Financial Accounting: Consolidated Financial Statements and Financial Performance Analysis

UG221 Financial Accounting

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
QUESTION 1.............................................................................................................................3
a).............................................................................................................................................3
b) Explaining the features of FS and usefulness of financial information.............................5
QUESTION 2.............................................................................................................................7
a).............................................................................................................................................7
b) Discussing the importance of financial ethics and five basic morality are as follow........9
CONCLUSION........................................................................................................................10
REFERENCES.........................................................................................................................12

INTRODUCTION
The financial accounting refers to effectively managing and handling the financial
accounting of a firm under various business situations like mergers and acquisitions. In the
given report, there are two parts, the first part is based upon the topic of acquisition and
provides an in-sight into the various steps and procedures involved in the creation of the
consolidated financial statements of the organization. Along with this, it provides the
understanding about the various important accounting terms like reliability, relevance,
comparability which are the key aspects of the financial information. While in thesecond part,
it analyses the financial and non-financial performance of the company along with
understanding the principles of professional ethics in accounting.
QUESTION 1
a)
Preparation of Consolidated statement of financial position
Particulars Amount
Non – current assets
Property plant and equipment (160000 + 50000) 210000
Goodwill 20000
230000
Current assets (30000 + 10000) 40000
Total assets 270000
Equity and liabilities
Ordinary share of £ 1 each 100000
Retained profits 158000
Non – controlling interest 12000
Total of Equity and liabilities 270000
Working notes:
Net assets of the Cee plc (Subsidiary Co.)
Particulars At acquisition (on
December 2018)
At Reporting date
(31 December 2020)
Post - acquisition

Equity shares 20000 20000
Retained earnings 30000 40000 10000
Fair value of the net
assets
50000 60000 10000
Value of Non – controlling interest at acquisition
= fair value of net assets at acquisition * % of NCI = 50000 * 20% = 10000
Goodwill = fair value being paid by parent on acquisition of controlling interest + fair value
of NCI at acquisition – Fair value of net assets on the date of acquisition
Goodwill = 60000 + 10000 – 50000 = 20000
NCI calculation for the date of reporting that is, 31 December 2020
= opening NCI on 31 December 2018 + NCI % share of profit arises on post – acquisition
= 10000 + 20% of 10000 = 12000.
Group retained earnings to be shown in consolidated statement of financial position
Pee Ltd. (parent)’s retained earnings as on 31st December 2020 + % share of post -
acquisition profit of Cee Ltd. (Subsidiary)
= 150000 + 80% of 10000 = 158000.
Therefore, there are few terms which is being used for creating the above
consolidated statement for the group in which the Pee Plc has obtained 80% share in the Cee
Ltd.
Non – controlling interest (NCI):It refers to the minority interest having a position as an
owner but is having a share of less than 50% and thus, do not hold any eligibility for
undertaking any decision. It has been measured on the basis of the net assets value in which
the parent company holds over 50% shares of the company outstanding. In addition to this,
the NCI is also not having any voting rights within the company and is basically shown under
the section of equity in the balance sheet of the parent company which is in accordance to the
GAAP. Therefore, IAS 27 is applicable in respect to the treatment of the NCI.
Consolidated statement of financial position: The consolidated statement accounts for the
group financial statement which combines the income, expenses, liabilities and equity within
a single statement. In simple terms, it includes the parent and subsidiary financial information
which is shown as if it is of singleentity with respect to IAS 27 (Narkunienė and Ulbinaitė,
2018). Thus, all the liabilities and assets of the subsidiary and the parent company is added all
together which is then adjusted in regard to the adjustments because of consolidation. The