Corporate and Financial Accounting: Decision Making and Consolidated Accounting

Corporate and financial accounting

EXECUTIVE SUMMARY
The present report shows the various aspects related to applying decision making at the time of
corporate takeover. It also contains the effect of taking over on the consolidated accounting. By
applying the Australian Accounting Standard 3, Business Combination, it has been identified that
business restricting happens in several ways. Further, AASB 128, states about the significance
of influence and how the parent entity should record the transactions. Moreover as per AASB
127, the unrealized profit should also be eliminated in the Consolidated Income Statement,
however, if it is sold to the third party, then there is no unrealized gain/loss. There are some
changes that must be required for accurate Consolidated Financial Statement.

Table of Contents
Introduction......................................................................................................................................4
Part A...............................................................................................................................................4
Part B...............................................................................................................................................6
Part C...............................................................................................................................................8
Conclusion.....................................................................................................................................10

INTRODUCTION
Business restructuring is the method of reorganizing the operational, legal, or ownership
structures of the business, with the objective of maximization of profit or fulfilling the existing
needs. There are several methods by which an entity can take over the other entity. The present
study revolves around the method of the takeover of other entity, the accounting treatment for the
intergroup transactions and the manner in which Consolidate Financial Statement is prepared.
PART A
In the given case, Company Named as JKY Ltd., wants to take over of a smaller company called
FAB Ltd., it is the listed company. JKY Ltd is considering the two methods of the takeover of
FAB Ltd, which are Purchase/acquisition method and acquire a significant influence over FAB
Ltd. Purchase method is the short term strategy of the company by which company can acquire
the whole control over the FAB Ltd; on the other hand by acquiring the significant influence; the
company cannot obtain the whole control over the FAB Ltd.
As per the Australian Accounting Standard 3, a business combination may take place in several
ways. It assists in taking together the distinct entity or business into one reporting entity. The
outcome of the business combination is that one organization acquires control over the other
entity (Cain, McKeon, and Solomon, 2017). Further, as per the Australian Accounting Standard
128, if the organization holds at least 20% voting power in the other entity, then it is referred as
organization acquire the significant influence over the other entity (Bisogno, Santis, and
Tommasetti, 2015).
It is recommended that JKY ltd. should take over the FAB Ltd by purchase/acquisition method,
as it is a small company and belongs to the same industry. By this company can exercise whole
control and also add value to the firm by decreasing the redundancies.
The difference between the Consolidation method of accounting and equity method of
accounting is as follows –
 As per the Australian Accounting Standard 10, in case of consolidation of accounts, items
such as liabilities, assets, equity, expenses, income, and cash flows of the Organization