Corporate and Financial Accounting Report: Business Combination

This report provides a comprehensive analysis of corporate and financial accounting, with a specific focus on business combinations. Part A delves into the Australian Accounting Standards Board's role in global standard setting and the reasons IFRS is not compulsory for IASB members, along with the concepts of small and large proprietary companies and reporting entities. Part B examines business combinations through a comparative analysis of Baby Bunting Group Ltd and Accent Group Ltd, both Australian retail companies. The analysis includes the number of business combinations, fair value of consideration, components of acquisition costs, fair value of net identifiable assets, recognized and carrying values of assets and liabilities, goodwill, and intangible assets. The report also explores factors influencing goodwill recognition and provides a comparative analysis of the companies' disclosure practices. The report concludes by summarizing the key findings and insights gained from the analysis.

Corporate and
Financial Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
1. Explanation of the way in which Australian Accounting Standards Board take part in global
accounting standard setting process along with the reasons due to which IFRS are not
compulsory for the member countries of IASB...........................................................................1
2. Examination of the concept of small and large proprietary company and reporting entity
Along with the implication of being classified as either one of these types................................2
PART B............................................................................................................................................3
1. Total number of business combinations in the company report..............................................3
2. Fair value of consideration.......................................................................................................3
3. Components of acquisition costs.............................................................................................4
4. Fair value of all the net identifiable assets acquired................................................................4
5. Recognised value of each class of assets, liabilities and contingent liabilities........................5
6. Carrying value of each class of assets, liabilities and contingent liabilities............................5
7. The information regarding the value of goodwill or gain on bargain which is recorded in the
report............................................................................................................................................6
8. All the factors that are contributing in the recognition of the goodwill or gain on bargain
purchase.......................................................................................................................................7
9. The amount of goodwill as percentage of total consideration paid.........................................7
10. The amount of identifiable intangible assets as a percentage of total consideration paid.....8
11. Comparative analysis of the companies regarding disclosure of the business combination. 8
CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
Corporate and financial accounting are two different terms but both of them are required
to be focused by all the businesses as with the help of them companies can record all the
financial transactions as well as analyse the performance of business. If the organisation will not
be paying attention towards them then it may leave negative impact upon functionality of
business (Barker, 2019). Present report is having two different parts, Part A is focused with
accounting standard setting and reporting entity. Part B is related to the analysis of business
combination or acquisition assessment of the company. Two companies which are selected for
this part of the report are Baby Bunting Group Ltd and Accent Group Ltd. All the companies are
local entities of Australia. This assignment covers various topics such as role of Australian
Accounting Standard Board in setting global standard and concepts of small and large
proprietary and reporting entity. Additionally, detailed analysis of business communication of
two different companies is also covered in this report.
PART A
1. Explanation of the way in which Australian Accounting Standards Board take part in global
accounting standard setting process along with the reasons due to which IFRS are not
compulsory for the member countries of IASB
Australian Accounting Standards Board is responsible for taking part in the process of
global accounting standard setting process. All the accounting standards that are followed in
Australia are same as the standards of IFRS. When these standards are formulated by IASB then
AASB plays major role because all the standards that are followed in Australia are similar to
IFRS. The Australian Board take part in the global standard setting process effectively by
suggesting the IASB to make sure that all the IFRS are effectively formulated or not. Main
purpose of taking part in this process is to make sure that all the Australian Accounting standards
are issues, developed and maintained in systematic manner and amended with IFRS. AASB
consult with a range of stakeholders of companies of the Australia and analyses feedback from
them regarding IFRS. All the views of them are shared by AASB with IASB so that appropriate
changes could be made before setting a new standard (DAVALLOU and MAHMOODI, 2017).
If a country is a part of IASB then it does not required to follow IFRS because the
accounting process which will be followed by the will be formulated with the concept of
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international reporting standards. For all the member countries of International Accounting
Standard Board it is not compulsory that they should follow the IFRS system because the rules,
regulation and principles for accounting which will be followed by them will have all the
amendments of IFRS.
2. Examination of the concept of small and large proprietary company and reporting entity Along
with the implication of being classified as either one of these types
In all the countries different companies operate business for different objectives. Some
types of businesses are described below:
Small proprietary company: A small business which is satisfying two of the following
criteria will be treated as small proprietary company:
 The consolidated revenues for the year ending are less than 10 million dollars.
 The total value of the consolidated assets at the end of accounting years is less than 5
million dollars.
 The number of staff members working within the company is less than 50 at the end of
the accounting year.
If a business will comply with two of the above described points then it will be the small
proprietary company (Gilala, 2017).
Large proprietary company: An organisation which is complying with two of the
following criteria will be treated as large proprietary company:
 The number of individuals working within the enterprise is more than 50.
 The value of gross operating revenues is more than 10 million dollars for the accounting
year ending.
 The value of gross assets for the year ending is more than 5 million dollars.
If a business entity is fulfilling two of the above criteria then it will be the large
proprietary company.
Reporting entity: A business in which all the stakeholders and other concerned persons
are interested in determining the business position and performance is known as reporting entity.
All of them use the information for the purpose of making future decisions so that all the goals
and objectives could be met. For a reporting entity it is very important to make sure that it is
complying with all the financial guidelines so that accurate and transparent final accounts could
be generated (Kowalewski, 2016).
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PART B
1. Total number of business combinations in the company report
Baby Bunting Group Ltd is operating its business in Australia and it was founded in year
1979. Accent Group Limited is the another company which is also an Australian company which
is established in Melbourne, Australia and was founded in year 1981. Both the companies are
operating business under Retail industry. Business combination could be defined as the
transaction which is obtained by the company which is acquiring another entity. It is one of the
ways which are focused by the businesses for the purpose of growing their size by ignoring the
organic activities for the same purpose. From the annual report of baby Bunting Group Ltd it has
been analysed that no detailed information regarding business combination is mentioned in the
annual report. The main reason of it is that the enterprise has not acquired any business in year
2019. The company is having two subsidiaries which could be considered as its business
combinations. These entities are Baby Bunting Pty Ltd and Baby Bunting EST Pty Ltd. (Annual
Report of Baby Bunting Group Ltd, 2019)
On the other hand, from the annual report of Accent Group for year 2019 it has been
analysed that there are various business combinations in its report. During the June month of
year 2019 the enterprise acquired 30 TAF stores and it includes the New Zealand Master
Franchise License which are required by it. Apart from this, a sneaker and fashion boutique was
also acquired by the company from Zanerobe Global Holdings Pty Ltd. which was a subtype
business. By analysing detailed information of these acquisitions it has been analysed that there
were two different business combinations in the annual report of Accent Group.
2. Fair value of consideration
From the annual report of Accent Group it has been analysed that the fair value for the
consideration which was paid at the acquisition was 435 as on 1st July 2018 and the same amount
for 30th June 2019 was 925 (Annual report of Accent Group, 2019). It was the opening and
closing balance for the enterprise. The actual fair value at the acquisition date for the
consideration transferred was around 12124. The key elements which were focused in the
calculation of it are cash paid to the vendor and outstanding debts. The total value of both of
them are 11813 and 311 respectively. The net cash which is used in the fair value was calculated
as follows:
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Particulars Amount
Cash used for acquiring business 12124
Less: Outstanding debts 311
Less: cash and cash equivalents 9
Net cash 11804
As Baby Bunting Group Ltd has not acquired any business during year 2019 so there will
be no fair value which would have been paid by the organisation for acquisition.
3. Components of acquisition costs
The amount which is faced by an organisation while acquiring the another business is
known as acquisition cost. From the annual report of Baby Bunting Group Ltd it has been
analysed that the company has not faced any acquisition cost because it has not acquired any
business during year 2019. On the other hand, the annual report of Accent Group is reflecting
that the total acquisition cost which was faced by the enterprise after acquiring 30 TAF stores
and Subtype Business was around 12124 dollars. The cash consideration in the total cost was
around 11813 and the non cash consideration of 311 was paid by the company to the owner of
the businesses which were acquired by it during 2019 (Kristanti and Herwany, 2017).
4. Fair value of all the net identifiable assets acquired
Net identifiable assets are such types of properties that are acquired by a business while
acquisition. The value of them could be measured within a specific time period with the future
benefit for the business. These are mainly used for the purpose of allocation of purchase price
and computation of goodwill during acquisition and merger. From the annual report of Baby
Bunting Group Ltd it has been analysed that there are no net identifiable assets that are acquired
by it as no acquisition was made by it during the year 2019. On the other hand, the value of net
identifiable assets in the annual report of Accent Group is around 2985. The elements that are
included in it are cash and cash equivalents, inventories, other current assets, property plant and
equipment, reacquired right, deferred tax asset etc. The values of all of them are around 9, 4146,
119, 256, 379 and 103 respectively. The elements that were deducted from the value of the assets
are lease liability, employee benefits, trade and other payables, other current liabilities etc. The
values of them are 674, 285, 21 and 1047 respectively (Nasr and Ntim, 2018).
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5. Recognised value of each class of assets, liabilities and contingent liabilities
The value which is determined the seller of business for all the assets, liabilities and other
elements that will be sold to the buyer is known as recognised value. There are various assets,
liabilities and contingent liabilities that were analysed while deciding the consideration of the
acquisition. It is very important for businesses to make sure that they are having detailed
information about all of them so that evaluation of business combination could be conducted in
systematic manner (Roychowdhury, Shroff and Verdi, 2019). The annual report of Baby Bunting
Group Ltd it has been analysed that there is no recognised value of each class of assets, liabilities
and contingent liabilities. Another company which is Accent Group acquired 30 TAF stores and
a fashion and sneaker boutique so there are various assets, liabilities and contingent liabilities
which were identified by the company. The recognised value of all the assets, liabilities an
contingent liabilities is as follows:
Recognised value Amount
Assets:
Cash and cash equivalents 9
Inventories 4146
Other current assets 119
Reacquired right 379
Property, plant and equipment 256
Deferred tax assets 103
Liabilities:
Trade and other payables 21
Employee benefits 285
Other current liabilities 1047
Lease liability 674
Contingent Liabilities:
Goodwill 9139
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6. Carrying value of each class of assets, liabilities and contingent liabilities
Carrying value could be defined as an accounting measure which is based upon the value
represented in the balance sheet of the company. While recording information related to
acquisition the buyer business is required to have detailed information about it so that the
purchase consideration could be decided for the business. The annual report of Baby Bunting
Group Ltd it has been analysed that the company is not having any type of carrying value in the
annual report because no acquisition was made by it during the year 2019 (Sorensen and Miller,
2017). Apart from this, annual report of Accent Group is showing that the company acquired 30
stores and a subtype business so the details regarding the cost to the company is mentioned in the
report. There is no specific information is provided for the carrying cost so assets, liabilities and
contingent liabilities so the value of it will be same as the recognised cost. The detailed
assessment of all the elements for carrying value is as follows:
Carrying value Amount
Assets:
Inventories 4146
Reacquired right 379
Property, plant and equipment 256
Other current assets 119
Deferred tax assets 103
Cash and cash equivalents 9
Liabilities:
Other current liabilities 1047
Lease liability 674
Employee benefits 285
Trade and other payables 21
Contingent Liabilities:
Goodwill 9139
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7. The information regarding the value of goodwill or gain on bargain which is recorded in the
report
The annual report of Baby Bunting Group Ltd is showing 45321 as the value of goodwill
but it could not be considered as the element of acquisition or business combination because the
organisation has not acquired any business during the year 2019. On the other hand, the annual
report of Accent Group is showing 9139 as the goodwill in note 41 which is related to business
combination. It was the amount which was paid by the company to the owners of businesses
which were acquired by it during the year 2019. In the balance sheet of the company the opening
balance for goodwill was 295 and closing balance for the same is 304 (Thanh, 2016)
8. All the factors that are contributing in the recognition of the goodwill or gain on bargain
purchase
While buying a business it is very important for an organisation to make sure that
goodwill for the same is recognised because it can help to improve the market image. While
acquiring a new company the entities can pay attention towards different factors which are
location, time, nature of business, capital required, trend of profit and efficiency of management.
As Baby Bunting Group Ltd has not acquired any business during the year 2019 so there are no
factors which can contribute in the recognition of the goodwill. On the other hand, the annual
report of Accent Group it has been analysed that the company has acquired different stores and a
subtype business. While buying them the organisation paid attention towards different types of
factors. These are profits, nature of business and capital required. The profitability of all the
stores as well as the subtype business was very high so the entity focused it while recognising
goodwill. Apart from this, nature of business is also focused by the organisation for the purpose
of recognising the value of goodwill. As the stores that were acquired by it are operating
business under retail industry so it will help the entity to expand the business therefore the nature
of business was also focused by the entity while recognising goodwill of acquired entities
(Unerman, Bebbington and O’dwyer, 2018).
9. The amount of goodwill as percentage of total consideration paid
Baby Bunting Group Ltd has not acquired any business during the year 2019 so there will
be no amount of goodwill which would have been paid to the organisation which could have
acquired by it. On the other hand, Accent Group acquired 30 stores and a subtype business for
which the total consideration which was decided by the company was 12124. The amount of
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goodwill in this value was around 9139 (Warren and Jones, 2018). The calculation of amount of
goodwill as percentage of total consideration paid is as follows:
Formula: Goodwill / total purchase consideration * 100
= 9139 / 12124 * 100
= 0.754 * 100
= 75.4%
The amount of goodwill as percentage of total consideration is 75.4% for the acquisition
which was made by Accent Group during year 2019.
10. The amount of identifiable intangible assets as a percentage of total consideration paid
The annual report of baby Bunting Group is demonstrating that the company has not
made any acquisition during 2019 so there is no value mentioned in the annual report regarding
identifiable intangible assets. On the other hand, Accent Group acquired different businesses in
2019 so the annual report is showing detailed regarding net identifiable intangible assets. In
order to calculate the amount of the assets as a percentage of total consideration paid the value of
intangible assets will be required to analysed (Velte, 2019). The calculation for the same is as
follows:
Intangible assets = Goodwill + deferred tax asset + reacquired right
= 9139 + 103 + 379
= 9621
Formula for percentage = Net identifiable intangible assets / total consideration * 100
= 9621 / 12124 * 100
= 0.7935 * 100
= 79.35%
11. Comparative analysis of the companies regarding disclosure of the business combination
From the annual report of Baby Bunting Group Ltd and Accent Group it has been
analysed that first company has not mentioned any information regarding business combination
in the report. On the other hand, second entity mentioned detailed information about business
combination in the annual report. Main reason for the same is that Baby Bunting has not
acquired any business during year 2019 but Accent Group acquired different businesses in the
year 2019 (Zhou, 2018). If both the companies will be compared then it could be said that second
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enterprise has mentioned the details of business combination properly but the first company has
not recorded any information.
CONCLUSION
From the above project report it has been concluded that financial accounting is the
process of recording information of finance related transactions and corporate accounting is a
technique which is used to evaluate financial performance of company on the basis of records.
AASB take part in the IFRS setting process so that effective amendments could be made in the
standards before introducing them in a country. There are various types of business that are
operating business in different nations. These are reporting entity, large and small proprietary.
When a company acquires another business and record information of it in the annual report then
it is known as business combination. The Australian Accounting Standard which is related to it is
AASB 3. All the companies that are acquiring a business during a year are required to make sure
that they have mentioned detailed information regarding various aspects. Some of them are
goodwill, purchase consideration, acquisition cost, net identifiable assets, liabilities and
contingent liabilities.
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REFERENCES
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Nasr, M. A. and Ntim, C. G., 2018. Corporate governance mechanisms and accounting
conservatism: evidence from Egypt. Corporate Governance: The International Journal
of Business in Society.
Roychowdhury, S., Shroff, N. and Verdi, R. S., 2019. The effects of financial reporting and
disclosure on corporate investment: A review. Journal of Accounting and
Economics.68(2-3). p.101246.
Sorensen, D. P. and Miller, S. E., 2017. Financial accounting scandals and the reform of
corporate governance in the United States and in Italy. Corporate Governance: The
International Journal of Business in Society.
Thanh, T. T., 2016. The role of Ethics and Corporate Governance in financial accounting
(Doctoral dissertation, Vietnamese-German University).
Unerman, J., Bebbington, J. and O’dwyer, B., 2018. Corporate reporting and accounting for
externalities. Accounting and business research. 48(5). pp.497-522.
Velte, P., 2019. What do we know about meta-analyses in accounting, auditing, and corporate
governance?. Meditari Accountancy Research.
Warren, C. S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
Zhou, H. ed., 2018. The Routledge Companion to Accounting in China. Routledge.
Online
Annual report of Accent Group. 2019. [Online]. Available through:
<file:///home/user/Downloads/Accent%20Group%20Limited%20Annual%20Report
%202019.pdf>
Annual Report of Baby Bunting Group Ltd. 2019. [Online]. Available through:
<https://www.babybunting.com.au/media/wysiwyg/docs/Baby_Bunting_Annual_Report
_-_16_August_2019_-_FINAL.pdf>
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