Corporate and Financial Accounting

Running head: CORPORATE AND FINANCIAL ACCOUNTING
Corporate and Financial Accounting
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Author’s Note

CORPORATE AND FINANCIAL ACCOUNTING
1
Executive Summary
The main purpose of the assessment is to derive a critical understanding of the
accounting treatments which is associated with acquisition of a business. In this case
FAB ltd is shown to be acquired by JKY ltd. The assessment considers equity method
and consolidation method of acquiring a business which follows a different
measurement and recognition principle. The intragroup transactions which is shown in
the consolidated statement is analysed in the report and treatment of the same is
considered in the report. The assessment shows the treatment of non-controlling
interest in case of consolidation of the financial statements of the business.

CORPORATE AND FINANCIAL ACCOUNTING
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Table of Contents
Introduction........................................................................................................................3
Part A.................................................................................................................................3
Part B.................................................................................................................................5
Part C.................................................................................................................................7
Conclusion.........................................................................................................................8
Reference..........................................................................................................................9

CORPORATE AND FINANCIAL ACCOUNTING
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Introduction
The main purpose of the assessment is to obtain a critical insight regarding the
different accounting treatment which is associated with the smaller organization of the
business. The case considers the business of FAB limited which was acquired by JKY
limited. The first part of the assessment would be dealing with different methodology
which is available for accounting for consolidation and treatment of equity and the same
would be provided with appropriate examples. The second part of the assessment
would be dealing with intragroup transactions and how the same are treated in the
financial statements of the business along with appropriate examples to support the
analysis (Robinson et al. 2015). The third part would be assessing the disclosures
which is provided for non-controlling interest of the business which is considered to be
an important part of the process of consolidation.
Part A
The case which is provided in this part shows that the management of the JKY
ltd is considering the acquisition strategy which should be applied for acquiring the
business of FAB ltd. The consolidation method and equity method are two important
strategies which is applied in case tow organizations are portions of a joint venture
(Edwards 2013). The selection of the method which can be used by an organization
depend on the nature of the business and the items which are reported in the profit and
loss statement and balance sheet as the same appropriately report the partnerships.
This clearly shows that there is a clear difference between the methodology which is
applied in different cases of acquisition and appropriate discussion regarding the two
methods are shown below:
Consolidation method of accounting
The method of accounting which is followed in this method is that the assets and
liabilities of a business is recorded in the balance sheet of the business in the proportion
of the percentage of involvement in the activities of the business. The organization
under this method considers all expenses and income which needs to be shown in the
income statement of the business (Müller 2014). As per the provisions of “Paragraph
B86 of AASB 10”, the financial statements in a consolidated manner is prepared by
combining the income, expenses, assets and liabilities of the parent company wit its
subsidiary. In addition to this, the method follows an offset method for the investments
of the parent company in the equity shares of the subsidiary company. The investment
value which is to be offset is to be as per the carrying value of the investment (Weil,
Schipper and Francis 2013). The consolidated method appropriately allows adjustments
between intercompany transactions in order to ensure that there is no double counting
of the values which is presented in the financial statements of the business.
The provisions of “Paragraph B88 of AASB 10” shows the measurement
requirements of different line items which are covered in the financial statement
containing the expenses and income of the subsidiary are based on the amounts which
is realised from the assets and liabilities (Lombrano and Zanin 2013). It is for these
reasons that the items are measured on the basis of fair value at the date of acquisition