...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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...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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...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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...|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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...Chapter 2 – Consolidation of Financial Information FASB allows reporting for businesses combined using the acquisition method. The acquisition method embraces a fair value measurement attribute. * Adoption of this attribute reflects the FASB’s increasing emphasis on fair value for measuring and assessing business activity. * In the past, reporting standards embraced the cost principle to measure and report the financial effects of business combinations. Expansion Through Corporate Takeovers Reasons for firms to combine: 1. Vertical integration of one firm’s output and another firm’s distribution or further processing. 2. Cost savings through elimination of duplicate facilities and staff. 3. Quick entry for new and existing products into domestic and foreign markets. 4. Economies of scale allowing greater efficiency and negotiating power. 5. The ability to access financing at more attractive rates. As firm size increases, negotiating power with financial institutions can increase also. 6. Diversification of business risk. 7. Continuous expansion of the organization, often into diversified areas (creating conglomerates). The Consolidation Process The consolidation of financial information into a dingle set of statements become necessary when the business combination of two or more companies creates a single economic entity – FASB ASC (810-10-10-1) * “There is a presumption that consolidated financial statements are more meaningful...
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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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... | |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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...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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...standards of reporting. To ensure an efficient audit this memo will discuss the treatment of share-based payments as well as the accounting for consolidations relating to SPE’s. This will help in an effort to provide the best services possible to our clients. Client’s Consistency with GAAP Our company shall note that we shall conduct audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards demand that we make sure our audited material is free of misstatement. Throughout the audit we must plan and perform to acquire a reasonable outcome of the financial statements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. The audit also includes evaluating the accounting principles used and important estimates made by management as well as appraising the financial statement presentation. The basis for our opinion relies on a reasonably based audit. Accounting Consolidation Theory A technique used in financial accounting is termed consolidation which combines a group of companies' financial statements into one. This is beneficial because if offers a view of the whole company’s financial state. This gives the auditors a chance to see how combinations of the companies are performing. Accounting Consolidation is used when a corporation owns 50% or more of another company. The technique of consolidating accounting records is handled by combining...
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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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...Chicago Booth School of Business Executive MBA Program Financial Accounting Chicago 12 Team Members 1. George Fischer 2. Gang Huang 3. Joshua Rademacher 4. Robert Gallo 5. Stanley Tara 6. Santosh Shankergowda I pledge my honor that I have not violated the Booth Honor Code during this assignment. GAAP Consolidated Financial Rules Consolidated financial statements present the financial position and results of operations for a parent (controlling entity) and one or more subsidiaries (controlled entities) as if the individual entities actually were a single company or entity. Consolidation is required when a corporation owns a majority of another corporation’s outstanding common stock. The accounting principles applied in the Preparation of the consolidated financial statements are the same accounting principles applied in preparing separate-company financial statements. Two companies are considered to be related companies when one controls the other company. Control is presumed to exist if the parent owns more than 50% of the voting stock of the subsidiaries. Consolidation requires full enumeration of revenues, expenses and asset transfers between companies. Consolidated financial statements are presented primarily for the benefit of the shareholders,...
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...Running Header: Week 1 FASB Assignment FASB Pre-codification standards Summary-Statement of Financial Accounting Standards No. 168 Statement of Financial Accounting Standards No. 168 was issued in June 2009. This statement became effective for financial statements issued for interim and annual periods ending after September 15, 2009. The statement replaces FASB Statement No. 162, The Hierarchy of Generally accepted Accounting Principles. FASB Accounting Standards Codification is the source of authoritative U.S.GAAP accounting and reporting standards for nongovernmental entities. Please note the guidance issued by the Securities and Exchange Commission (SEC) is also used by public entities. FASB Accounting Standards Codification considerably changed the way financial statement preparers, auditors and academics perform accounting research. In addition, the FASB no will no longer issue new standards as Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. FASB now issues Accounting Standard Updates also called ASU’s. FASB Accounting Standards Codification restructured the accounting and reporting standards in a way that simplifies all authoritative U.S. GAAP by formatting the standards in a topically organized structure. The FASB Codification reorganized the thousands of U.S. GAAP pronouncements into approximately 90 accounting topics and displays the topics using a consistent structure. It also includes relevant Securities and Exchange Commission guidance...
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...To: Johnson Company From: Flora Zhou, Accountant Date: November 16, 2013 Re: Equity Method of Accounting and Consolidation At the last meeting, you mentioned that you intended to understanding more information about the equity method of accounting and consolidation financial statement used in an investment. I would like to explain something about these two accounting methods to meet your requirement. When we talk about investments in corporate equity securities, if company A has a significant impact on company B’s operating and decision-making, in another word, A owns at least 20% of B’s business, we can use either the equity method of accounting or the consolidated financial statement for recording value of investments depends on the ownership level. I will detail them separately. Equity Method of Accounting: * Ownership: 20% -- 50%; * Procedure: Record investor’s investment at cost; record investor’s ownership of investee’s net income as an increase in the investment account; record investor’s ownership of investee’s net loss as a decrease in the investment account; record dividends as a loss in the carrying amount. * Accrual Basis: Equity method emphasizes a financial relationship between the holding company and the subsidiary company, that they already constitute an accounting independent economic entity. Consequently, investment income should be recognized when the profits or losses occur in the investee part without having to wait until the investee...
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...How the Equity Method Relates to Consolidated Financial Statements As we'll see, the equity method is in many ways a partial consolidation. If a company acquires more than 50% of the voting stock of another company, it's said to have a controlling interest, because by voting those shares, the investor actually can control the company acquired. The investor is referred to as the parent; the investee is termed the subsidiary. For reporting purposes (although not legally), the parent and subsidiary are considered to be a single reporting entity, and their financial statements are consolidated. Both companies continue to operate as separate legal entities and the subsidiary reports separate financial statements. However, because of the controlling interest, the parent company reports consolidated financial statements. p. 645 Consolidated financial statements combination of the separate financial statements of the parent and subsidiary each period into a single aggregate set of financial statements as if there were only one company - combine the separate financial statements of the parent and the subsidiary each period into a single aggregate set of financial statements as if there were only one company. This entails an item-by-item combination of the parent and subsidiary statements (after first eliminating any amounts that are shared by the separate financial statements).28 For instance, if the parent has $8 million cash and the subsidiary has $3 million cash, the consolidated...
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