HA2032 - Corporate Takeover Decision Making & Consolidation

This report provides an analysis of corporate takeover decision-making, focusing on the effects on consolidation accounting, particularly in the context of JKY Ltd. It examines acquisition options, including purchase/acquisition and share acquiring methods, referencing AASB 127 and AASB 10 stand...Read More

CORPORATE TAKEOVER DECISION MAKING AND THE
EFFECTS ON CONSOLIDATION ACCOUNTING
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Executive Summary
For achieving a better approach of corporate decision making by the JKY ltd, consolidated
financial accounting plays a vital role over it. This affects the business of the parent as well as
the subsidiary firm effectively. On the other hand, the non controlling interest rate also affects
the business of JKY ltd with different aspects. In this regards, the firm has to make effective
consideration for share of the shareholders and the owner for the decision making approach of
the business. For the shareholders having a lesser amount of share than 50% cannot make the
decision for the consolidated financial accounting. For a better performance over the
consolidated accounting, the firm also has to make improved consideration for well-stated
consolidated accounts.
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Table of Contents
Introduction......................................................................................................................................4
Part A...............................................................................................................................................4
Acquisition options for JKY Ltd..................................................................................................4
Part B response................................................................................................................................5
Consolidated and Separate Financial Statements in reference to AASB 127 and AASB 10......5
Affect on NCI...............................................................................................................................6
Part C response................................................................................................................................7
Required changes in consolidation financial statement...............................................................7
NCI disclosure..............................................................................................................................9
Conclusion.......................................................................................................................................9
Reference list.................................................................................................................................10
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Introduction
In this competitive market, consolidation of financial statement helps to determine the
accounting situation of the firm. This, however, non-controlling interest helps to bear the
situation for the decision-making approaches of JKY ltd. The decision making approach for the
firm requires to have more than 50% share of the decision maker. Consolidated accounting
process is also effective for managing the accounting standard of the firm effectively. AASB 127
and AASB 101 govern the accounting standard of the firm effectively. Moreover, the firm also
requires ensuring well-stated consolidated accounting in managing the accounting standard of
Australia with more efficacies.
Part A
Acquisition options for JKY Ltd
In relation to the current case study, JKY Ltd proposes to take over the FAB Ltd, whereby proper
acquisition method needs to be approached. In terms of the proposed methods, two acquisition
methods have been suggested; purchase/acquisition method and share acquiring method through
“significant influence”.
In relation to the purchase acquisition method, the JKY Ltd Company may treat the FAB Ltd as
its asset in the financial projection, whereby the company can use the fair value of the FAB Ltd
in the balance sheet. Therefore, if the interest can be pooled in between the FAB Ltd and the
JYK Ltd, all the liabilities and assets of JYK Ltd will be netted using the fair value, however, no
goodwill outcomes can be seen from the transaction. On the other hand, as the JYK will have no
goodwill to write off, therefore, the company can earn high future earnings. On the other hand, in
terms of approaching the purchase/acquisition method, the JYK Ltd will have control over the
financial policies and decisions of the FAB Ltd, which can be used for JYK as an asset in order
to gain profits (AASB, 2015).
In terms of significant influence, JYK Ltd may achieve the power to represent in the board of
directors or other similar governing meetings of the FAB Ltd. JYK Ltd can be appeared in the
process of policy making along with other decisions of distributions. Both companies could
exchange materials along with essential information of technology. Even JYK Ltd. can change
the managerial staff of the FAB Ltd.
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In both terms, proper accounting methods need to be approached. As the JKY has two different
options of Consolidation and Equity method, thus a detailed analysis in terms of implementation
in the company needs to be done. The equity accounting method can be used to access the profits
through investments on the income statement. According to the paragraph Aus17.1 under 17 of
AASB 128, the equity methods shall be applied by the Australian entity as an accounting method
for interest as joint ventures and associates according to the standards. In this context, either both
the company and the single entities can be reported or both the entities and group are considered
as reporting entities (Australian Government, 2018). On the other hand, if the company holds
20% above stock of acquiring the company, the company can have significant control. As for an
example, if the JYK Ltd buys 10,000 shares of FAB Ltd T $10/share, thus, JYK Ltd will have
the investment cost record of $100,000 for its initial period. Any of the income or profit in future
would reflect the investment value changes. On the other hand, consolidation method will record
the liabilities and assets of the takeover company on the parent company’s balance sheet. All the
expenses and liabilities will be considered to calculate the liabilities and assets
(legislation.gov.au, 2015). As for an example, if JYK will have 50% control over the FAB Ltd,
thus, JYK Ltd will investment record will include 50% of the liabilities, assets, expenses, and
revenues of FAB Ltd. Thus, if JYK will have $100 m revenue and FAB Ltd will have $40m
revenue, JYK Ltd will have all a total of $120m. Therefore, for the JYK Ltd, accounting method
of consolidation is recommended with having purchase acquisition that can help in owning the
decisions and will provide high profit in the future.
Part B response
Consolidated and Separate Financial Statements in reference to AASB 127 and AASB 10
Consolidated and Separate Financial Statements in reference to AASB 127, a numbers of rules
and regulations are provided for organisational interest. This effectively complied with the
standard applies with the annual reporting periods that begins after July 2011 before January
2013. This prepared on 23 September of 2011.This governs with different principles for the
Australian Accounting Standard. As suggested by Standard (2015), For the non controlling
interest of JKY ltd, consolidated statement of financial positioning as well as the equity can be
measured. In this regards, changes in the parent's ownership interest for the subsidiary firm does
not results for the parent firm in losing control in transaction of the equity. In this regards, this
can be stated that, if the shareholders have a share for JKY ltd less than 50%, therefore the
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subsidiary firm does not have right for decision making approach by the firm. No deduction of
profit therefore will be done for the subsidiary firm for the net profit. As opined by Fraser
(2018), for determining entity for investment entity, the parent firm has to determine this for
investment entity. Investment entity therefore obtains fund from the investors in providing them
management services. Investment activity evaluates substantially performance for the fair value
of JKY ltd.
JKY ltd does not require to be presented consolidated financial statements as this meets with the
different conditions. The firm has to be wholly owned or partially owned subsidiary for the
owners. The debt equity instruments for the firm have not too traded for the public market.
Therefore, investors can make control for an investee as this is exposed. As mentioned by Santis
et al. (2018), this also has to be return for the variable from the insolvent for the investee.
Therefore, the investor can make control over investee with having the power over the investee
and this requires having right for the returns of the involvement. The investee also requires
having the ability for the power in affecting it with the amount of the investor’s returns.
In this regards, no controlling interest us the portion for the ownership of the equity that is not
attributable for the parent firm. Therefore JKY ltd has a controlling interest for the firm as this
have more than 50% share for the business (Armour, Mayer and Polo, 2017).
Affect on NCI
Non controlling interest for JKY is therefore record for the section of the shareholders equity
section. This affects the business with the annual profit margin. As mentioned by Dunbar and
Laing (2017), amount of the net consolidated net income is attributable for the parent firm and
therefore the non controlling interest has to be clearly identified by the income statement.
In valuing acquired net assets recall from important accounting changes, less than 100% of the
controlling interest will be acquire by the firm. 100% acquired net assets are therefore recorded
in the fair value for the firm. Controlling interest is recorded at Fair Value as the remaining profit
that in non controlling re recorded within the carrying value. In order to achieve the changes for
the controlling interest, non-controlling profits are effectively considered as equity of firm. Any
changes within the controlling interest of the parent firm and in the subsidiary of the parent firm,
does not lead to the change for the control activity for the transaction of the equity. On the other
hand, any decreases in the interest of the owner are therefore treating as transaction of the total
equity. Acquisition of the additional interests that are under NCI therefore does not required to
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be accounted in order to used in the purchase method of the firm. Elimination of the different
business and equity requirements for the purchasing account reduces the costing of parent cost.
As opined by Ning et al. (2017), this also eliminates the value of the assets as well as the
liabilities for the subsidiary for the additional equity interest.
On the other hand, different types of Losses that is attributable for the Parent and the No
controlling interest a numbers of regulations are provided. In this regards, the losses that is
attributable for the parent and the non controlling interest for the subsidiary, these are attribute
for the interests with a deficit no controlling interest balance. Intergroup balances as well as the
intra group transaction are results in the unrealised profit that has to be eliminated. On the other
hand, unrealised losses that results from the intra group transaction also eliminated as the costing
are not recovered. In addition, the intra group balances as well as the transaction such as sale are
also eliminates. Therefore, the unrealised losses results in the intergroup and deduction arrives
with the carrying amount of assets (Mora and Walker, 2015).
Part C response
Required changes in consolidation financial statement
A numbers of changes may be required by the organisation in ensuring if the consolidation
financial statement of the firm is state properly. Cost of the parent firm for the investment in the
subsidiary as well as for the portion of the parents in the subsidiary equity is required. As
mentioned by Potter et al. (2019), the investment date therefore has to be eliminated from the
equity. Excess cost of the JKY ltd for the investment within the subsidiary for the portion of the
parent firm has to describe effectively. Therefore, the goodwill can be recognised for the asset in
consolidation of financial statement (Armstrong, 2017). As the subsidiary cost to the parents, this
become lesser than parents portion for the subsidiary equity. On the other hand, in the net income
of the firm, the interest for the minority portion within the net income of consolidated
subsidiaries period has to be adjusted with the income for the group for arriving this at net
income attributable for the owners. In addition, minority interest for the needs in the net assets
has to identify for presented in the consolidated balance sheet. In the subsidiary, the portion for
the equity investment has to make on the dated for determining the information for financial
statements. In this regards, if the statements are not available on the dare, financial statements
requires immediate preceding period for consolidation process. As mentioned by Nobes et al.
(2017), therefore, the effective adjustments that are made for the financial statements occur on
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the date. If the firm makes more than more investments, that will eventually obtains the control
for the other enterprise. On the other hand, the financial statements that are used in the
consolidation process require to drawn up the accounting statement of JKY ltd. Sometimes, this
is not practicable in order to draw up the financial statement for one and more subsidiaries
regarding the financial statements of the parent firm. This statement of the parent organisation as
well as for the subsidiaries is used in preparing the consolidated financial statements require to
drawn up in the same date (McKinney, 2015).
Financial statement for the parent firm with the subsidiary firm is used in preparing the
consolidation of the financial statement that is drawn up in same date. In the different reporting
date, these prepares the accounting statement for the subsidiary same as dated of the parent firm.
This is also used in providing the difference for the reporting dates that requires being newer
than six months. This also requires to be prepared using different policies for accounting such as
the transaction as well as the other events for the similar circumstances. As per Bini (2018),
however, if this is not practicable for using uniform accounting policies, fact has to be disclosed
for the proportion of different items that already has applied with the process. In this regards,
sometimes a member of the group can use accounting policies than the adopted consolidated
financial statement of the firm, for different transaction activities as well as the events in the
similar circumstances, therefore, effective adjustment are made for the financial statements in
preparing financial statements of the firm (Andon et al. 2015). Results of these operation for the
subsidiaries are includes with the consolidated financial statement. Result of the operation from
the subsidiary with the parent firm relationship therefore ceases in existing for the consolidation
profit statement. As suggested by Taylor et al. (2015), difference in the proceeds from
investment disposal carries amount of assets of the lesser liabilities. In ensuring the
comparability of financial statements in the different accounting period, information required to
provide for effecting acquisition as well as the disposal of position. On the other hand, an
investment approach in different enterprise has to be accounted with the Accounting Standard of
Australia. The Accounting approach for the effective investment of the enterprise cases for the
subsidiary and are not associated. In addition, the carrying amount for the investment date ceases
for the subsidiary for costing. Interest of the minority is presented in the balance of consolidation
sheet that is separated from the liabilities as well as the equity of the shareholders. As suggested
by Gluzová (2017), Loses of the firm are applicable for the minority in the consolidation of the
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subsidiary and sometimes that exceed the interest of the minority for improved decision making
approach for the corporate decision making by JKY ltd is useful in managing the accounting
standard with more efficacies. In this regards, the consolidated financial accounting process is
useful for managing the accounting standard of the parent firm with the subsidiary firm.
NCI disclosure
NCI plays a vital role for the decision making approach of the firm for the account management.
The shareholders having a share that is lesser than 50% of the total share of the firm cannot make
the required decision for the firm. In this regards, well-stated consolidated accounts are also
requires in managing the accounting standard for the business for the subsidiary equity. As
suggested by Pilcher and Gilchrist (2018), excess as well as the losses after applicable and
adjusted. This is against the majority interest to the extent of the minority-binding obligation. In
this regards, this can be told that, the subsidiaries with outstanding preferences for cumulative
shares that are held in outside of the group, the parent computes the share for the profit and the
losses after subsidiary adjustment for the dividends that already has been declared (Watson,
2017). Disclosure of the subsidiaries for the NPI with IFRS, present the aggregated information
for the parent company as well as for the subsidiaries. Focus for the assessment criteria are
applied for the non controlling interest that has been undertaken.
Conclusion
Improved decision-making approach for the corporate decision-making by JKY ltd is useful in
managing the accounting standard with more efficacies. In this regards, the consolidated
financial accounting process is useful for managing the accounting standard of the parent firm
with the subsidiary firm. NCI plays a vital role for the decision making approach of the firm for
the account management. The shareholders having a share that is lesser than 50% of the total
share of the firm cannot make the required decision of the firm. In this regard, well stated
consolidated accounts are also requires in managing the accounting standard for the business.
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