Corporate and Financial Accounting

This article covers various topics related to corporate and financial accounting, including disclosing entity, capital reduction, share buyback, acquisition journal entries, consolidated retained profit, and indirect ownership interests. It also highlights the importance of financial and corporate accounting for small and medium businesses. The article provides a detailed explanation of each topic and includes journal entries and comparisons. The subject, course code, course name, and college/university are not mentioned.

Corporate and Financial
Accounting

Contents
INTRODUCTION...........................................................................................................................................3
QUESTION 1.................................................................................................................................................3
Q1. Explanation of disclosing entity along with implications of being a disclosing entity........................3
QUESTION 2.................................................................................................................................................3
Q2. Comparison and contrast of capital reduction and share buyback...................................................3
QUESTION 3.................................................................................................................................................6
Prepare journal entries to record the acquisition by ABC Ltd..................................................................6
QUESTION 4.................................................................................................................................................7
Explain the consolidated retained profit and how is it reported in the consolidated financial
statement................................................................................................................................................7
QUESTION 5.................................................................................................................................................8
Prepare journal entries for consolidation data adjustments and/or eliminations...................................8
QUESTION 6.................................................................................................................................................9
Explain the indirect ownership interests and who has the indirect interests? Describe the situation
that end up with the indirect ownership interests..................................................................................9
CONCLUSION.............................................................................................................................................10
REFERENCES..............................................................................................................................................11

INTRODUCTION
Corporate and financial accounting is critical for small and medium businesses because it
makes it possible each other to converse pertinent data to multiple interested parties, create good
economic plan to enhance the firm's quality and profitability, analyses the firm's current financial
situation, and determine whether extra resources are necessary for proper functioning. In addition
to be a certified public accountant, each prospective bookkeeper must have comprehensive
training and expertise in corporate and financial accounting (Gong and et.al, 2021).
QUESTION 1
Q1. Explanation of disclosing entity along with implications of being a disclosing entity
A disclosing entity is defined as a corporation which issues Enhanced Disclosure Securities
(EDS). It is not listed on prescribed financial market (regardless of whether their securities are
traded or quoted on the market). In Australia, disclosure entity is listed on an Australian Stock
Exchange. In other words, disclosing entity is delineated as certain kind of company that always
act as reporting entity. It is required to comply with continuous disclosure requirement that
entails need to provide information that likely to have material impact on price and value of
organization’s securities (Osborne, 2020). Moreover, listed disclosing entity immediately make
disclosure to Australian Stock Exchange, however, disclosing entities that unlisted generally
makes disclosure to ASIC as early as practicable. It is essential for disclosing entity which are
not formed outside the country or foreign incorporated to prepare half yearly financial reports
and annual financial reports.
Being a disclosing entity, it implies that a company operates transparently about its
implementation progress and discloses all known data as well as information to investors or other
users of financial reporting mechanisms (Yanovski, Lessmann and Tahri, 2020). Working as
disclosing company, it is essential to apply provisions of Corporation Act that comprises
expanded financial reporting requirements and continuous disclosure obligations. They lodge
their annual financial reports within three months.

QUESTION 2
Q2. Comparison and contrast of capital reduction and share buyback
Comparison between capital reduction along with share buyback are as follows:
Basis of
comparison
Capital reduction Share buyback
Definition It is defined as a process of reduction
in shareholder equity of a company
through share cancellations.
It is described to share repurchase
wherein an organisation buys its own
outstanding shares in order to
decrease number of shares that are
available on open market.
Purpose Capital reduction is done through
organisations for varied number of
purposes, such as producing more
efficient capital structure as well as
shareholder value (Odoardi,
D’Ingiullo and Furia, 2020).
For supporting future dividend
payments at the time of company
facing accumulated losses, capital
reduction act as compensate for deficit
in retained earning that permit
company to make payment of
dividends without waiting for existing
operating outcomes.
Businesses buy back shares for the
purpose of increasing values or
worth of remaining shares that are
available through reducing supply or
preventing other shareholders from
taking controlling stake.
Buy back of shares demonstrates to
investors that company has huge or
sufficient cash set aside for emerging
situations addition to low
probabilities related to economic
troubles.
Advantages Mentioned below are some advantages
of capital reduction:
Paying dividends: Capital reduction
benefits a company to eliminate
Certain advantages related to share
buybacks are underneath:
Improves valuation of entities:
Share buyback leads to reducing

accumulated losses that prevents
payment of dividends so to devise
distributable reserves. Clearing losses
with capital reduction is appropriate
route when values of organisational
assets has fallen.
Distributing non cash assets: An
organisation is able to distribute its
non-cash assets with the help of
capital reduction. With this, shares are
cancelled or nominal values of shares
are reduced that would result in
distribution of assets to shareholders
in return. With appropriate safeguards
placed for protecting creditors, value
of assets is being distributed could
exceed the amount in which share
capital is declined.
Demerging: Capital reduction also
benefit in demerging as it is used for
splitting activities of company into
various organisations. Moreover,
demergers are often used through
scheme of arrangement.
number of shares outstanding along
with share base that improves
earning per share and return on
equity of company that reflects
improvement of valuation of
company in market (Soni and
Trivedi, 2018).
Return cash to organisational
shareholders: In countries like
Australia, shareholder activism
through large shareholders as well as
institutions are still not prominent,
nevertheless, it is steadily building
up. It is analysed that buy back of
shares help organisations to return
cash to various shareholders and let
them make decision about what to
do with excess financial resources.
Promotes to consolidate stake in
organisation: Many a times,
promoters are worried for their
holding within the establishment
going below a certain extent. In this
context, buy back of share acts as an
offer and when promoters accept it,
company is able to maintain their
stake together with gives cash.
Methods Some of ways for reducing of capital
are as follows:
Methods of share buyback are
defined underneath:

Returning excess capital: At the time
when organisation finds that it has
surplus capital, it reduces it through
returning excess part of capital to
shareholders, it is known as returning
excess capital.
Decreasing paid-up capital: It is
perceived that when an organisation
sustain loss continuously over a
period, it is seen that assets side of
Balance Sheet comprises accumulated
losses, etc. Decreasing paid up capital
also reflects reduction in capital of
company.
Fixed tender offer: In this method,
company places tender in order to
invite shareholders for submission of
all or portion of shares in certain
time. Shareholders are provided with
choice when they desire for selling
share back to the institution
(Makarius and Srinivasan, 2017).
Open market purchase: Herein, an
organisation purchases shares from
open market over extended time
duration. It is similar to standard
buying from stock market.
There is similarity between capital reduction and share buyback that these both help the
company to improve financial ratios. Through reducing capital and buying back its shares, a
company is able to improvise its financial health. At same time, it is also perceived that capital
reduction and buyback of shares helps in focusing towards maintaining shareholder values
despite of diluting it.
QUESTION 3
Prepare journal entries to record the acquisition by ABC Ltd
(a) Cost of acquisition was $150,000 cash
Particulars Debit Credit
Debit Plant a/c 37500
Debit Land a/c 60000
Debit Vehicle a/c 30000
Debit Accounts receivable a/c 7500

Debit Goodwill 27000
Credit Accounts payable a/c 12000
Credit Cash 150000
Total 162000 162000
From the above journal entries it is analyzing that goodwill of the company was 27000 after the
cash acquisition of 150000.
(b) Cost of acquisition was $108000 cash
Particulars Debit Credit
Debit Plant a/c 37500
Debit Land a/c 60000
Debit Vehicle a/c 30000
Debit Accounts receivable a/c 7500
Debit Goodwill Nil
Credit Accounts payable a/c 12000
Credit Cash 108000
Total 120000 120000
From the above entries it is analysis that there is no goodwill after the acquisition 108000 cash.
QUESTION 4
Explain the consolidated retained profit and how is it reported in the consolidated financial
statement.
On either a consolidated balance sheet, consolidated retained earnings are an element of shares
outstanding that reflects the family's cumulative income. It is calculated by adding the partner's
interest income itself from businesses to the partner's share of the subsidiary's taxable profit since
purchase. Despite consolidated net revenue, which would be essentially the combination of the
company and subsidiary's overall operating earnings, consolidating retained earnings only
comprises the portion of the subsidiary's comment net income that accumulates to the company

(Mariano, Izadi and Pratt, 2021). The non-controlling interests in the subsidiary's retained profits
following purchase will be included in the non-controlling investment in subsidiary component
of the consolidating invested capital. Financial consolidation, in money terms, is the act of
merging monetary information from multiple companies or functional areas within an
organisation and submitting it to a parent firm. A parent business must submit its consolidated
financial statements alongside its independent income statement when submitting its financial
accounts. Consumers of a parent company's balance sheet are mainly worried with, and are
obliged to be informed about, the firm's outcomes of activities and financial condition, as well as
those of the entire group.
The equity portion of a balance sheet of a company includes retained earnings, which
represent an intended to measure. The shareholders' equity, which is a supplemental report that
publicly listed businesses must follow to provide, shows the differences in a business's
shareholdings. When using the unadjusted and adjusted equity approach, the consolidated
retained profits match the parent's separate retained earnings. This stands to reason since
consolidated retained profits refers to the parent's retained earnings. The non-controlling interest
includes earnings related to the minority holding (Chan, Chen and Liu, 2021).
QUESTION 5
Prepare journal entries for consolidation data adjustments and/or eliminations
The consolidation method is an investing accounting technique for combining and
presenting the business results of large percentage businesses. This technique can only be
employed if the investment has significant control over the equity interest or subordinate, which
usually (sometimes not) means owning at least 50.1 percent of the subsidiary's shareholdings.
Paid Up Capital = 36000
Retained Profit = 20400
Total identifiable Net Assets = 56400
Add; Increase in Building Value Due to Fair Value =70200
Fair Value of Net Identifiable Assets = 126600

Consideration Paid = 150000
Good will = Consideration Paid – Fair value
= 150000 – 126600
= 23400
Date Particulars Debit Credit
Debit Paid up capital 36000
Debit Retained profits 20400
Credit Net Assets 56400
QUESTION 6
Explain the indirect ownership interests and who has the indirect interests? Describe the situation
that end up with the indirect ownership interests.
An ownership interest in a company that owns an equity stake in that other entity is
referred to as an indirectly ownership interest. An indirectly equity stake is a distribution of
wealth in a company that owns a group that controls a company that owns a company that owns
a company that owns a company that owns a company that An shareholding in an organization
that owns an equity stake in the disclosed company is referred to as an indirectly equity stake. An
ownership stake in either business that has an indirect controlling interest in the reporting
business falls under this category. Increasing the proportion of ownership interest at each level
yields the degree of indirect ownership in the reporting entity owned by other company (Hashed
and Almaqtari, 2021). When an indirectly ownership stake corresponds to a 5 percent or greater
equity stake in the revealing business, it must be declared. For illustrate, if A owns 10% of a
group that owns 80% of the shares of the declaring business, A's stake corresponds to an
indirectly interest of 8% in the declaring organization and should be disclosed.
An ownership interest in a company that has an equity stake in another entity is referred
to as indirectly shareholding. The term "indirect ownership" refers to the public purse ownership

of any property possessed by other connected parties. Only one level of secondary ownership is
put into account (Lizares and Bautista, 2021).
The holding of shares, participation in assets, or any stake in the earnings of the declaring
company is described as a genuine ownership interest. Shareholding in a company that has an
explicitly or implicitly equity stake in the reporting business is referred to as indirectly equity
stake. Increasing the proportion of shareholding at every stage yields the percentage of indirect
shareholding in the reporting entity owned by every other business. Whereas if indirectly
shareholding corresponds to a 5 percent or greater ownership stake in the declaring organization,
it should be declared. For illustrate, if A owns 10% of the shares in a company which owns 80%
of the stock in the reporting business, A's holding corresponds to an indirect ownership of 8%
and must be disclosed. In contrast, if B owns 80% of the share of a company which owns 5% of
the shares of the declaring business, B's stake corresponds to 4% indirect possession in the
declaring company it does not need disclosure (ASON and et.al, 2021).
CONCLUSION
Financial and corporate accounting is both good for the organization or corporation in
different ways. Financial accounting, on the other hand, is used to record financial transactions,
while corporation accounting is used to analyses an organization's overall performance.
Corporate accountants are professionals in ensuring bank documents conform to different rules,
legislation, and procedures. Accounting professionals may also work under the supervision of the
firm's regional and geographic accountancy divisions.

REFERENCES
Books and Journal
Osborne, M., 2020. Do Dual Discounting Equations Reconcile Exponential Banks with Their
Hyperbolic Customers?. Available at SSRN 3600507.
Yanovski, B., Lessmann, K. and Tahri, I., 2020. The Link between Short-Termism and Risk:
Barriers to Investment in Long-Term Projects. Available at SSRN 3550501.
Odoardi, I., D’Ingiullo, D. and Furia, D., 2020. Human capital and the reduction of inequalities:
an intra-national analysis in Italy. Applied Economics. 52(57). pp.6215-6228.
Soni, B. K. and Trivedi, J. C., 2018. Buyback of Shares and IT Industry: An Analytical
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Makarius, E. E. and Srinivasan, M., 2017. Addressing skills mismatch: Utilizing talent supply
chain management to enhance collaboration between companies and talent
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Mariano, S. S. G., Izadi, J. and Pratt, M., 2021. Can we predict the likelihood of financial distress
in companies from their corporate governance and borrowing?. International Journal of
Accounting & Information Management.
Chan, K. C., Chen, Y. and Liu, B., 2021. The linear and non-linear effects of internal control and
its five components on corporate innovation: Evidence from Chinese firms using the
COSO framework. European Accounting Review. 30(4). pp.733-765.
Hashed, A. and Almaqtari, F., 2021. The impact of corporate governance mechanisms and IFRS
on earning management in Saudi Arabia. Accounting, 7(1), pp.207-224.
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Lizares, R. M. and Bautista, C. C., 2021. Corporate financial distress: The case of publicly listed
firms in an emerging market economy. Journal of International Financial Management
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Gong, G. and et.al, 2021. Punishment by securities regulators, corporate social responsibility and
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