Corporate and Financial Reporting: Accounting Treatments and Disclosures for Business Acquisition

Running head: CORPORATE AND FINANCIAL REPORTING
Corporate and Financial Reporting
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CORPORATE AND FINANCIAL REPORTING
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Executive Summary
The main objective behind this assessment is to analyse the accounting treatments
which takes place when a business acquires another business. The discussion below
shows the presentation and compliance requirements which is necessary for preparing
the consolidated financial statement of the business. The assessment would also be
dealing with the treatment of unrealised profits and how the same are represented in the
annual reports of the business. The assessment mentions the recognition and
measurement criteria of unrealise revenue. The assessment would also be dealing with
intragroup transactions and also with disclosure requirements which the parent
company must adhere to while preparing the consolidated financial statements.

CORPORATE AND FINANCIAL REPORTING
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Table of Contents
Introduction........................................................................................................................3
Consolidated and Equity Method of Accounting................................................................3
Intragroup Transactions.....................................................................................................5
Impact of Disclosures of Non-controlling Interest in Consolidated Financial Statement. .7
Conclusion.........................................................................................................................8
Reference..........................................................................................................................9

CORPORATE AND FINANCIAL REPORTING
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Introduction
The main purpose of the assessment is to conduct a detailed analysis on the
topic of acquisition and takeovers in which major businesses are engaged in modern
era. The assessment considers the various accounting treatments and disclosures
which are required to be portrayed in the annual report when a business acquisition
takes place. The assessment represents the case of acquisition which was undertaken
by JKY ltd of the business of FAB ltd. The assessment would be subdivided into three
parts. The first part would deal with different methods which are available in particular
the consolidation accounting and equity accounting along with proper examples relating
to the same (Robinson et al. 2015). The second part would deal with intragroup
transactions which forms an important part of consolidation would be shown with proper
examples representing the same. The last part would be dealing with disclosures which
a business need to show for treatment of non-controlling interest in the consolidated
financial statements which is prepared by the business.
Consolidated and Equity Method of Accounting
In case of Business takeover or merger, one of the key consideration which the
management of the acquirer company needs to select appropriate acquisition strategy
which is to be followed by the business. In the case provided, the management of JKY
ltd needs to select an appropriate strategy for acquiring the business of FAB ltd. The
options which are available to the management is either consolidated accounting
method or equity accounting method for the purpose of reporting the same in the
financial reports which is prepared by the business (Müller 2014). The method which is
to be selected would be determined from the way financial reports demonstrate the
partnership. It is a known fact that the difference which is present is in the methodology
which is followed by respective businesses.
Consolidation method of accounting:
The consolidated method of accounting is a process of accounting which
effectively measures the assets and liabilities of the subsidiary business and the same
is shown in a combined manner in the balance sheet of the acquirer company. The
consolidated method of accounting effectively organizes the assets and liabilities of the
subsidiary company and record the same in the financial statement of its own. The
provisions which are stated under Paragraph B86 of AASB 10”, show that the items
which are mainly equity, assets, liabilities, cash flows, income and expenses of the
acquirer company for the purpose of reporting and the same is combined with the
values which are shown in the balance sheet of the subsidiary company. The method
also offsets any investments values which might be there between the parent company
and the subsidiary company. In addition to this, intercompany transactions are not
considered while preparing the consolidated financial statements of the business. This
is done so that there is no double counting situation thereby ensuring that the
consolidated financial statement which is prepared is showing accurate view of the
financial information of both the companies.