Corporate and Financial Accounting

Running head: CORPORATE AND FINANCIAL ACCOUNTING
Corporate and Financial Accounting
Name of the Student
Name of the University
Author’s Note

1CORPORATE AND FINANCIAL ACCOUNTING
Executive Summary
This report involves in the critical discussion on the required accounting factors that
need to be taken into consideration in the takeover of FAB Ltd by JKY Ltd. The outcome
of the report shows that the management of JKY Ltd needs to consider the differences
between the methods of consolidation accounting and equity accounting at the time of
making the decisions. It is also needed to consider the intra-group transaction’s effects.

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 main objective of this report is to discuss about certain crucial aspects
regarding the acquisition of FAB Ltd by JKY Ltd while both of these companies operate
in the same industry. There are three parts in the report. First part outlines the key
differences in methodology between Consolidation Accounting and Equity Accounting.
Second part discusses the key principles on how intra-group transactions need to be
treated in the presence of proper examples. The third part is about the disclosure of
non-controlling interests.
Part A Response
As per the given scenario, the management of JKY Ltd is going through a
dilemma regarding the adoption of the appropriate strategy for taking over the business
of FAB Ltd due to the presence of two major method of acquisition; they are
Consolidation Method and Equity Method. The nature of reporting of the balance sheet
as well as income statement in the partnership is considered as the key determinant of
the selection of either of the two above-mentioned strategies. There are some
differences between the methodologies of these two methods.
Consolidation Method – The major requirement of this method is that the proportion of
involvement of the partners in the partnership business needs to be considered as the
base for recording the assets and liabilities in the balance sheet. It is needed to record
all the acquisition related incomes and expenses in the income statement and balance
sheet; and it is needed to calculate the values of the assets and liabilities. According to
the AASB 10, Paragraph B86, the main elements of the consolidated income
statements and balance sheet are the income, expenses, equity, assets and liabilities of
the parent company as well as the subsidiary firms (aasb.gov.au 2019). According to
the requirement of this consolidation method, it is needed to ensure the full elimination
of the carrying value of the investments in the parent and subsidiary company while the
proportion of the subsidiary’s equity capital held by the parent firm also needs to be
eliminated. It requires the elimination adjustments entries for the removal of
intercompany transactions for the removal of the chances of double counting of values
in the consolidation process (Young 2013).
It is noteworthy to discuss about the aspect that there are certain specific
requirements that need to be adhered to for the financial measurement of different
financial statements’ items at the date of acquisition; and the companies are needed to
use the fair value measurement base for this valuation purpose; the total process needs
to be followed in accordance with the accounting standards of AASB 10. AASB 10,
Paragraph 32 mentions the goodwill recognition procedure at the time of the goodwill
recognition by the acquirer at the acquisition date (aasb.gov.au 2019). The acquirer is
needed to consider the higher of these below two conditions:
a. The aggregate of the following: