Financial Accounting: Consolidated Financial Statement and Qualitative Characteristics of Financial Information

This article discusses consolidated financial statement and qualitative characteristics of financial information in financial accounting. It explains the importance of reliability, relevance and comparability in financial information. It also analyzes the financial performance of Patrick Financial Services using financial data. The article covers topics such as profitability, growth, and credit management.

FINANCIAL ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................4
MAIN BODY...................................................................................................................................4
Question 1 A................................................................................................................................4
b. Making financial information useful through required level of reliability, relevance and
comparability...............................................................................................................................6
Question 2........................................................................................................................................8
(a).................................................................................................................................................8
B.................................................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Financial accounting is a practice of recording to the financial transaction of the business.
This project will emphasis over the consolidated financial statement of the company. Further the
performance of business will monitor. Professional ethics of accountant will also disclose in this
report.
MAIN BODY
Question 1 A
Particulars Amount
Non – current assets
Property plant & equipment (160000 + 50000) 210000
Goodwill 20000
230000
Current assets (30000 + 10000) 40000
TOTAL ASSETS 270000
Equity & liabilities
Ordinary shares at £ 1 each 100000
Retained profits 158000
Non – controlling interest 12000
TOTAL OF EQUITY & LIABILITIES 270000
Working notes:
1. Calculation of Net assets for the Subsidiary Co. i.e., Cee plc
Particulars At acquisition (as at At Reporting date Post - acquisition

31st December 2018) (31st December
2020)
Equity shares 20000 20000 0
Retained earnings 30000 40000 10000
Fair value of net
assets of subsidiary
50000 60000 10000
2. Calculation of Non – controlling interest on the date of acquisition
= fair value of net assets on 31st December 2018 that is, at acquisition × % share of NCI
= 50000 * 20%
= 10000
Goodwill = (Consideration paid by the Pee plc to Cee plc at the time acquisition of 80% of the
controlling interest + fair value at acquisition of NCI) – Fair value of net assets as at 31st
December 2018
Goodwill = (60000 + 10000) – 50000 = 20000
Calculation of NCI on the reporting date as at 31st December 2020
NCI on reporting date (31st December 2020) = NCI at acquisition that is, on 31st December 2018
+ NCI’s share in the post - acquisition profit
= 10000 + 20% * 10000 = 12000.
Retained earnings of the group to be shown in the consolidated statement of financial
position as at 31st December 2020
Parent’s (Pee Ltd.) retained earnings as at the reporting date (31 December 2020) + Subsidiary’s
(Cee Ltd.) proportionate share of post - acquisition profit
= 150000 + 80% * 10000 = 158000.
Consolidated financial positon allow the organisation to present the accumulate financial
position of the organisation in front of the stakeholders. This statement is prepared for the group
which comprise with the firm that is investing or acquiring and the organisation in which the
investment has made. Non-controlling interest is the ownership and right of which company do
not hold any power to access as this is the right and ownership secured by the company in which
investment has been made (Kadirbayevich, 2021). IN the current case study Pee Plc is
acquiring ownership and share in the Cee Plc. The acquisition has been made of 80% that is huge

in numbers. This denote the fact that company grant the access of 80% of ownership claim in the
Cee Plc.
Non-controlling interest: refer to lack of ownership a decision making right. This is a right that
is not controllable by the firm acquired ownership in other organisation. The non-controlling
interest belong to such organisation that hold the ownership claim or investment in company less
than 50% which do not provide any significant right to make any decision of the company. As
per the generally accepted accounting principle (GAAP), NCI should be a part of liability section
of balance sheet. This will denote the ownership claim by any other firm. This further present in
the liability side of balance sheet showing the fact that the percentage or number of equity hold
by any other firm (Pisanello, 2021). The transaction related to the NCI is conducted as per the
IAS 27.
Consolidated statement of financial position: is a financial record that is combined financial
record of all the firm invested in the business. This is total and individual proportion of share
owning by every individual firm in the business (Oroh, Kalangi and Rondonuwu, 2022). Both
the company’s parent as well subsidiary claiming the interest in the firm are reflected in this
consolidated financial statement. The single statement is prepared by adding all the treatment
related to parent company and the firm to which the organisation has acquired. In the current
case single statement is prepared of both Pee Plc and Cee Plc in the form of consolidated
financial statement. The statement reflects to the overall financial position of the organisation
comprising all the parent and subsidiary firm’s involved in the ownership of business. This
statement is preparing by the group as a whole reflecting the overall financial situation of the
company as a whole.
b. Making financial information useful through required level of reliability, relevance and
comparability
It is necessary to ensure that financial statement must reflect sufficient quantity & quality
of financial information, so that reader's expectations can be satisfied in reasonable manner.
There are certain qualitative characteristics of financial statements through which financial
information provided by it can be made useful such as reliability, relevance and comparability
which will be explained in the next section of this report (Ebaid, 2021).
Relevance: The financial information can be said to be relevant if it has the ability of influencing
economic decisions made by the users of such information by assisting them in the evaluation of

present, past and future events taking place within the business. Therefore, it is must that there
exists both confirmatory and predictive value within information. If information assists its users
in evaluating present, past and future of events, then it is said to have predictive value. The
ability of financial statements increases in terms of predicting future events with the way past
information is being presented within it. Therefore, with the required and appropriate
presentation of information, user's need of making decision can be satisfied, so that they can
predict future trends of the company's performance & position that is, predictive value through
correcting those predictions made in the past that is, confirmatory value. To enhance relevancy
of financial information, the transactions associated with disposed of and new acquired business
are stated separately from that information related to continuing operations of the business
(Wahab, Ali and Abduzahre, 2019). Accordingly, a diligent user can identify changes taking
place in financial position and performance that has resulted from normal activities, so that
prediction of future activities can be done accurately. In addition to this, relevance can be
ensured through stating recent and understandable information and provision of information in
timely manner is must, so that higher relevancy can be ensured to enhance its usefulness for
decision-making.
Reliability: To make financial information useful, it is required to be reliable. The information is
said to be reliable when there it is free from material or deliberate error to facilitate dependency
of users on it. Reliability can be ensured, if financial statements offer required level of
trustworthiness within the information provided by it (Chiyad and Mahmoud, 2019). This
characteristic of financial statement is helpful in ensuring that the information provided by it is
trustful, so that investors and creditors can make decisions such as whether to invest or lend to
the company or not. It can be ensured that the financial statement is reliable when the financial
statements get verified with some authorized body. If three attributes that is neutrality,
faithfulness and verifiability are there while presenting financial statements, then its reliability
could be confirmed. Verifiability implies that the auditor or any other investigator land at the
same outcome after measuring and evaluating financial performance of the business. In addition
to this, presenting true & fair view of the business position and taking into account unfavourable
events while preparing & presenting financial statements ensures that the financial information is
faithful and neutral respectively. Accordingly, by confirming reliability of financial information,
it becomes useful for investors and creditors in making decisions.

Comparability: It is that qualitative feature of accounting information which satisfies that
policies & accounting standards are applied in consistency from one year to another (Al-Hashimi
and Mahdi, 2019). In this financial statements indicating business financial performance and
position becomes comparable from one year to another which allows its users to draw
meaningful conclusions and useful insights regarding company's performance trends over time.
Also, with the help of applying policies and accounting standards in consistency with other firms
in industry, financial performance of one firm can be compared with another firm's performance
and thus investors can make decisions regarding where to invest and creditors can make
decisions about to whom they should lend their money. In addition to this, if any changes
took place in following certain accounting policies or standards, then it must be disclosed within
the notes to account such policy changes and its impact on the financial performance and
position of a concern (Al-Dmour, Abbod and Al-Balqa, 2018). In this way, users can be able to
compare financial information of various periods and of other companies as well. It can be said
that by achieving consistency in preparing financial statements, it can be ensured that financial
information is comparable and can be used for analysing performance trends and predicting
future events in performance as well.
Question 2
(a)
(in) Comment on financial performance of Patrick Financial services using financial data
Financial performance of the Patrick Financial Service Company is based on the certain
criteria and aspects. The overall performance of the venture is totally based on the certain aspect
that can demonstrate as the profits, growth and credit management. All these are the fundamental
basis to demonstrate the performance of the venture in the respective target market. All these
aspects critically demonstrate to the overall performance of organisation in respective financial
year.
Profitability
Appendix 1 of the Financial Statement reflect the fact that the performance of the
organisation in term of profitability is similar to what company has achieved in the earlier
financial year. IN the previous financial year, the net profit margin of the Patrick Financial
Service was 20% (180 / 900 * 100(which is similar to the current financial year in which also
organisation could go through to the 20% profit margin (187 / 945 * 100). Profitability is one of

the most significant factor or element that reflect about the performance business could achieve
in the market. 20% is a good and healthy rate in term of net profits. Company could not increase
this share of profits irrespective to the fact that organisation could increase its sale in the current
financial year (Dalwai and Salehi, 2021). Every organisation always aims to increase the share
of profits in the market. In the upcoming financial year company should also focus over
increasing the profit margin along with the sales of the business. The same amount of profits
demonstrates the feature or the fact that company hold this ability to sustain the profit margin
which further empower to the organisation for taking up the competitive advantage. Other
expenses can be controlled by the venture in process to boost the net profit margin of the
business.
Growth
Patrick Financial Services could address the sales growth of 5% (945 – 900 / 900 * 100)
in compare to the earlier financial year. Further the growth rate identify in net profits are 3.88%
(187 – 180 / 180 * 100). These values are clearly showing the fact that company has been
capable to increase its profitability along with sales of the company. Increasing sales of the
venture is a positive indicator and sign for the organisation. Every organisation aims to boost the
sales of the company in order to maximise the overall performance of the venture in respective
financial year. Increase sales ratio is a very productive and positive sign and indicate for the
company to entertain more favourable performance margin of the venture in compare to the
earlier financial years (Tanko and et.al., 2021). Growth is always the primary objective and
aim associated with the business. Even if the net profit margin of company remains the same the
increasing sales provide the opportunity to the organisation to maximise the overall growth and
development of the venture in respective target market.
Credit Management
Credit management of the Patrick Company is better in compare top the earlier financial
year. The average collection period from debtor could go down to 18 from 22. Industry average
on the other hand is 30 which reflect that company is doing far better job in this area (Dao,
2021). The credit management of the organisation is improving which is a positive sign or
indicator for the company.
ii) Financial performance indicators are useful for showing past financial performance or success
of the business. It can never be guaranteed that whatever financial performance was there in the

past would remain the same in future or there will be the similar trends in performance that was
present in the past. There are many circumstances that could take place in upcoming year which
lead to losses for the company such as higher costs and losing clients. This may affect the
profitability of the business and accordingly, there would be poor performance in the future as
against good performance in past many years.
On the other hand, non-financial performance indicators are often regarded as measures
of future performance. For instance, if there is a greater quality of company's product, then in the
years to come there are higher probability of getting more clients, retaining the existing client
base along with raising price of product or service which provides additional revenue and profit
margins to the company respectively (Maletič, Gomišček and Maletič, 2021). Non-financial
measures of company's performance are indicated within balanced scorecard which have various
particulars within which different non-financial measures of performance are mentioned to
indicate non-financial performance of the business. For example, internal business processes
show internal efficiency of business, customer knowledge shows how business is dealing with its
customer's needs and expectations and learning and growth shows the patterns in business
developments.
Therefore, measuring of success and performance of the business through non-financial
means in more likely to exhibit future success or failure of the business.
(iii) Comment on performance of Patrick Financial service using non-financial data
The appendix 2 provided the financial position of the company in balance scorecard
format that is non-financial by nature. This comprise with internal business process, customer
knowledge and learning or growth of the company.
Internal business process
The error rate in job done in the current year is more than the previous year rate.
Company could achieve the error rate of 16% in current financial year as compare to the
previous financial year that was 10%. This ratio demonstrates the fact that the percentage of
mistake made by the staff in the current financial year is more than the [previous financial year
(Kumar and Gupta, 2021). The average job completion time in the previous financial year was
10 weeks which could further reduce to 7 weeks in the current financial year. This clearly
reflecting the fact that completion time of the job could go down in the current financial year as
compare to the earlier financial year. The difference can easily be seen.

Customer knowledge
The customer knowledge data of the company indicate the total number of customers and
market share in the current financial year. This ratio clearly shows the fact that total customer
own by the business in the current time is less than the previous financial year. On the contrary
note average fees or amount of revenue from the customer has increased in the current financial
year (Chulpanovna, Botiraliyevna and Turgunovich, 2021). This clearly reflecting to the fact
that even if the company is able to collect better revenue still the customer retention is less in the
Patrick Company. The current year leads could also decrease with 14%. The fees have increased
to 77 in the existing financial year.
Learning and growth
The total revenue of the organisation from the non-core work has been decreased in the
current financial year in compare to the earlier financial year. Employee retention of organisation
is bad. On the contrary note the revenue of the industry from the non-core work has increased.
B
Professional ethics refer to the individual behaviour of the accountant in context to
industry standard. These are the personal as well corporate standards of the behaviour associated
with the individual Professionally the standards do feel that professional should come up with all
norms and industry standard that can guide the person to approach the professional role and
responsibility in the most effective manner. In accounting business professional ethics should be
prioritised as standards of accounting professional must maintain in order to approach the
working objectives as an accountant. Professional ethics can disclose in the following points.
Integrity
Integrity is among the major professional this that need to followed by the accountant.
This ethics believe that and accountant need to be honest and straightforward in context to its
individual professional responsibilities. This ethics allows the accountant to fulfil all its role and
responsibilities in the most effective manner.
Objectivity
Accountant should not allow elements like conflict of interest, biasness and undue
influence while performing the role and responsibility as an accountant (Nguyen and et.al.,
2021). This ethic allows the professional to provide the best and most authentic services that can
support the professional role and responsibility of an accountant.

Professional competence & due care
This is necessary that accountant must be aware with current developments, techniques
and legislation that can offer the accountant role mitigate role and responsibility. All the
applicable rules and regulations that legislatively apply on the job role of accountant must be
known by the professional.
Confidentiality
Accountant get to know the complete financial details of the organisation. This is the
professional ethics of the professional not to share any confidential information of business with
any other individual (Prayoga and Afrizal, 2021). Also the accountant must not use this
information for individual interest.
Professional behaviour
The accountant must act professionally while performing the individual role and
responsibility as an accountant.
CONCLUSION
Patrick Company has the potential to perform better in the market. Commercial
performance of organisation can monitor with support of internal business process, customer
knowledge and learning & growth. Professional ethics of an accountant involve various
principles that comprise with integrity, objectivity, professional competence & due care,
confidentiality and professional behaviour. All these are the core ethical principles and values
related to the accountant.

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