Financial Reporting for Corporate Entities: An In-depth Analysis

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Financial reports for corporate entities
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Contents
Assessment Activity 1.............................................................................................................................................. 3
1......................................................................................................................................................................................... 3
2......................................................................................................................................................................................... 4
3......................................................................................................................................................................................... 5
4......................................................................................................................................................................................... 6
5......................................................................................................................................................................................... 6
6......................................................................................................................................................................................... 7
7......................................................................................................................................................................................... 8
8......................................................................................................................................................................................... 9
9...................................................................................................................................................................................... 10
10................................................................................................................................................................................... 11
11................................................................................................................................................................................... 12
Reference.................................................................................................................................................................... 13
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Assessment Activity 1
Task
1
AASB 3: Business combination
AASB 3 is related to the consolidated business of one or more. This standard refers to a
combine separate business into a single business. As a result, it provides an advantage to
the parent company to take control over the business or other (Dunbar, and Laing, 2017).
AASB 101: Presentation of financial statement
The AASB 101 is applying in every business of the company which is required to prepare
their financial report for the year ended according to the act of the corporation. The AASB
101 provides the accounting standards or provides guidelines in which the business assets
and liability show in the financial statement of the company.
AASB 107: Statement of cash-flow
The AASB 101 is also an accounting standard that required the provisions of the
information of the company or organization or firm or entity about the historical changes
in the cash and cash equivalent of the firm through the use of cash-flow statement which
help in obtain n the information about the cash generated from each activity of the cash-
flow statement.
AASB 1040- Statement of financial position
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This is also an accounting standard used within the organization for the purpose of
showing company financing position through the financial documents or reports of the
company like balance sheet, statement of income and others.
AASB 112 - Income taxes
This standard is related to the income tax purpose. An income tax can be defined as an
accounting profit or loss earned during the period before minus tax amount from the
accounting profit or loss. A profit is taxable when it exceeds the exemption limit then the
provision of tax applies and it is determined as per the tax authorities and accounting
standard of AASB 112.
AASB 116 - Property, plant, and equipment
The treatment of plant, machinery, and property in an account is as per the accounting
standard of AASB 116 which provide framework and standard how the value of these
assets are to be recorded or recognized in the books of accounts for the purpose of
determining the exact value of such assets at the current time (Williamson, 2017).
AASB 118 – Revenue
This standard of accounting helps business in the process of recognition of income and
expenses of the business for the period which enables to disclose true and fair business
income or loss earned during the period.
AASB 138 - Intangible assets
As per this standard, it provides the accounting standard that deals with the intangible
assets of the company like goodwill, patent, copyright and other which cannot be seen and
touch but exist in the business for a definite period of time after they will be removed as
per the accounting standard rate and norms.
AASB 1034 - information must be disclosed
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According to this, it means the entire information of the company must be disclosed by the
way of present company's financial documents which enable an investor and another
interested party to take their decisions (Williamson, 2017).
2
In the journal of Red limited
Date Particular $ dr. $ cr.
1-Sep-
14
Bank a/c dr.
75000
0
To Debentures Application and allotment a/c
75000
0
(Being money received on application & allotment made)
5

Debentures Application and allotment a/c dr.
75000
0
To Debentures a/c
75000
0
(Being debentures issued)
31-Aug-
15 Debentures a/c dr.
75000
0
To Debentures holders a/c
25000
0
To Debentures a/c
50000
0
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(Being new debentures issued and redemption made)
Debentures holders a/c dr.
25000
0
To Bank a/c
25000
0
(Being money on 2500 debentures)
3
The term fair value has been different meaning in different field like in investing,
accounting and others. It can be defined as the cost or price which is based upon the
current market value.
Under investing, the term fair value is defined as a price or cost of the assets in which both
seller and buyer party are to be agreed upon a contract in order to sale and purchase on a
contract price.
Under accounting reference, fair value is that value of a cost of the business which is
transferred or acquired by any other entity in order to purchase their assets and use them
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like purchasing of plant and machinery or acquire goodwill of the other firm. Fair value is
an estimated cost and used as value based on a market for the purpose of recognizing such
assets or liability in the books of accounts in which the assets of the company are to be sold
or pay the liability under current conditions of the market. Under the fair value, two
different parts of approaches are used under fair values which help in the record the
business assets and liability according to the current market value of any assets or liability.
Such approaches are below and explaining them:
Market Approach: Under this, the price is charged as per with the actual conditions of the
market for the same assets and liabilities of the company in order to derive the fair value of
an asset or liability (Tran, and Zhu, 2017).
Income Approach: In this method or approach, it uses an estimated cash flow which is
generated in the future adjusted by the use of a discount rate that helps in presenting the
time value of money. In this method risk of cash flow not is considered in order to know the
present value of the discount.
Cost Approach: In this, it also used an estimated cost for the purpose of replacing old
assets with a new one due to the obsolescence of an asset.
The importance of Fair value in the business is that it provides an accurate and relevance
and reliable cost or price of assets or liability which is acquired by one firm from the other
in order to overtake their business.
Provide accurate valuations price: Using of FMV (Fair Market Value) in business
dealings, help in obtaining the true and correct price of assets with the current market
conditions and also reflect the true value of the assets and liabilities in the balance sheet of
the company.
Adopt in variable assets: This method of valuation of assets is adaptable in all type of
business assets whether tangible or intangible like goodwill, copyright and other.
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Provide a way to compare: Use of this method or tool in continuously help in comparing
the value of assets and liability of the firm at the present which help in taking action as per
the value of the concerned (Tran, and Zhu, 2017).
4
Goodwill is a long term intangible non-current asset of the company which arises when one
company buy the other company business or overtake by paying the excessive amount of
the value of the assets that was purchased. It is (goodwill) is generated when the purchased
price of an asset is higher or exceed than the sum of the fair value of the company entire
assets whether tangible assets or intangible assets. When the company or firm or any paid
more price than the value of assets it means the extra amount is paid for the purchase of
goodwill of the other company. Goodwill is the company non-current long term asset which
is being reduced as per the accounting standards. In the books of the acquiring company, it
is shown on the assets side of the balance sheet under the head of non-current intangible
asset (Reid, and Myddelton, 2017).
5
In the journal of Red limited
Dat
e Particular
Foli
o $ dr. $ cr.
Land a/c
dr.
6500
0
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Plant a/c
dr.
3600
0
Debtors a/c
dr.
1200
0
Goodwill a/c
Dr.
3700
0
To Cash a/c 50000
To Share capital a/c
10000
0
(Being assets take over at FMV)
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Consideration elements: Amount ($)
(BOOK
VALUE)
Amount ($)
(FMV)
Land 48000 65000
Plant 38000 36000
Debtors 15000 12000
Goodwill 37000
Share capital
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In the books of Gold Ltd.
a)
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Investment a/c Dr. 500,000
To Share capital a/c 400,000
To Goodwill a/c 100,000
(Being investment made in the subsidiary
company)
b)
Investment a/c dr. 500,000
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