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Corporate Takeover Decision Making and the Effects on Consolidation Accounting Assignment

   

Added on  2020-10-23

12 Pages3069 Words144 Views
Corporate TakeoverDecision Making and theEffects on ConsolidationAccounting

EXECUTIVE SUMMARYThis report concise about the decisions which are made during corporate take over andmethodology which is to be used by company to take over any other business. In this report twocorporate acquisition methods are discussed Consolidation Accounting and Equity Accounting,and reason that why company should opt one of these methods. In the second part of the report itsummarises about the transaction happened between the subsidiary and parent company. Thethird part of the report concise about the various requirements as per the AASB to disclose thenon controlling interest (NCI).

Table of ContentsEXECUTIVE SUMMARY.............................................................................................................2INTRODUCTION...........................................................................................................................1PART A...........................................................................................................................................1PART B............................................................................................................................................4PART C............................................................................................................................................5CONCLUSION................................................................................................................................7REFERENCES................................................................................................................................9

INTRODUCTIONCorporate take over is the acquisition of one business by another business, in this all theassets and liabilities are purchased by another business and that company is owned and managedby the purchasing company (Shroff, Verdi and Yu, 2013). The Following report talks about thecorporate take and the effects which it can have on the consolidated financial statements. Thisreport is divided into three part, Part A talks about the different types of methods through whichone company can acquire another company, in this report key difference in methodology ofConsolidation Accounting and equity accounting. Part B talks about the intra group transactionsand its treatment and Part C talks about the requirements of NCI disclosure.PART AConsolidation method accounting: Consolidation method accounting is an investmentaccounting method used by companies to consolidate financial statements of the companyholding majority of shares. This method is only used by the companies which owns more than50.1% shares in the subsidiary company. This methods works after the reporting of subsidiarycompany's balance of its financial statements in a combined financial statements of Parentcompany. Under this method total revenue generated by a parent company from its businessoperations are combined with the total revenue generated by its subsidiary company.Equity method accounting:Equity method accounting is an accounting method used bycompany when it holds a significant influence over the company which it is acquiring, but it doesnot have a full control over it. In order to use this method of accounting company has to have asignificant influence over investee company. In order to have a significant control investorcompany must own between 20% to 50% shares in the investee company or have voting rights.If in any case investor has less than 20% shares but have a significant influence over its businessoperations, investor company must use equity cost methods.Key difference in methodology in both accounting methodsAs per Australian Accounting Standard Board 3 business combination, parent company'sinvestment in subsidiary is shown as an assets, with subsidiary reporting which states theequivalent equity that are owned by parent company are shown in its own accounts (Chiu, 2013).During consolidation of statements an elimination adjustment are added in order to adjust theamount of consolidated statements it is necessary to adjust elimination adjustment so that this1

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