...On 1 July 2007, Neptune Ltd acquired all the shares of Venus Ltd on an ex-div basis. Acquisition related expenses were $5 000. On this date, the equity and liabilities of Venus Ltd included the following balances: Share Capital $200 000 General Reserve 25 000 Retained Earnings 45 000 Dividend payable 10 000 Provisions 204 400 At acquisition date, all the identifiable assets and liabilities of Venus Ltd were recorded at amounts equal to fair value except for: Carrying Fair Amount Value Equipment (cost $80 000) $50 000 $53 000 Inventory $70 000 $80 000 Plant (cost $300 000) 186 000 190 000 Machinery (cost $18 000) 15 000 16 000 Trademark 100 000 110 000 Land 50 000 70 000 Fittings (cost $15 000) 10 000 10 000 Goodwill 25 000 52 000 Goodwill was written down by $5 000 in the 2008 year by Neptune Ltd as a result of an annual impairment test. The plant had a further five year life at acquisition date and was expected to be used on a straight line basis over that time. The trademark was considered to have an indefinite life. The machinery, which was estimated to have a further four year life at acquisition date, was sold on 1 January 2009. At 1 July 2007, Venus Ltd had not recorded a liability relating to a guarantee that was considered to have a fair value of $10 000. An amount of $6 000 was paid by Venus Ltd in June 2009 in part payment of this liability. The balance of this liability was still considered to be $4 000 at 30 June 2009. Immediately...
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...Definition & Meaning: The combined financial statements of a parent company and its subsidiaries. Definition of 'Consolidated Financial Statements’: Consolidated financial statements are the combined financial statements of a company and all of its subsidiaries, divisions, or suborganizations. Explanation: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge the overall health of an entire group of companies as opposed to one company's stand alone position. A consolidated financial statement gives investors a clear view of a corporation's global activities. A consolidated financial statement typically combines a company's operating activities with data from its subsidiaries. A consolidated financial statement helps an investor, a regulator or a corporation's top management evaluates the true financial standing of the corporation. A consolidated financial statement also may indicate an entity's financial position or cash flows during a period. Meaning of 'Consolidated Financial Statements’: Let's assume Company XYZ is a holding company that owns four other companies: Company A, Company B, Company C, and Company D. Each of the four companies pays royalties and other fees to Company XYZ. At the end of the year, Company XYZ's income statement reflects a large amount of royalties and fees with very few expenses -- because they are recorded on the subsidiary income statements...
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...year life at acquisition date, was sold on 1 January 2009. At 1 July 2007, Chu Ltd had an unrecorded patent with an indefinite useful life. On that date, Kwok Ltd measured the fair value of the patent at $8 000. By 30 June 2009, it was assessed that $2,000 of the patent was not recoverable. At 1 July 2007, Chu Ltd had not recorded a liability relating to a guarantee that was considered to have a fair value of $7,000. An amount of $5 000 was paid by Chu Ltd on 26th June 2009 in part payment of this liability. The balance of this liability was still considered to be $2,000 at 30 June 2009. At 1 July 2007, Chu Ltd had not recorded any goodwill. Valuation adjustments are made on consolidation and, on realisation of a business combination valuation reserve, a transfer is made to retained earnings on consolidation. (b) During the 2007-2008 year, Chu Ltd transferred $5,000 to its General Reserve from profits earned prior to acquisition date. (c) For the year ending 30 June 2008, the profit after tax for Chu Ltd was $17,000 from which a dividend of $5,000 was paid in that year. (d) The debentures were issued by Chu Ltd at nominal value on 1 July 2008, and are redeemable on 30 June 2013. Kwok Ltd acquired its holdings ($60 000) of these debentures on the open market on 1...
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...characterized by a high degree of fragmentation and low levels of financial intermediation up until 2004. In the light of the foregoing, banks are compelled by the Central Bank of Nigeria to raise their capital base from N2 billion to 25 billion on or before 31st December, 2005. Most banks resorted to mergers and acquisition as a survival strategy, which saw a reduction in the number of banks from 89 to 25. This study contributes to the concept of bank recapitalization by critically examining the impact of bank consolidation on the performance of banks using a sample of randomly selected Nigerian banks. It is the intention of the researcher to give more validity to empirical evidence that have been obtained by previous researchers on the subject matter. Relevance of the study The earliest set of studies evaluates the effects of bank consolidation through mergers and acquisitions comparing pre- and post- merger performance by measuring performance using either accounting or productive efficiency indicators.The results from both indicators have varied and at sometimes been contradictory. This can be explained by performance-influencing variables like size, brand name, diversification and cost reduction, there is still no reconciliation between these indicators. I intend to contribute to the determinants of bank performance by evaluating the possible performance impact of bank consolidation on banks. Consolidation is the key to improving the performance of banks with low capital...
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...Financial Reporting [case study #2] September 26, 2013 Introduction As the most famous worldwide beverage reaches the last stage of the production line, it is shipped to an authorized bottler – a company which duty is to mix Coca-Cola’s syrup (or concentrates) with carbonated water and sugar before selling it in glass or tin containers. These bottlers can be categorized in three groups taking into account their dependence from The Coca-Cola Company (hereafter simply referred as Coca-Cola). First, there are the independently owned bottlers, which accounted for 34% of Coca-Cola’s production in 1998. Second, 11% of Coca-Cola’s bottlers are owned and controlled. And then, there are those in which Coca-Cola has invested but still has no control (55% in 1998). Anchor Bottlers is the name given to some of these bottlers in which Coca-Cola has minority interests. They account for the majority of Coca-Cola’s sales (43%), justifying their special importance for the company. They tend to be large, geographically disperse and financially burly. There were 10 companies under this label, by 1999. This rooting of Coca-Cola’s business operations aims to make the most of its subsidiaries, by exploiting their efficiency in producing, delivering and marketing Coca-Cola’s products. Nonetheless, the level of control and ownership is carefully studied based on these bottlers’ financial health, resources available at the time of the investment, and the need to share ownerships with other important...
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...1. Introduction to consolidation 1.1 Background Sine July 2002, consolidation has been introduced into income taxation by the Commonwealth Government (ATO 2011, p.1). The objective is to treat the wholly owned groups as a single economic entity to be taxed. Figure 1. Before consolidation Figure 2. After consolidations Meanwhile, the accounting standards have been improved and amended in different periods in order to meet the needs of standardization in entire financial environment in Australia. This is typically required by the situation that every company listed on ASX have its subsidiaries. The early AAS 24 has the flaw referred as unit trusts and debts. Now, The Corporations Act 2011 applies the AASB 127 as the accounting standards regarding as consolidation, which clearly states the ‘control’, ‘parent entity’ and ‘subsidiary entity’. In others words, consolidation exists when a parent entity controls its subsidiaries and the consolidation financial statement is which the group can represent as those of single legal entity. 1.2 Benefits of consolidation • Satisfy with the requirement of ‘true and fair’ about financial statements • Ensure the reliability and relevance of financial information • Increase business efficiency • Avoid the overstated or understated situation for profit or loss • Align with the purpose of tax 2. The role of consolidated financial statement AASB 127 par.4 defines the consolidated financial statement as the assets...
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... | |CONSOLODATION: | |US GAAP vs IFRS | | | | | For decades the US financial market has stuck to accounting rules known as the Generally Accepted Accounting Principles, commonly abbreviated as U.S. GAAP, or simply GAAP. Just less than a year ago, there was the groundbreaking elimination of GAAP requirement for International Financial Reporting Standards (IFRS) reporting foreign issuers, due to a strong global support for IFRS. Then on August 27th 2008, the Securities Exchange Commission voted to publish for public comment a proposed Roadmap that could lead to the use of International Financial Reporting Standards (IFRS) by U.S. issuers beginning in 2014. Currently, U.S. issuers use U.S. Generally Accepted Accounting Principles (U.S. GAAP). The Commission would make a decision in 2011 on whether adoption of IFRS is in the public interest and would benefit investors. The proposed multi-year plan sets out several milestones that, if achieved, could lead to the use of IFRS by U.S. issuers in their filings with the Commission (Navigating). The transition from U.S. GAAP...
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...adjustment programme (SAP) in 1986 and de-regulation of the financial sector, new banks proliferated mainly driven by attractive arbitrage opportunities in the foreign exchange market (Heiko 2007), but prior to the de-regulation period, financial intermediation never took off and even declined in the1980’s and 1990’s (Capirio and Kligbiel). The sector was highly oligopolistic with remarkable features of market concentration and leadership. Lemo noted that there are ten banks that control more than 50% of the aggregate assets of the banking sector, more than 51% of the aggregate deposits liabilities and more than 45%of the aggregate credits. The sector was characterized by small scale banks with high overheads; low capital base averaging less than $10 million; heavy reliance on the government patronage and loss making. Nigeria‘s banking sector was still characterized by a high degree of fragmentation and low level of financial intermediation up to 2004. This research work is motivated by the need to look into the Central bank (CBN)’s recent reform (consolidation) that employed certain measures to strengthen the Nigeria banking system by drastically increasing the minimum capital requirement from N2 million to N25 billion ($190 million-US). Through review of relevant literatures, analysis of policy documents, official report and economic information on the banking sector, it became evident that the consolidation of banks led to a remarkable reduction in the number of banks...
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...Executive Memo to the Board To: Board of Directors From: UoPx CPA Auditors Subject: GAAP Requirements and Accounting Treatment for Share-Based Payment Reporting and Consolidation of Special Purpose Entity Week 6 Points to consider Memo on SPE and Share-based payments Evaluate Share-based payment reporting JJH->Share-based employee compensation awards are classified as either equity instruments or liability instruments. The measurement date for estimating the fair value of equity instruments is the grant date; the measurement date for liability instruments is the settlement date. Different rules also apply to public vs. private companies depending on the type of award instrument. (Executive summary, Paragraph 2) http://www.journalofaccountancy.com/Issues/2007/Apr/ARoadMapForShareBasedCompensation.htm Three features to help identify a share based transaction with employee program: 1. Employees that are shareholders are granted additional benefits Additional benefits indicate the entity is dealing with the individuals as employees or providers of services rather than as investors or equity holders. Examples of additional benefits include: • Employees have the right to additional shares if the business performs well (often referred to as a ratchet mechanism). • Employees’ rights depend on whether the entity floats or is sold through a trade sale (ie, in the event of a trade sale an employee may automatically get a cash payment...
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... |Presentation on Financial |Change in Fair Value | |(nonprofit entities follow SFAS No.124) |Statements | | | | |Temporary |Other than | | | | |Temporary Loss | |Does the investor have substantial influence or control? | | | | |Investor owns 20% to 50% of stock and has significant influence but |On BS at historical cost plus |N/A |Realized loss on | |not control of the corporation |share of earnings since | |IS, new basis on | | |acquisition less dividends | |BS | |Use Equity Method |received (amortization may also be| | | | |required) | | | |Investor owns over 50% of stock or otherwise controls the |Consolidated financial statements |N/A ...
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...1. What are the procedures related to the securitization of receivables using SPEs? Describe all parties involved in this process. In general, the securization of receivables involves the following procedure: ● A special purpose entity (SPE) is created by a third party which is independent of the company (referred to as the transferor) with receivables. ● The transferor will first transfer its receivables to the SPE. ● The SPE issues securities (i.e. commercial papers) using these receivables as collaterals. ● The cash received by the SPE from issuing securities will go back to the transferor to pay off the receivables transferred. ● The SPE is served as a “pass through”. ● The transferor can continue to service the loan for a fee. The procedure can be illustrated by a specific example of commercial bank: ● Usually a commercial bank establishes an asset-backed commercial paper (ABCP) conduit. The bank is referred to as the sponsor. ● The originating company sells receivables to the conduit. ● The conduit funds the purchases of the receivables with ABCP issued to institutional investors, usually money market funds. Investors contribute cash to the conduit and receive ABCP in return for investment. ● The originating company receives cash from the conduit. ● The sponsor organizes transaction and provides liquidity and credit enhancement, and in return receives a fee for its services. 2. When an investment bank is used as the sponsor of a SPE for securitization ...
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...Consolidation-Date of Acquisition Chapter 4 • Consolidated statements bring together the operating results and financial position of two or more separate legal entities into a single set of statements for the economic entity as a whole. • To accomplish this, the consolidation process includes procedures that eliminate all effects of intercorporate ownership and intercompany transactions. 4-2 Consolidation As Of The Date Of Acquisition McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Consolidation-Date of Acquisition • The procedures used in accounting for intercorporate investments were discussed in Chapter 2. • These procedures are important for the preparation of consolidated statements because the specific consolidation procedures depend on the way in which the parent accounts for its investment in a subsidiary. • The consolidated statements, however, are the same regardless of the method used by the parent company to account for the investment. 4-3 Consolidation-GAAP • Consolidated and unconsolidated financial statements are prepared using the same generally accepted accounting principles. 4-4 Roadmap—Chapter 4 Roadmap—Chapters 5 to 10 • After introducing the consolidation workpaper, this chapter provides the foundation for an understanding of the preparation of consolidated financial statements by discussing the preparation of a consolidated balance sheet immediately following the establishment of...
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...(updated January 2012) Effect analysis IFRS 10 Consolidated Financial Statements and IFRS 12 Disclosure of Interests in Other Entities In The IASB’s approach to effect analysis Before we issue new requirements, or make amendments to existing IFRSs, we consider the costs and benefits of what we are proposing. This includes an assessment of both the costs incurred by preparers of financial statements and the costs incurred by users of financial statements when information is not available. We also consider the comparative advantage that preparers have in developing information that users would otherwise have to develop themselves. What is the measurement bar for our assessment? We expect our standards to have economic effects, and we understand that those effects may be beneficial for some entities and detrimental to others. For example, a change in financial reporting requirements might affect the cost of capital for individual entities by changing the absolute or relative level of information asymmetry associated with those entities. We assess these associated costs and benefits by reference to the overall objective of financial reporting. We try to understand how the changes will contribute towards the development of a single set of high quality global accounting standards by improving the allocation of capital. We therefore also consider the benefit of better economic decision-making as a result of improved financial reporting. The boundaries of our assessment a) Uncertainties...
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...an investment in equity securities along with a fair value option. A. Fair value method: applied by an investor when only a small percentage of a company’s voting stock is held. 1. Income is recognized when dividends are declared. 2. Portfolios are reported at fair value. If fair values are unavailable, investment is reported at cost. A. Consolidation: when one firm controls another (e.g., when a parent has a majority interest in the voting stock of a subsidiary or control through variable interests, their financial statements are consolidated and reported for the combined entity. A. Equity method: applied when the investor has the ability to exercise significant influence over operating and financial policies of the investee. 1. Ability to significantly influence investee is indicated by several factors including representation on the board of directors, participation in policy-making, etc. 2. According to GAAP guidelines, the equity method is presumed to be applicable if 20 to 50 percent of the outstanding voting stock of the investee is held by the investor. Current financial reporting standards allow firms to elect to use fair value for any investment in equity shares including those where the equity method would otherwise apply. However, the option, once taken, is irrevocable. After 2008, an entity can make the election for fair value treatment only upon acquisition of the equity shares. Dividends received and changes in fair...
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... Technical Line Financial reporting development In this issue: Introduction ...................................... 1 The models ........................................ 2 Variable Interest Model ..................... 2 Voting model ..................................... 3 Navigating through the Variable Interest Model ............................... 3 1. Does a scope exception to consolidation guidance (ASC 810) apply? ....................... 4 2. Does a scope exception to the Variable Interest Model apply? .... 4 3. Does the enterprise have a variable interest in a legal entity? ............................... 6 4. Is the legal entity a VIE? .............. 8 5. If the legal entity is a VIE, is the enterprise the primary beneficiary? ................. 14 Conclusion....................................... 19 Appendix: Flowchart of the consolidation models in ASC 810 ..21 A quick guide to understanding the Variable Interest Model and eight common misconceptions What you need to know • Depending on the circumstances, consolidation may be based on factors other than majority ownership. • To help you navigate through the Variable Interest Model, we lay out five questions you need to ask to evaluate an entity for consolidation. • We identify eight common misconceptions involving scope exceptions, determining whether an entity is a variable interest entity (VIE) and determining the primary beneficiary of a VIE. Introduction Two years after the Financial Accounting Standards...
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