Comprehensive Report: Corporate and Financial Accounting Overview

This report provides an executive summary of corporate and financial accounting, focusing on the attainment of business goals. It defines relevant accounting norms and factors contributing to successful financial outcomes, with a particular emphasis on Australian Accounting Standards Board (AASB) standards. The report analyzes the differences between consolidation and equity accounting methods, using examples to illustrate their application. It also explores AASB 3, AASB 128, AASB 10, and AASB 127, detailing their implications for business combinations, investments in associates, consolidated financial statements, and intra-group transactions. The report addresses the treatment of non-controlling interests in consolidated financial statements, outlining the necessary steps for accurate reporting. The key focus is on how to ensure financial statements are correct and accurate, including the elimination of intra-group transactions and the allocation of profit and loss between parent companies and non-controlling interests. The report is based on a scenario involving JKY Ltd. and its acquisition of FAB Ltd., providing practical context to the accounting principles discussed.

Corporate and Financial
Accounting

Executive Summary
The term Corporate and Financial Accounting is related with plans, policies and financial issues
associated with the factor of attainment of financial goals and objectives of the business
organisation. The present report will define about relevant corporate accounting and financial
accounting norms and factors which contributes towards successful attainment of business goals. It
will also discuss about different AASB standards which every business organisation needs to
comply with for formulation of correct and accurate financial statements. Also, it will explain about
correct and accurate application use of the Accounting standard assist company in depicting its true
financial as well as corporate position.

Table of Contents
Executive Summary .............................................................................................................................2
INTRODUCTION................................................................................................................................4
MAIN BODY.......................................................................................................................................4
PART A ................................................................................................................................................4
Outlining differences in methodology between Consolidation and Equity Accounting along with
.........................................................................................................................................................4
example............................................................................................................................................4
Consolidation Accounting................................................................................................................4
Equity Accounting...........................................................................................................................4
PART B ................................................................................................................................................6
PART C ................................................................................................................................................7
CONCLUSION....................................................................................................................................9
REFERENCES...................................................................................................................................10

INTRODUCTION
Corporate Accounting also known as Business Accounting emphasis is on meeting the needs of
business operation rather than focusing on achievement of external accounting standards. Financial
Accounting has important role related to preparation of financial report as all the applicable
accounting standards has to be comply with, at the time of presentation of final statements by the
company for ascertaining true financial position of business. The present report is based on JKY
Ltd. And its acquisition strategy for acquiring FAB Ltd. It will disclose different accounting
standards which are to be followed by company. Also, will define key differences in methodology
between Consolidation Accounting and Equity Accounting. Further, intra group transactions and its
related treatment will also be defined in the report. At last, it will streamline about the major
changes which are required to be ensure that Consolidated financial statements prepared are correct
and accurate.
MAIN BODY
PART A
Outlining differences in methodology between Consolidation and Equity Accounting along with
example.
Consolidation Accounting – It is a mechanism of combining all the financial results and reports of
number of subsidiary companies in to one combined financial results of the main or parent
company. This accounting method is relevant and applicable only parent company is owing more
than 50% shares in the subsidiary company.
Equity Accounting – This method of accounting is best suited in case of Inter corporate
investments' system. It is applicable in case where the investor is holding significant control over
investee but doesn't have full control or authority over such investee like the parent company and
subsidiary company relationship.
Key difference between:
Consolidation Accounting Equity Accounting
 This method of Accounting deals with
consolidation of financial accounts
including a process of combining all
income statements, balance sheets etc. of
its subsidiary. Objective of this accounting
 This method is not related with
combining of financial accounts in the
statements. Its main aim is to make
investment as an asset and focus on
income which is received from the

method is to combine together all the
financials to form one statement.
 It works on the assumption that all the
balance sheet items, revenue and expenses
accrued in the proportion to amount of
Share Capital held with a Minority interest
or non controlling Interest (Hoyle, Schaefer
and Doupnik, 2018). All the assets and
liabilities are shown in the parent books
depicts that it is having a significant
control over the business affairs of the
subsidiary company.
 Example – Holding company named A Ltd.
Owns 2 subsidiary named Company M and
Company N, paying royalties and fees to
Company A Ltd. At the year end, A Ltd.
Income statement show royalty and fees
amount recorded on its subsidiary income
statements.
subsidiary one.
 In the Equity accounting method, the
Investing Company accounts only for
and consolidates in its books of
accounts to the extent of its control
over Equity Share Capital, Reserves
and retained earnings.
 Example – ABC Ltd. Acquires 30% of
AB Ltd. for $50,000. At the year end
AB Ltd. Show net income of $10,000
and dividend amounting $5,000. ABC
Ltd. records the investment it made by
purchase under the heading
“Investments in Associates/Affiliates”
by recording it at cost value.
AASB 3 relates to Business Combinations as defined under section 334 of the Corporations
Act 2001. The aim behind AASB 3 is to make improvement in the quality of information gathered.
It is very necessary on part of reporting company that information provided related to the business
combination and its effects is relevant, reliable and of comparable nature so that it can assist
stakeholders in their decision making. A business organisation has to determine whether a
transaction related to acquisition of asset is falling under the definition of AASB 3 i.e. business
combination. It will be considered as an asset acquisition by the reporting company in case if assets
acquired are not categorised as business.
AASB 128 defines Investments in Associates and Joint Ventures under section 334 of the
Corporations Act 2001. Financial statements framed as per equity method are not considered as
separate financials nor of entity which is not having subsidiary, associate or venturer interest in the
joint venture. The separate financials presented along with the consolidated financial statements, in
which investments are accounted are proportionately consolidated (Rodriguez Roman and Ritchie,
2017). On losing of participation power by investor in terms of decisions making related to financial

& business operation of investee, it results in losing of control over such investee as well. Such loss
can be in form with or without change in the level of ownership.
AASB 10 Consolidated Financial Statements is framed with an objective of establishing
principles and norms to be followed at the time of formation of consolidated financial statements in
case the company is having controls over one or more other entities.
Acquisition Method is the best option when acquirer i.e. JKY Ltd. Is buying FAB Ltd by
using GAAP and AASB. Also, it has to record events occur using the acquisition method. Steps to
record such acquisition includes:
1) Measuring of tangible & in-tangible assets and liabilities that were acquired
2) Measuring amount of any non-controlling interest in the business of JKY Ltd
3) Measuring consideration amount paid to seller
4) Measuring goodwill or profit made from such transaction
PART B
FAB Ltd which is a partially owned subsidiary has been providing professional services and
also sold inventory to its parent company JKY Ltd at a profit.
AASB 127 Consolidated and Separate Financial Statements is related to accounting
standards which requires the business entity or company to make use of uniform and stable
accounting policies for reporting and presenting such as transactions in the same circumstances as it
was before. As per the Accounting standard 127, it is necessary for a parent company to disclose
about minority interest which it is having in balance sheet, apart from shareholder equity of the
parent company. This standard also prescribes that accounting treatment for investments in
subsidiaries, jointly controlled business entities and associates is required to present a separate
financial statements in case of parent company. All the investments of parent company are recorded
at cost or in accordance with AASB 139 Financial Instruments viz. Recognition and Measurement
(Oulasvirta, 2016). AASB 127 also stipulates that when a company making investments in jointly
controlled business entities and associates in accordance of AASB 139 it is required to disclose in
separate financial statements.
In case of Intra group transactions which is taking place between the parent and its
subsidiary company will be treated under the Accounting standard of 127. As per the accounting
standard related to Consolidated and Separate Financial Statements, all the Intra group balances and
business transactions taking place between JKY Ltd and FAB Ltd will be eliminated in full. Also,
any income or expenses associated with such intra group transactions shall be eliminated in full.
Thus, profit earned by JKY Ltd because of its transaction with subsidiary company should not be

deducted from the subsidiary’s reported profit. Instead it will be eliminated in full value. Also, profit
earned from the sale of inventory to JKY Ltd and for rendering of the professional services to the
parent will be eliminated totally. The part of income earned and expenses incurred on the subsidiary
company will be included in the consolidated financial statements of the parent company from the
date of acquisition as defined in ACCOUNTING STANDARD AASB 3. Each income and expenses
amount of subsidiary will be included in consolidated financial statements till the date of cessation
of ownership. Such amount of income and expenses will be covered only till the period till the
parent company JKY Ltd. ceases to control the subsidiary company i.e. FAB Ltd.
For example – Expense related to Depreciation or investment will be included in consolidated
statement of comprehensive income after date of acquisition. These amount will be recorded in
parent company unless it losses its control over subsidiaries. It will be based on fair values of other
related depreciable assets at the time of date of acquisition.
AASB 10 Consolidated Financial Statements is related with profit or loss and each
component of other comprehensive income of the subsidiary company i.e. FAB Ltd. to its owners or
to the parent company i.e. JKY Ltd. and non- controlling interests as well (Gupta, 2016). Also, it
should attributes its total income to parent company and non controlling interests firm though it is
having a deficit balance.
PART C
AASB 127 Consolidated and Separate Financial Statements and AASB 101 Presentation of
Financial Statements covers effects of Non Controlling Interest and its related disclosure
requirement as a separate item in consolidation process. For making consolidated financial
statements, combining of financial statements of parent company and its subsidiaries company has
to be done accordingly by adding all the like items of Balance sheet etc. (Beams and et.al., 2016).
Non controlling interest also known as Minority interest is defined as the ownership position where
the shareholders owning less than 505 of outstanding shares. Non - controlling interest is related
with equity of subsidiary company which is not attributable to the parent company on direct or
indirect basis. The minority interest shareholders are having no individual control over the decisions
related to the company. Also, these minority shareholders can't vote by themselves.
The consolidated financial statements prepared by JKY Ltd contains all information about
every subsidiary company in single economic entity. The following steps are required to be taken:
1. Amount to be carried on part of the investment made by parent company named JKY Ltd in
its subsidiary one and the equity portion of the parent company of its subsidiary entity are
eliminated.
2. Non - controlling interests related to profit or loss of consolidated subsidiaries companies

will be identified for reporting time period.
3. Also, non - controlling interests in context of net assets of consolidated subsidiary company
are identified on separate basis from the ownership interests of the parent company in them.
These usually consists of the following factors:
(i) amount related to non - controlling interests at date of combination of financial of subsidiaries
with parent will be calculated in accordance with AASB 3
(ii) share of non-controlling interests in case of changes in equity till date of combination will be
taken.
In case when subsidiary company is having voting rights with itself, proportions of profit or
loss made and equity changes therein are allocated to its parent company and non-controlling
interests firms as well. These are further determined on the basis of the present ownership interests
of the company.
The non - controlling interests presented in consolidated statement of financial position
within equity will be presented separately from the parent company. The consolidation process is
defined as combination of financial statements which combines all the accounting records of its
different subsidiary business entities into the one group of financial statement which include parent
company in form of majority owner, subsidiary or a firm purchased and any non controlling interest
company (Gluzová, 2016). Any transactions taking place between parent and its subsidiary or
between parent and non controlling interest firm are eliminated before formulation of consolidated
financials.
In the above case of JKY Ltd and FAB Ltd, for finalising consolidated financials in annual
report of JKY Ltd for 30 June 2018 AASB 127 and AASB 101 is required to be followed.
According to AASB 127, non controlling interest will be recorded as separate item in owner’s
equity. On deficit balance of non controlling interest, entity is required to assign its total
comprehensive income to parent company and non controlling interest firms.
For example – X company (parent) purchases 75% of a business firm named Z company and
non controlling interest firm takeover remaining 25% of the new subsidiary framed, Z. All the
assets and liabilities of subsidiary on balance sheet will be adjusted as per fair market value and
used at time of formation of consolidated financials. If parent company and non controlling interest
firm give amount more than fair net asset value, the excess is treated as the goodwill amount and
will be accounted during making of final consolidated financial statements.
CONCLUSION
From the above report it can be assessed that Accounting standards plays a vital role in presentation

as well as preparation of the financial statements of organisation. This report relates to various
accounting standards which are mandatory for every company and business organisation to follow
all the accounting standards which are applicable in the proper manner so that financial information
of the company can be interpreted in better manner. By complying with all the accounting
standards, financial statements can be made which assist the decision making process of its investor
and other stakeholders. Also, report has defined that for making the changes in consolidated
financial statements every market and business condition should be considered.

REFERENCES
Books and Journals
Beams, F.A. and et.al., 2016. Advanced accounting. Pearson Education Limited 2018.
Gluzová, T., 2016. Disclosure of subsidiaries with non-controlling interest in accordance with IFRS
12: case of materiality. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis.
64(1). pp.275-281.
Gupta, A., 2016. Financial Accounting for Management. Pearson Education India.
Hoyle, J. B., Schaefer, T. F. and Doupnik, T. S., 2018. Fundamentals of advanced accounting.
McGraw-Hill Education.
Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production.136. pp.237-
248.
Oulasvirta, L., 2016. Accounting Principles. Global Encyclopedia of Public Administration, Public
Policy, and Governance, pp.1-9.
Rodriguez Roman, D. and Ritchie, S. G., 2017. Accounting for population exposure to vehicle-
generated pollutants and environmental equity in the toll design problem. International Journal
of Sustainable Transportation. 11(6). pp.406-421.
Online
Equity method of accounting. 2019. [Online]. Available through:
<https://corporatefinanceinstitute.com/resources/knowledge/accounting/equity-method/>.
What is the difference between financial accounting and corporate accounting. 2018. [Online].
Available through: <https://www.quora.com/What-is-the-difference-between-financial-
accounting-and-corporate-accounting>.