ACCM4300 Assessment 3: Analysis of Consolidated Financial Statements

This report addresses accounting issues related to the consolidated financial statements of Tom Ltd, as highlighted in an email from the CEO. It focuses on two primary areas: intragroup transactions and investment accounting. The report recommends eliminating all intragroup balances, including transactions, income, and expenses, to prevent double-posting, aligning with AASB 127. Regarding investment accounting, the report advises accounting for investments at cost or in accordance with AASB 139, emphasizing the importance of proper disclosures and the presentation of minority interests in the consolidated balance sheet. The report stresses that the percentage of holdings directly impacts minority interest disclosures, and any misrepresentation in investments would affect the financial position of the business. The report provides a clear and concise overview of the accounting treatments required for consolidated items and offers recommendations for appropriate reporting and disclosures.

ACCOUNTING AND FINANCIAL
REPORTING

Introduction
 The business of Tom ltd is having
problems addressing the treatments in
consolidated items which need to be
presented in the financial statements.
 This presentation would be addressing all
the issues which have been highlighted in
the mail forwarded.

Intragroup Transactions

Intragroup Transactions
 The business of Tom Ltd has engaged in
numerous intra business transactions
which need to be appropriately reported
in the financial statements along with
proper disclosures. The mail shows that
the accounts team is of the opinion that
the intra group transactions of the
business needs to be eliminated before
the financial statements are prepared in
consolidated form

Recommendation
 As per the provisions of “Para 20 of AASB 127”, all
intragroup balances for a business which includes
transactions, income and expenses needs to be
eliminated from the books of accounts in a complete
manner (Aasb.gov.au. 2020). The intragroup
transactions need to be eliminated so that there is no
double posting of the same transaction in both the
books of subsidiary and holding company.
 Therefore, it can be said that your accounts team is
correct in eliminating the intragroup transactions
completely from the books of accounts of the business
(Lubbe, Modack and Watson 2014). This would ensure
that the accounting treatments of different consolidated
transactions are appropriately.

Investment Accounting

Investment Accounting
 The second issue which you have
highlighted in the mail is regarding
accounting for investments which is
made by a business in case of
consolidation form of account. The query
which you have raised is related to the
accounting for investment of different
percentage in a subsidiary company and
for the same purpose accounting
standard needs to be referred.

Recommendation
 As per the provisions of “Para 38 of AASB 127”, any
investment which is made by a business in its subsidiary
needs to account for the investments in either costs or in
accordance with the provisions which is stated in AASB
139 (Aasb.gov.au. 2020). The management of the
company needs to be account for each category of
investments and proper disclosures needs to be provided
in this respect for maintaining transparency in the
financial statements of a business.
 The minority interests are required to be presented in the
consolidated balance sheet of the business. It is very
important that the management of the company also
provides disclosures in terms of what methods is used for
the accounting of investments in the books of accounts

Disclosures for Investment
Accounting
 It can be said that the holdings of a
business over its subsidiary directly
impacts the minority interest disclosures
and it would be different in case of
different percentage of holdings. The
accounts team needs to properly present
all necessary information in this regard
and in case there is misrepresentation in
the investments than the same would be
affecting the financial position of the
business.

THANKING YOU