Corporate Takeover Decision Making and Effects on Consolidated Accounting

This report discusses the concepts of business combination, intra group transactions, and consolidation accounting and acquisition method. It uses the case study of JKY limited and FAB limited to explain the accounting concepts with appropriate examples. It also evaluates the impact of required changes on the disclosure requirements on the annual report.

Running head: CORPORATE TAKEOVER DECISION MAKING AND EFFECTS ON
CONSOLIDATED ACCOUNTING
Corporate takeover decision making and the effects on consolidated
accounting
Name of the Student
Name of the University
Author Note

CORPORATE TAKEOVER DECISION MAKING AND EFFECTS ON CONSOLIDATED
ACCOUNTING
Executive summary:
The report is prepared to demonstrate an understanding of the concepts of the
business combination, intra group transactions, and consolidation accounting and
acquisition method. Explanation of the concepts have been done by referring to the
case study of JKY limited and FAB limited by making a detailed use of relevant
accounting standard. All the explanation of the accounting concepts have been
explained by providing appropriate examples that provided detailed view of the
accounting treatments relating to consolidation and equity accounting.

CORPORATE TAKEOVER DECISION MAKING AND EFFECTS ON CONSOLIDATED
ACCOUNTING
Table of Contents
Introduction:..................................................................................................................2
Answer to Part A:..........................................................................................................3
Discussing the difference between equity accounting and consolidation accounting: 3
Answer to Part B:..........................................................................................................3
Discussing the key principles of how the intra group transactions can be treated:.....3
Answer to Part C:..........................................................................................................3
Changes that are required to ensure that the consolidated financial statements are
stated correctly:............................................................................................................3
Evaluating the impact of required changes on the disclosure requirements on the
annual report:................................................................................................................3
Discussing the effect of disclosure requirement of non controlling interest as a
separate item in the consolidation process:.................................................................3
Conclusion:...................................................................................................................3
References list:.............................................................................................................3

CORPORATE TAKEOVER DECISION MAKING AND EFFECTS ON CONSOLIDATED
ACCOUNTING
Introduction:
The underlying report is mainly created for the purpose of plotting the
difference in between the accounting based on consolidation and accounting based
on examples and instances. In the consolidated accounting statements the
disclosure needed in the area of non controlling interest is explained. Along with it
the transactions which are carried out within the group are also discussed hereafter
and the intra group transaction are all done on the basis of the Australian accounting
board standard (Baker and Burlaud, 2015). The two most significant case studies
JKY Limited and FAB Limited are taken here into consideration while discussing all
the intra group discussions, business combinations and the non controlling interests.
The primary discussions about the accounting standards all about its transactions
and other factors determining the accounting system in any organization are majorly
dependent upon the above said case studies. Furthermore the differences in
between the combining all the assets, liabilities, income, cash flow the parent
company and its subsidiaries are presented as those of a single economic entity",
accordingly we have some accounting standards based on the examples.
Answer to Part A:
Discussing the difference between equity accounting and consolidation
accounting:
When several investment particularly investments which are done on a large
scale are done on the investees by the investors which is termed as equity
accounting. In this kind of accounting methods, under such cases full control is not
implemented by the investor in the organization. Considering the two cases that is
the JKB and FAB limited, where the JKB acquires control over the JYB by exercising
the control over the policies. Under any kind of event of significant influence, entity
can be taken into consideration which has a strong impact as well as influence
depending upon the percentage of the voting power which can be given by the
investee like the power to vote is 20% by any investee in an organization then they
will have a significant impact on the accounting standards of an organization , if the
voting power of an investee is more than above said percentage then it is held
directly or indirectly (Maas et al. 2016). Furthermore JKY won’t be able to exercise
any kind of impact and it will have power less than 20% to vote. Also the
consolidated statements preparation is done using reverse acquisition techniques
which is in accordance of the accounting paragraph B21 of AASB 3 Business
combination (Aasb.gov.au 2019). The reverse acquisition can be explained in the
notes of the financial statements which also come under the name of legal parent
company. During the precombination of the carrying amount all the liabilities and the
assets are measured and recognized which are also reflected in the consolidated

CORPORATE TAKEOVER DECISION MAKING AND EFFECTS ON CONSOLIDATED
ACCOUNTING
financial statements. It can be explained with the help of an example, supposedly
JKY Limited purchase 30% of the shares in $ 1 million FAB Company with an
expense of $ 300000. This $ 300000 is reported as an acquisition of all the given
assets in the balance sheet. Moreover if it can be said that that JKY has a limited
control over the JKYB Limited then it can be required to prepare a consolidated
financial statements. Mainly in such kind of situation arising in any kind of
organization then it is mostly required to make consolidated financial statements in
the organization (Legislation.gov.au 2019).
This can be explained with the help of an example. Suppose JKY limited buy
30% of the shares in $ 1 million FAB Company with an expense of $ 300000. This $
300000 is reported as an acquisition of assets in the balance sheet .such situation,
the expense, assets and income of FAB limited would be added to the parent
company that is JKY limited. For instance, if JKY limited has generated $ 200000
and subsidiary brings in $ 160000, then the total reported income under
consolidation would be $ 360000.
Answer to Part B:
Discussing the key principles of how the intra group transactions can be
treated:
The parent entity and financial statements of the subsidiaries are used up in
the preparation of the consolidated financial statements which should also be
prepared on the same date. In case when the parent entity is different from that of
the subsidiary at the reporting date for the consolidation purpose, then the subsidiary
is needed to prepare about the consolidated financial statements which should also
be on the same date (Yang et al. 2018). It is also noted that if the parent is not the
same as the subsidiary at the reporting date for the consolidation, accordingly there
is a need to provide a additional financial statements at the date similar to the similar
to which the financial statements are prepared by the subsidiary. Mainly these kinds
of treatments are done to until and unless it is impractical to do so. While presenting
the non controlling interest which should be done in the consolidated financial
statements which also come under the equity in the statements of the financial
position which is separate from that of the equity of the parent ownership
(Aasb.gov.au 2019). All the non controlling is presented by the parent company in
the consolidated statements of the financial positions which is within the equity which
is different from that of the equity of the parent. The information which is given in the
financial statements is also present in the consolidated subsidiaries profit and loss.
Additionally the identification of the assets is all separate in the consolidated
subsidiaries in the non controlling interests (Aasb.gov.au 2019).All the expenses
including the income, assets, expenditure are removed totally. Any transaction which
is within the organization and all the resulting profit and loss are recognized under
the category of fixed assets and the inventory are completely according to the
paragraph 21 of AASB 127 of the consolidated and separate financial statements. All
the intra group losses are indicated by the consolidated financial statements. Also
any kind of losses arising out of the transactions which are made within the
organization are considered to be under AASB 112 Income tax (Aasb.gov.au

CORPORATE TAKEOVER DECISION MAKING AND EFFECTS ON CONSOLIDATED
ACCOUNTING
Any intra group transactions resulting profits and loss that are recognized in
the assets such as fixed assets and inventory are eliminated completely in
accordance with the paragraph 21 of AASB 127 of the consolidated and separate
financial statements. An impairment that requires getting recognized in the
consolidated financial statements is indicated by the intra group losses. Any
temporary differences arising from the profit and loss elimination due to intra group
transactions is applicable under AASB 112 Income tax (Aasb.gov.au 2019).
So consequently from the above, it can be said that the intra group
transactions are all in between the subsidiary and the parent company, and also it is
not certain that the selling of the inventory and professional services which are
provided by JKB Limited to FYB Limited and also the profits which are resulting out
of such transactions would be removed in the meanwhile (Legislation.gov.au 2019).
So lastly it can be said that the business combination the selling of such inventory
and also professional services by FYB Limited to JKB Limited should be completely
removed. So such transaction which happens within the organization should be
completely removed.
Answer to Part C:
Changes that are required to ensure that the consolidated financial statements
are stated correctly:
The preparation of consolidated financial statements should make the
disclosure about the following according to the paragraph 41 of AASB 126
Consolidated and separate financial statements. Any change in the ownership of
parent in the subsidiary due to which the control power of parent is not impacted is
accounted in the equity transactions. The consolidated financial statement takes into
account any change in the ownership of the parent in the subsidiary with such
change do not result in the change of control (Aasb.gov.au 2019). There should be
adequate disclosure of the extent and nature of restriction on the subsidiary ability
for transferring the fund in the form of cash dividends, repayment of loan and loan
advances. The changes for the parent entity and the non controlling interest should
be outlined in the consolidation process when there is a separate presentation of non
controlling interest. In addition to this, it is required to clearly label and indentify the
amount that is not associated with the non controlling interest. The claim made by
the equity on the net assets and liabilities of the consolidated entity are clarified
adequately to the shareholders when there is a separate presentation of the amount.
The change in the ownership of parents which is nit associated due to the fact that
parent is losing control over the subsidiary is recorded in the equity transactions.
Moreover, alteration in the proportion of non controlling interest might result in the
change in the relative interest of subsidiary and this should be accounted in the
particular account (Legislation.gov.au 2019). Furthermore, the difference resulting
from the adjustments made in the non controlling interest should be accounted with
such amount and the fair value is attributable to the ownership of parent entity.

CORPORATE TAKEOVER DECISION MAKING AND EFFECTS ON CONSOLIDATED
ACCOUNTING
Evaluating the impact of required changes on the disclosure requirements on
the annual report:
For ensuring that the items in the consolidated financial statements is
recorded correctly, it is required by the entity to account for any changes in the
statements in an appropriate and adequate manner in accordance with the
requirement of 101 of the presentation of financial statements (Aasb.gov.au 2019).
All the significant events and transactions taking place between subsidiary and
parent entity should be accounted for when recording the items in the consolidated
financial statements and the preparation of the statements should be done at the
same date as that of entity. In addition to this, it is also required that equities
belonging to the subsidiaries should be removed completely and this is done by
offsetting the parent entity’s investment and such treatment is done at the carrying
value (Legislation.gov.au 2019). The parent entity should adopt the accounting
policies in preparing the consolidated financial statement when such policies are
consistent with the adjustments that have been done. When the financial statement
of the entity presents a separate classification of the current and noncurrent assets
and current and noncurrent liabilities, then the classification of the current assets
should not be done as the deferred tax assets in such situation. For the
accumulated preference shares that is outstanding, it is essential for the entity to
compute the share of profit and loss. The entity take into account all the dividends for
calculating the profit and loss and such dividends is taken into account regardless of
whether the payment of dividend has been done or not pre combination
(Aasb.gov.au 2019). There should also be adequate judgment of any additional
items in the consolidated statement of financial position. Judgments of the items by
the entity regarding those additional items are done by conducting an assessment of
the nature of assets along with its functions and also assessing the level of liquidity
by considering the timeliness, nature and the amount of liabilities pertaining to it.
Discussing the effect of disclosure requirement of non controlling interest as a
separate item in the consolidation process:
It is essential for the organization to make adequate disclosure of the
significant accounting policies for ensuring the correct recording of the financial
statements and the disclosure of significant accounting policies have found to have a
major impact on the changes in the business combination. The accounting concepts,
basis of measurement and the criteria of recognition of different liabilities and assets
should also be adequately disclosed. In addition to this, it is required by the standard
AASB 12 that there should be the disclosure of the judgment in relation to the parent
control power in subsidiary that is made by the entity preparing the consolidated
financial statement. It is required by the standard to make a particular disclosure of
the statement of the financial position, statement of profit and loss and statement of
comprehensive income according to the AASB 101 of the presentation of the
financial statements (Aasb.gov.au 2019). The equity transactions in preparing the
consolidated financial statements accounts for the subsidiary ownership in the parent
company that do not results the parent company to lose control over subsidiary
company. Therefore, it is essential for the entity to make the adjustment in the
carrying value of non controlling as well as controlling interest so that the change in
the subsidiary relative interest is reflected.

CORPORATE TAKEOVER DECISION MAKING AND EFFECTS ON CONSOLIDATED
ACCOUNTING
For the faithful presentation of the financial statements, it is required by the
entity to make additional disclosure by compiling the requirement of the accounting
standard board of Australia. Preparation of the consolidated financial statements is
done at the end of reporting period which should reflect the additional disclosure of
the parent and subsidiary entity. Moreover, any existing difference should be
adequately justified by giving proper explanation and such justification is given by
making adjustments to the figures in the consolidated financials statement after the
business combination. Furthermore, the nature of relationship between the
subsidiary and patent entity should be explained properly along with giving an
explanation of the fact when parent entity does not own power to vote either directly
or indirectly in the subsidiary. However, entity cannot use material information for
rectifying the accounting policies.
Conclusion:
Evaluation of the concept of consolidation and equity accounting has found
that these two methodologies have wide differences in terms of accounting
treatments and disclosure requirements. Consolidation accounting is the combined
representation of financial performance of two entities. Equity accounting shows the
financial performance of one company along with the other company that exercises
significant influences over the other. It has also been found that the treatment of the
event and accounting effects that resulted from the occurrence of intra group
transactions should be eliminated in full. Lastly, the disclosure requirement of the
consolidated financial statements is considerably impacted by the changes that are
required to make while preparing such financial statements.

CORPORATE TAKEOVER DECISION MAKING AND EFFECTS ON CONSOLIDATED
ACCOUNTING

CORPORATE TAKEOVER DECISION MAKING AND EFFECTS ON CONSOLIDATED
ACCOUNTING
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