Financial Accounting Answer 2022

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student:
Name of the University:
Author Note

1FINANCIAL ACCOUNTING
Table of Contents
Answer to Part A........................................................................................................................2
Answer to Part B........................................................................................................................3
Answer to Subpart a...............................................................................................................3
Answer to Subpart b...............................................................................................................3
Answer to Part C........................................................................................................................4
Reference list..............................................................................................................................6

2FINANCIAL ACCOUNTING
Answer to Part A
In this case, Wesfarmers is having a substantial interest or significant control over the
management of the Kidman Ltd. Hence, Wesfarmers is a parent company and can treat the
Kidman Ltd as an associate or a subsidiary company for reporting purpose. There are certain
possible losses and benefits for each of these two methods, which are explained below. As
per AASB 128, an associate company is a firm that is influenced by the investor. The entity
does not have to apply a method of equity in its investment if it is a parent company (AASB,
2015). If the company is an associate company, then as per the equity method of accounting,
only the amount invested in shares of the associate company can be shown in the balance
sheet as an investment. Later on, as per the principle of equity method of accounting,
movements or changes in equity attributable to the parent company is adjusted with the
investment (Loyeung & Matolcsy, 2015). Therefore, in this method, assets and liabilities of
the subsidiary company cannot be shown in the consolidated financial statement of the parent
company. On the other hands, if the Kidman is considered as a subsidiary then, at the time of
preparation of the consolidated financial statement all the all the assets and liabilities are
included with the line items of the financial statement of the Wesfarmers (AASB, 2015).
Hence, in this method the company can show the true financial position and strength
including all the subsidiaries as a whole.
To record the investment in associate companies, following journal entry is made.
Investment in associate company A/c .............................. Dr
Cash/Bank A/c ................................................ Cr
For adjusting changes in revenue, following entry needs to be passed subsequently.
Investment in associate company A/c .............................. Dr
Retained earnings A/c ....................................... Cr
To record investment in subsidiary company following journal entry is made.
Investment in subsidiary company A/c .............................. Dr
Cash/Bank A/c ................................................ Cr