Explain how intra-group transactions should be treated

Assignment Help Financial Accounting

Reference no: EM132308997 , Length: word count : 2500

Assessment Title : Corporate Takeover Decision Making and the Effects on Consolidation Accounting

Purpose of the assessment: Students are required to perform independent research of the key topics by reviewing the applicable accounting standards and other guidance documents available on the websites of the professional accounting bodies.

Learning Outcomes:

1. Explain the legislative requirements in company formation and how to account for equity, capital and distributions;

2. Explain the methods of raising company funds, that is, using share capital or debt, and how to account for each;

3. Demonstrate the ability to prepare consolidated financial statements and how the data is collected, adjusted and interpreted.

Purpose:

This assignment aims to reinforce and extend students’ knowledge and understanding of key topics in this course (HA2032) including: business combinations, the corporate group, acquisition methods, intra-group transactions and non-controlling interests through independent research and detailed use of the relevant accounting standards.

Assignment Questions

Part A

You are a non-executive director attending a regular board meeting for JKY Ltd. At the top of the agenda is the proposed takeover of a smaller company called FAB Ltd, which is an ASX listed entity operating in the same industry. JKY Ltd is considering which acquisition strategy should be used.

One director is arguing that the direct “purchase / acquisition method” is the best option, whilst another director is proposing a longer term strategy, which involves acquiring the shares of FAB Ltd by first acquiring “significant influence” over FAB Ltd.

Given your experience as a qualified CPA, the Chairman has asked you for your opinion in writing based on your extensive knowledge of accounting for business combinations.

With reference to AASB 3: Business Combinations, AASB 128 Investments in Associates and Joint Ventures and AASB 10 Consolidated Financial Statements, prepare a detailed response to the Chairman and the board, which outlines the key differences in methodology between Consolidation Accounting and Equity Accounting. Provide worked examples within your response which fully explain the two options.

Part B

At the same board meeting the CFO reported that a partially owned subsidiary provided professional services and sold inventory to the parent company JKY Ltd at a profit.

The CFO is seeking clarification from the board in relation to whether profit should be deducted from the
subsidiary’s reported profit for the sale of inventory and for providing the professional services to the parent entity. Secondly, how will this affect the non-controlling Interest (NCI) calculation in the subsidiary’s annual profit?

With reference to AASB 127 Consolidated and Separate Financial Statements and AASB 10 Consolidated Financial Statements and the issues raised in Part B, discuss the key principles and provide examples which explain how intra-group transactions should be treated.

Part C

You are now finalising the consolidated financial statements in the annual report for JKY Ltd as at 30 June 20X8. AASB 127 requires that the NCI is reported as a separate item of owner’s equity. As part of the preparation, you must also consider the allocation of other comprehensive profit to the NCI. The Financial Accountant responsible for the subsidiary has already informed you that the assets of the subsidiary were recorded at historic cost at the control date.

What changes may be required to ensure that the consolidated financial statements are correctly stated? How would any required changes affect the disclosure requirements in the annual report?

With reference to AASB 127 Consolidated and Separate Financial Statements and AASB 101 Presentation of Financial Statements, discuss the effects of the NCI disclosure requirement as a separate item in the consolidation process.

Reference no: EM132308997

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Reviews

len2308997

5/20/2019 9:48:32 PM

Exemplary demonstration of knowledge of the topic. Substantial relevant research using correct referencing conventions. Correct application and appropriate use of Accounting Standards relevant to HA2032. Examples used are appropriate. Effective explanation and differentiation of Consolidation and Equity Accounting within the limit. Exemplary demonstration of knowledge of the topic. Substantial relevant research using correct referencing conventions. Correct application and appropriate use of Accounting Standards relevant to HA2032. Examples used are appropriate. Intra-group transactions is well understood with appropriate examples. This section is within the word limit guidelines. Exemplary demonstration of knowledge of the topic. Substantial relevant research using correct referencing conventions. Correct application and appropriate use of Accounting Standards relevant to HA2032. Examples used are appropriate. NCI disclosure requirements are explained. This section is within the word limit guidelines.

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