Corporate and Financial Accounting: Consolidation Methods Report

This report provides an in-depth analysis of consolidation methods in corporate and financial accounting, focusing on the options available to JKY Ltd for taking over FAB Limited. It examines the equity method and consolidation method of accounting, detailing how each approach handles investments in subsidiary companies and the recognition of profit and dividend income. The report emphasizes the importance of eliminating intra-group sales to ensure accurate financial reporting and addresses the accounting treatment of unrealized profits. Furthermore, it discusses the disclosure requirements for non-controlling interests, highlighting the need for separate and transparent reporting to provide stakeholders with a clear understanding of the consolidated financial position. The report also touches on changes needed for accurate representation and the effects of these changes on annual report disclosures.

Running head: Corporate and Financial Accounting
Corporate and Financial Accounting
Name of the Student
Name of the University
Author Note

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Corporate and Financial Accounting
Executive Summary
The discussion which is been given in the report is related to the consolidation and
the methods which can be used by the company in regards of the consolidation of
the company. It even give emphasis upon the intra sales which happen in the parent
and subsidiary company and how the company is able to recognize the same and
the entry which is there in regards of the consolidation of the unrealised profit. It also
show about the disclosure in regards of the non-controlling interest.

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Table of Contents
Introduction...................................................................................................................3
Answer to A..................................................................................................................3
Answer to B..................................................................................................................4
Answer to C..................................................................................................................4
Conclusion....................................................................................................................5
Reference.....................................................................................................................7

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Corporate and Financial Accounting
Introduction
Consolidated financial statement is the statement which have to combination
of the both financial information of the parent company as well as the subsidiary
company (Alfraih and Alanezi 2015). It show all the items which are there in both the
company. So upon the base of consolidation this report is made as it show about the
company JKY Ltd who want to take over the FAB Limited so this report suggest
about the method from which the consolidation can take place and also how the
company have to deal with sale which has happen in between the two company as it
have do the adjustment in regards of the sale. It also show who the company have to
deal with the non-controlling interest which is been present in the company at time of
consolidation (Edogbanya and Kamardin 2014).
Answer to A
The company have two options from which they can choose the one for the
purpose of the consolidation as they can select as the equity and consolidation. As
they can see the methods which is applicable and its friendly to them and they can
chose the same for doing the accounts related to the consolidation.
Equity Method of Accounting
It can be seen that the company always do some type of the investment in the
subsidiary company as an investment in which it able to earn some sort of profit and
dividend which the company is able to earn from the business. So this method help
the company to do the consolidation as it suggest that the company should record
only the amount the amount of profit it able to earn for the subsidiary company as it
should record the same in the income statement and it should be based upon the
equity investment size which the company is able to have in the subsidiary company
(Gluzová 2016). It should record the same amount of income which it have earned
from the subsidiary as an in the financial report in the income head of the company.
It should record all the investment which it have done in the subsidiary company as
cost as it should the original value of the investment in the financial statement and
the adjustment in regards of the change in the value investment at the end of the
year and should record the same in the financial statement as it should see the profit
or loss and as per the nature of the transaction of the investment so that it can able
to get a proper accounting in the financial statement (Gray and Debreceny 2014).
This method is been used by the company who have a high level of influence in the
subsidiary company so that it can able to record all the transaction properly in the
financial statement. So this method is been used by the company is it can got a high
level control in the subsidiary company (Aasb.gov.au 2019).
Consolidation Method of Accounting
This method only deal with the asset and liabilities of the company as it does
not take into consideration about the investment which the parent company have in
the subsidiary company as it is been done in the equity method of accounting. As in
this method company record the value of the asset and liabilities in regards of the
portion the company holds in the joint venture as it should record only the
proportioned portion of the financial vale which it hold in the joint venture of the
company (Aasb.gov.au 2019). While the company is able to record the asset and
liabilities it should also show the list of the income and expenses which are related to

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the joint venture and as a result it should record the same in the financial reporting of
the company. So let take an example if the company is having 20% controlling
interest upon the subsidiary so it should record the value as 20% of the asset and
liabilities of the subsidiary company. It can also be say that this method help the
financial user more effectively as it show all the proper details of the joint venture so
it will help the user to show about the small details also in regards of the
consolidation of the financial statements. It also show how the company is able to
record the goodwill in the company as it give different limits which should be followed
by the company in order to related the valuation of the goodwill (Aasb.gov.au 2019).
Answer to B
As per the different accounting standard it say that the company should able
to show all the transaction which are related to the subsidiary company as it should
removed all the activities which is carried by them in the accounting transaction as it
should be eliminated in regards of the consolidation financial statement of the
company. The company should reverse all the entry it regards of the subsidiary so
that it can stop their affect on the financial statement of the company. The company
should remove it before entering into the joint venture as then cannot able to enter in
to the consolidation so it should eliminate all the transaction of the company. The
company should not have to deal in the intra – group transaction as it will directly
affect in the financial statement so it should not be consider while preparing the
consolidated financial statement (Aasb.gov.au 2019).
The company is able to do some purchase form the subsidiary company. All
the company sale their product with adding some amount of profit as it should
include the business amount of profit so if it sale the parent company the inventory
than the subsidiary should have recorded the same in the inventory amount so it
should be removed by the parent company as its should not record any unrealised
amount of profit which is been there in the account of the financial statement so it
should eliminated the amount of the profit which is left unrealised so it should not
record the same so it should removed the same in the financial statement of the
company (Aasb.gov.au 2019). Company should record the gain which it able to earn
as non – current so that it can able to give the financial user proper amount of the
transaction in regards so that the user can able to know all the details so that the
company user can know the all the details in regards of the consolidation statement
which is been prepared by the company. It all show the subsidiary profit is also been
included in the profit as the company have to the included in the inventory profit so it
is been the reason for the overstated of the profit in the company so that it can able
to affect the overall group profit so it should be eliminated the amount of the profit
which is been recorded in the company as it should record the unrealised amount of
the profit which is been there so it should pass the journal entry in regards of the
same so it can able to eliminate the profit which is been there in the inventory which
is purchased by the company from the subsidiary company (Aasb.gov.au 2019). The
company should remove all the transaction which should be removed by the
company in regards of the unrealised profit which they have got in the inventory of
the subsidiary company.
Answer to C
Records of the consolidation in regards of the separate items

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Corporate and Financial Accounting
It should record all the non-controlling interest as a separate items as it
should be disclosed as an separate items and should be record all the amount of the
interest which it able to get from the holding company as it should able to record all
the related matters which are there in regards of the equity of the parent company.
The holding company should not record any related the transaction of the subsidiary
company so as it not able to record any non-controlling interest in regards of the
subsidiary company as should eliminate all the transaction of the items which are
there in the company in related to the subsidiary and should not record the same in
the company financial statement (Aasb.gov.au 2019). The company should disclose
the related matter of the non-controlling interest in regards of the subsidiary
company and should not also deal it with the financial statement of the company.
The consolidated financial statement record the non-controlling interest separately
so that it can able to give an overview of the company information in regards of the
accounts so that the financial user can able to know how it have done the transaction
and also how it have deal with then information in regards of the same and able to
know the accounting which is been done by the company and also it help them it to
know how it will affect the coming future business of the company (Aasb.gov.au
2019).
It can be seen that the company have to control over the business of the
subsidiary company so it should deal all the matter in the business of the subsidiary
so that it can able to know the controlling and non-controlling interest which is been
there in the parent company in regards of the subsidiary company (Aasb.gov.au
2019). The company should all the details of the holding and also how the controlling
and non-controlling interest is been affected so it should record the same it will
directly affect the shareholder so it should show the interest which it had upon the
business of the subsidiary company.
Changes in order to ensure the accurate representation of the consolidated
financial statement
The company should able to present all the transaction in regards of the
parent and subsidiary company and should not necessary for the company to record
the same in the financial statement upon the acquisition date as it can also be done
after the change in the reporting date. As per the prescribed accounting standard the
company should not record the amount of the investment which is been done by the
parent company in the subsidiary company so that it should not record any
investment in related to the subsidiary company and also it instruct to the subsidiary
company that it should also not able to record any amount of the transaction of the
portion of the equity which they have hold in the parent company so it can be seen
that both company should eliminate all the items which be related to each other and
should not able record the same in the financial statement of the company.
It can also be said that if the company have any amount of the losses of that
should be recorded by the company. The consolidated statement should not able to
record any amount of the intra sale in both the parent and subsidiary company as it
should record all the income, asset and liabilities in regards of both parent company
and the subsidiary company.
Effects of the change upon the disclosure in the annual report:
The company should record all the transaction as per the accounting
standard so it can able to show all the accounting treatment which they have done in

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the regards of the non-controlling interest and also it should disclose the matters
which they have taken into consideration of the same. Company should show all the
concepts of the accounting which they have used in regards of the consolidation
account so that it can able to give the estimation and the judgement which are been
made by the company in the financial statement of the company and also should
check the same as there is no affect of the norms and regulation of the accounting
standard so that it can able to show all the transaction properly in the financial
statement of the company (Aasb.gov.au 2019). It should also provide the details in
regards of the subsidiary company so that the user can know the business and other
details of the company and also should brief thee amount of the holding which is
been there in the company by the parent company and how they are able to manage
the same in the subsidiary company so all the details should be reported properly in
the annual report of the company (Aasb.gov.au 2019).
Conclusion
This discussion show about the process of the consolidation as it is been
done when one company acquire the another company. It shows about the method
in regards of the consolidation as the equity and the consolidation of accounting. It
also show about the intra state sales of the transaction which are been done by the
parent company and the subsidiary company as it show the process of how the
company is able to recognise the unrealised profit and how the company is able to
do the adjustments in regards of the unrealised profit and also show about the
disclosure which the company is to do in regards of thee controlling and non-
controlling interest.

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Reference
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