "parent" firm and "non-controlling interest" cooperatively, with respect to "Paragraph 106(a) of AASB 101" (Aasb.gov.au 2019). It is important to cite and identify the significant "non-controlling interest" amount properly. The major reason behindthisnoteworthypresentationis toensureadditionaljustifications tothe stakeholders of the "consolidated group" owing to its affirmation on the aggregate of "assets" of the group (Schneider 2015). Furthermore, there is significant definition when "one" of the organisations "direct or indirect" "non-controlling financial interest". "Equitytransactions"couldbeexplainedasthecontrastsin"ownership interest" of "parent" firm in an auxiliary, it would not happen while the "parent" organisation "loses" hold over the auxiliary. If the portion of "equity" which the "non- controlling interest" keeps changes, the variations in the specific auxiliary "interest" is presented by conducting adjustments in the shifting values of "controlling" and "non- controlling interests". Along with this, the adjustments of "non-controlling interests" and "fair value" of considerable payment is to be recognised right away and those are credited to the stakeholders of the "parent" organisation. Changes needed to ensure the accurate representation of the consolidated financial statements: For precise representation of the "consolidated" "financial statements", certain changes are required as cited in "AASB 101". There is no need for preparing the "consolidated""operatingstatements"attheidenticalperiodof"reporting"and adjustments are required for pointing out the impacts on the major "incidents or "transactions"occurringbetweenthe"dates"oftheauxiliaryandthe"parent" "financial statements". The shifting values of "investment" made by the "parent" in the auxiliary needs to be nullified and the part of "equity" of every auxiliary, that the "parent" keeps needs to be eliminated (Warren and Jones 2018). The impairment "loses" of the associated "assets" have to be "realised", it could be identified from "intra-group loses". Moreover, the "transactions relating to the"intra-group"income,expensesandbalanceshavetoberemoved.These "consolidated" "income statements" needs to combine different items of cash flows, "assets", "liabilities" and expenses of both the "parent" company and its auxiliaries. Furthermore, the basic differences happening from removing of "profit and loss" leading to "intra-group transactions" is viable in obedience with "AASB 112". It needs to be assured that the "book-keeping" policies of the "group" have to be authentic by making vital adjustments to the "operating statements" of the "group" members at the time of preparing the "consolidated" "income statements" in situations while a member of the "group" utilises different "book-keeping" strategies for a particular "transaction" (Watson 2015).
8CORPORATE AND FINANCIAL ACCOUNTING The company is needed to create the comprehensive and extended income to the "parent" firm and the "non-controlling interests", even when the evaluation has the problem of having unwanted "equity" relating to the "non-controlling interests". In addition, the part of "profit and loss" while an auxiliary noticeable sum of alternative shares, it needs to be calculated by the organisation after conducting adjustments for dividends on those shares regarding dividend declarations. Effects of the required changes on the disclosure requirements in the annual report: According to"Paragraph 10 of AASB 127", while an organisation prepares significant "operating statements", it needs to "report" for "investments" made in joint projects,associatedwithauxiliarieseitheratcostorasstatedin"AASB9" (Aasb.gov.au 2019). Thus, there has been relaxation in the development of the "consolidated" "operating statements". With regards to, the information appearing from any revelations points shortage in relevancy, it is vital to show the legitimate "book-keeping" policies along with the computation bases needed to prepare the "consolidated""financialstatements".Therefore,the"consolidated""operating statements" have to be developed by disclosing the kind and "level" of any important restrictions appearing from the needs of regulations on the ability of the auxiliary in transferringtothe"parent"either throughrepaymentof loans,"advances"and dividends in cash. Along with this, at the time of making the "consolidated" "income statements", the "financial statements" of the auxiliaries at the end of the "reporting" duration are required and in the happening of; the "reporting" period of the "parent" business and its auxiliaries are not balanced, feasible revelations need to be prepared regarding this topic. Furthermore, if the "parent" business owns lower than "50%" of "voting rights" in an auxiliary, be that "direct or indirect", disclosures are necessary to be made regarding to the kind and of relation "built-in" between the "parent" company and the auxiliary (Yang and Lee 2016). Hence, it could be stated that, there is impact of declaration requirements at the time of preparingthe "consolidated" "income statements". Conclusion: Withrespecttotheabovediscussion,itcouldbestatedthatthereare noteworthy modifications in "book-keeping" analysis of "non-controlling interests" and "consolidation accounting" with respect to various "book-keeping" grades. At the time of assessing the differences between "consolidation book-keeping" and "equity book-keeping" while an organisation "acquires" a smaller firm, there are different kinds of computations and recognition regulations. Moreover, the analysis of "intra- group transactions" endeavours into significant differences in the "consolidated" "operating statements" of both the businesses. Finally, it has been examined that the revelation requires the crucial "non-controlling interests" as a noticeable item in the "consolidated""profitandlossstatements"hasimpactontheall-inclusive "consolidation" process.
9CORPORATE AND FINANCIAL ACCOUNTING References: Aasb.gov.au.,2019.[online]Availableat: https://www.aasb.gov.au/admin/file/content105/c9/AASB3_08-15.pdf[Accessed28 May 2019]. Aasb.gov.au.,2019.[online]Availableat: https://www.aasb.gov.au/admin/file/content105/c9/AASB128_08-11.pdf[Accessed 28 May 2019]. Aasb.gov.au.,2019.[online]Availableat: https://www.aasb.gov.au/admin/file/content105/c9/AASB10_08-11.pdf [Accessed 28 May 2019]. Aasb.gov.au.,2019.[online]Availableat: 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]Availableat: https://www.aasb.gov.au/admin/file/content105/c9/AASB101_07-15.pdf[Accessed 28 May 2019]. Agrawal,A.andCooper,T.,2017.Corporategovernanceconsequencesof accountingscandals:Evidencefromtopmanagement,CFOandauditor turnover.Quarterly Journal of Finance,7(01), p.1650014. Atanasov, V.A. and Black, B.S., 2016. Shock-based causal inference in corporate finance and accounting research.Critical Finance Review,5, pp.207-304. Bergmann, A., Grossi, G., Rauskala, I. and Fuchs, S., 2016. Consolidation in the public sector: methods and approaches in Organisation for Economic Co-operation and Development countries.International Review of Administrative Sciences,82(4), pp.763-783. Caskey, J. and Laux, V., 2016. Corporate governance, accounting conservatism, and manipulation.Management Science,63(2), pp.424-437. Christ, K.L. and Burritt, R.L., 2017. Water management accounting: A framework for corporate practice.Journal of cleaner production,152, pp.379-386. Kothari, S.P., 2019. Accounting Information in Corporate Governance: Implications for Standard Setting.The Accounting Review,94(2), pp.357-361. Legislation.gov.au.,2019.AASB127-ConsolidatedandSeparateFinancial Statements-July2004.[online]Availableat: https://www.legislation.gov.au/Details/F2009C01112 [Accessed 28 May 2019]. Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment, management accounting, control, and reporting.Journal of Cleaner Production,136, pp.237-248.
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
10CORPORATE AND FINANCIAL ACCOUNTING Ntim, C.G., 2016. Corporate governance, corporate health accounting, and firm value: The case of HIV/AIDS disclosures in Sub-Saharan Africa.The International Journal of Accounting,51(2), pp.155-216. Nwidobie, B.M., 2016. Post-consolidation cash reserve volatility, bank credits and economicgrowthinNigeria.InternationalJournalofCriticalAccounting,8(2), pp.179-191. Schneider,A.,2015.Reflexivityinsustainabilityaccountingandmanagement: Transcending the economic focus of corporate sustainability.Journal of Business Ethics,127(3), pp.525-536. Warren, C. and Jones, J., 2018.Corporate financial accounting. Cengage Learning. Watson, L., 2015. Corporate social responsibility research in accounting.Journal of Accounting Literature,34, pp.1-16. Yang, J.G. and Lee, J.Z.H., 2016. Important Aspects of the New Consolidation Accounting Standards.Taxes,94, p.27. Zhao, P. and Ru, Y., 2016, August. Investee’s Net Profits Adjustment in Balance Sheet Consolidation: for the Reasons of Internal Tractions. In2016 International Conference on Humanity, Education and Social Science. Atlantis Press.