Corporate and Financial Accounting

Corporate and Financial Accounting

Table of Contents
Introduction......................................................................................................................................3
Part A...............................................................................................................................................3
Part B...............................................................................................................................................4
Part C...............................................................................................................................................6
Conclusion.......................................................................................................................................9
Reference List................................................................................................................................10

INTRODUCTION
The present study aims to evaluate and interpret business combinations, acquisition methods, the
corporate group, non-controlling interests (NCI) and intragroup transactions with the help of
independent and comprehensive research supported by a relevant accounting standard. The
present study covers the key differences in methodology between Consolidation Accounting and
Equity Accounting, treatment of intra-group transactions. The prevailing piece of paper also
emphasizes on the changes required to ensure the correct statement of consolidated financial
statements and their impact on the disclosure requirements in the annual report, while
considering the impacts of NCI disclosure requirement as a separate item in the consolidation
process.
PART A
The equity method is considered as an accounting method, in which investments are recognized
initially at costs and thereafter adjustments is done for the post-acquisition change in the share of
investor of the net assets of investee. Further, the profit or loss of the investor comprises its share
of the profit or loss of the investee and other comprehensive income of the investor, including its
share of the other comprehensive income of the investee(Schwarzbichler, Steiner & Turnheim,
2018). Due to the fact that, investor possess significant influence or joint control on the investee,
in this way investor gains the interest in the performance of joint venture and consequently on
the return on investments. Thus, using the equity method offers better informative and useful
reporting of the net assets, P&L of the investor.
On the other hand, the consolidation method is an investment accounting that is employed for the
consolidation of financial statements of most of the ownership investments. This is applied when
the investor has better control of the subsidiary which generally, however no every time, makes
assumption that the investor has the ownership of approx 50.1% of the shares or subsidiary. This
method of consolidation operates by doing report of balances of subsidiary in a combined
statement, together with the balances of parent company, thus stated as consolidated. As per the
consolidation method, the parent company would be combining its individual revenue with
100% subsidiary revenue.

AASB 128 Para 22, the Consolidation method makes the adjustments for upstream and
downstream, makes an adjustment for unrealised profits or losses makes adjustments for inter-
entity balances, makes adjustments for full effect (100 %), makes adjustments for separate
accounts like a sales investment account and the transactions are held in the group under the
method.
In contrast to this, according to the AASB 128 Para 22, the equity method makes adjustment for
upstream and downstream, makes adjustment for unrealized profits or losses, it does not adjusts
inter-entity balances, there is adjustment done on proportionate basis. Under this method, shares
of P&L are adjusted and there is no existence of group structure or economic entity (Standard,
2015).
For the JKY Limited, before taking over the FAB Limited, with making use of the GAAP, it is
critical for them to record all such events by making use of the acquisition method as well as
approaches that present a set of steps for recording acquisitions, in the way of measuring tangible
acquired assets and liabilities, measuring acquired intangible assets and liabilities, measuring the
NCI amount in the business acquired, measuring the payable consideration amount to the seller
and measuring the goodwill or earned gain over the transaction (Hussey & Ong, 2017). By
considering the given case situation of JKY Ltd of taking over FAB Ltd, the best strategy for the
company is to go for the acquisition method; it is because it will help in offering an effective
presentation of related transactions in regards with the acquisition to the financial statement users
and involved stakeholders.
PART B
In accordance with the accounting requirements for the consolidation procedures, the
consolidated financial statements in reference with the AASB 127 Consolidated and Separate
Financial Statements and AASB 10 Consolidated Financial Statements must eliminate in full the
intragroup assets and liabilities, income & expenditure, equity and flows of cash associated with
the transactions held between group entities. With the relevant standards, profit or losses as a
consequence of intragroup transactions been recognized in assets, for example fixed assets or