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Consolidated Financial Statements

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Theory aspect of Consolidated Financial Statements

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Theory Aspect

The integrated reporting framework used by an entity in order to enhance their reporting system to restrict the defaulters to enter into the system in order to break the confidentiality. The existing reporting process needs to be strengthen by adopting different methods in improving the existing working conditions of an entity. The primary objective of this framework is to reduces the hidden errors lies in the internal business system. The replica of transactions are also reduces by applying the methods of integrated reporting framework. The current principles are used by an entity which will help in enhancing the existing quality of information by supplying truth and fair information to other end.

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The financial statements prepared by an entity in order to record their overall business transactions in a particular year. The recorded transactions are further reflected the financial performance of an entity in which efficiency entity will get improved by adopting each and every principles. The electronic mode has chosen by an entity in order to convey their financial information to all kinds of stakeholder. The Increasing impact of external business environment imposes external pressure on the business which will be helpful for an entity in order to affect the internal business performance.

Define- The control based approach is emphasises on imposing and placing controls in the current system in order to control the performance of an entity in relation to the external threats. On the other hand, inclusive approach is stresses on combing with the current system who emphasises on all the existing transactions by reducing their weaknesses by enhancing their ability.

Mode- The focus of the integrated reporting framework is on the external business environment in which external market threats are taken into consideration. The market threats are observed properly by an entity owner which can be further converted into opportunities for the business. The higher efficiency of an entity will transform the negative reactions of the environment into new market opportunities. The control approach focuses on protecting the interest of the business from the external default by improving the current financial statements. On the contrary, to it the inclusive approach emphasises on strengthening the business performance by enhancing the internal performance of the business in relation to the external market.

Compliance- The control based approach stresses on complying with the rules and regulations framed by external entity to enhance the existing business performance of the current financial statements. The external rules will in turn improves the working conditions of an entity by following different committees such as stock exchanges and other IFRS requirements to be followed by an entity. The inclusive approach stresses on rectifying the existing weaknesses lies in the current system of the business in order to deal with the external market complexities. The stakeholder's needs and the expectations are taken into considerations. The integrity of the business needs to be reflected by the action taken by an entity in order to please their clients in order to maintain long term relationship with them.

PART 1

a) Acquisition analysis and adjustment/elimination journal entries for consolidation at acquisition, 30 June 2010

Acquisition analysis at 30 June 2010

Net fair value of assets and liabilities Man Ltd

Values in $

Share capital

300000

Retained earnings

200000

Business Combination valuation reserve

100000

Inventory(33600*1-30%)

23520

Plant (40000(1-30%)

28000

Land (40000*1-30%)

28000

Plant (140000*1-30%)

98000

-Goodwill (4000*1-30%)

2800

Total assets

774720

Consideration transferred

600000

Goodwill

174720

Goodwill recorded

2800

Capital reserve

171920

Inventory calculation= Opening-closing= 168000-134000=33600

=33600 (1-30%)= 23520

  1. Journal entries at the date of acquisition at the year end 30 June 2010

Date

Particulars

Debit (Values in $)

Credit (Values in $)

30-June-2010

Share capital

300000

 

 

Retained earnings

200000

 

 

Additional cash

100000

 

 

    To investments in subsidiary

 

600000

Narration

(Being amount eliminated in the subsidiary ledger)

 

 

30-June-2010

Land

40000

 

 

Deferred tax liability (40000*30%)

 

12000

 

Business combination valuation (40000*70%)

 

28000

Narration

(Being value of land undervalued)

 

 

b) i) adjustment/elimination journal entries for consolidated statements at 30 June 2016

Recognizing good impairment expenses

Goodwill impairment A/c Dr 4000

To Retained earnings   4000

Eliminating intra-group sales

Revenue (Man Ltd) 280000

To Cost of sales 280000

Eliminating unrealized profit in opening inventory

Retained earning a/c Dr 48000

To Opening inventory 48000

(being unrealized profit in opening inventory)

Income tax expense A/c Dr 14400

To retained earnings(48000*30%) 14400

(Being income tax attributable to opening inventory)

Eliminating Unrealized profit in closing inventory

Closing stock A/c Dr(Income statements) 22000

To Inventory(Balance sheet)((280000*25%=70000-48000=22000)) 22000

Tax paid on sale of inventory

Deferred tax asset A/c Dr(22000*30%) 6600

To income tax expenses 6600

Eliminating Intra group dividend

Dividend income 453600

To Dividend paid 453600

ii) Consolidation worksheet

Consolidation worksheet

 

 

Debit

Credit

Final consolidated

Particulars

Good Ltd

Man Ltd

 

 

 

Revenues

280000

200000

 

 

480000

Cost of sales

185600

852000

 

280000

1317600

Goodwill impairment loss

4000

 

4000

 

0

Net income

94400

-652000

 

 

-837600

Opening Retained earnings

454000

270900

14400

48000

758500

Net profit

548400

-381100

 

 

167300

Dividend paid

549600

0

453600

 

96000

Retained earning closing

183800

-253100

 

 

 

Cash

81100

42100

 

600000

723200

Inventory

134400

47600

6600

 

175400

land

793600

510700

4000

 

1300300

Plant

620700

992000

140000

140000

1612700

Goodwill  

171920

 

 

 

171920

Total assets

1801720

1592400

 

 

3394120

Liabilities

 

 

 

 

 

Equity

968000

20000

 

 

988000

Retained earnings

764200

698900

 

 

1463100

Long term loan

28000

 

 

 

28000

Capital reserve

58320

209700

 

 

268020

Total equity and liabilities

1818520

928600

 

 

2747120

 

Date

Particulars

Amount

Date

Particulars

Amount

01/01/16

Opening balance

454000

By Goodwill impairment

 

4000

 

Opening inventory

48000

 

By income tax

14400

 

Good Ltd

300000

 

By balance c/d

183800

 

 

 

 

balance

599800

 

Total

802000

 

Total

802000

Iii) Consolidated financial statements and statements of changes in equity of Good Ltd and its controlled subsidiary for year ended 30 June 2016

Table 1: Consolidated income statement

Particulars

Good Ltd

Man Ltd

Consolidated Income statement

Revenue

280000

200000

480000

Cost of sales

1856000

852000

2708000

GP

-462000

-652000

-2228000

Management revenue

106000

 

106000

Dividend revenue

297600

 

297600

Operating expenses

 

 

 

Depreciation expenses

98000

227200

98000

Management fee

 

106000

106000

Loss on sale of plant

140000

 

140000

Investments write down

100000

 

100000

Other expenses

527600

662800

1190400

Total expenses

865600

996000

1861600

Profit before tax

-924000

-1648000

-3686000

Taxation

162600

0

195600

Net profit after tax

-761400

-1648000

-2409400

Opening retained

768700

253100

1021800

Dividend paid

96000

0

96000

Net income

672700

253100

925800

Table 2: Consolidated Balance sheet

Particulars

Good Ltd

Man Ltd

Consolidated Balance sheet

Equity

 

 

 

Share capital

968000

200000

1168000

Retained earnings

768700

253100

1021800

Current liabilities

 

 

0

Accounts payable

297400

1029600

1327000

Income tax payable

165200

0

165200

Dividend payable

4000

40000

44000

Total current liabilities

466600

1069600

1536200

Non current liabilities

 

 

0

Loans

545500

208000

753500

Deferred tax liability

21400

0

33400

Total non-current liabilities

578900

208000

786900

Total Equity and liabilities

3815700

3008300

6836000

Current asset

 

 

0

Cash

681100

42100

723200

Accounts receivable

247600

173400

421000

Allowance

10000

12400

22400

Dividends receivable

124400

0

124400

Inventory

230300

73900

304200

Total current assets

1293400

301800

1595200

Non-current assets

 

 

0

Land and buildings

753600

510700

1264300

Plant

620700

992000

140000

Accumulated depreciation

708400

555200

898200

Investment in man Ltd

500000

600000

500000

Total non current assets

2582700

2657900

5240600

Total assets

3876100

2959700

6835800

Table 3: Consolidated changes in equity

Particulars

Good Ltd

Man Ltd

Consolidated changes in equity

Share capital

938000

200000

1138000

Opening retained earnings

183800

253100

436900

Total  

1121800

453100

1574900

Changes in equity

 

 

0

Issue of share capital

300000

 

300000

Retained earnings

200000

 

200000

Income for the years

-61000

 

-61000

Dividends

453600

 

453600

Balance at end

1107200

 

1107200

PART 2

Effect on revaluation in goodwill on the financial statements

The revaluation in the existing figure of Goodwill is possible in case of acquisition of another company as in that case the value of goodwill will get increases over the years. The amount of upward revaluation of goodwill will affect the cash flow in positive terms as this will enhance the overall financing activities of the cash flow in order to take long term liability.

The current amount of goodwill which is enhanced after 12 months in the new business of Good Ltd after acquiring man ltd will be taken into consideration as revaluation reserves.

References

  • Harris, P. and Dilling, P., 2016. Case Study: Consolidated Balance Sheet At Date Of Purchase. Journal of Business Case Studies (JBCS). 13(1). pp.1-4.
  • Biancone, P., Secinaro, S. and Brescia, V., 2016. Popular report and Consolidated Financial Statements in public utilities. Different tools to inform the citizens, a long journey of the transparency. International Journal of Business and Social Science. 7(1).
  • Mates, D., Puscas, A., Ursachi, A. and Ajtay, E., 2016. The influence of accounting system regarding accounting and taxation of entities. Journal of legal studies. 17(31). pp.58-63.
  • Johansson, S. E., Hjelström, T. and Hellman, N., 2016. Accounting for goodwill under IFRS: A critical analysis. Journal of International Accounting, Auditing and Taxation. 27. pp.13-25.
  • Strebel, P., and et.al., 2016. Competitive profits and the annual report: measuring the sustainable business. Journal of Business Strategy. 37(2). pp.42-49.
  • Granof, M. and Bell, S., 2016. A 10-K for the Taxpayer: The Federal Financial Report Provides a Comprehensive Look at the US Government's Financial Metrics and Perspective on Future Issues and Challenges. Journal of Accountancy. 222(4). p.46.
  • Malmendier, U., Opp, M. M. and Saidi, F., 2016. Target revaluation after failed takeover attempts: Cash versus stock. Journal of Financial Economics. 119(1). pp.92-106.
  • Kabir, H. and Rahman, A., 2016. The role of corporate governance in accounting discretion under IFRS: Goodwill impairment in Australia. Journal of Contemporary Accounting & Economics. 12(3). pp.290-308.
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