Consolidated Financial Statement

Question: Discuss about the Consolidated Financial Statement. Answer: Consolidated Financial Statements Below are the Good Ltd and Man Ltd consolidated financial statements. Since the two entities, showing consolidated financial statements is required. Based on conventionally accepted accounting standards, financial statement must be combined where the other entity owns over 50%. The combined is the Consolidated Financial Statement. Here, the crossed entries are excluded because they have no impacts. Consolidated Income Statement For the period ended 30th June 2016 INCOME STATEMENTS PARTICULARS AMOUNT ($) Sales revenue 4,084,000 Cost of goods sold 2,708,000 Gross profit 1,376,000 Other income Management fee revenue 0 Dividend revenue 297,600 Expenses 0 Depreciation expense (325,200) Management fee expense 0 Loss on sale of plant (140,000) Write down of investment in subsidiary (100,000) Other expenses (1,190,400) Profit before tax (82,000) Income tax expense (162,600) Profit for the year after tax (244,600) Retained earnings at start of year 724,900 Dividend paid/declared (645,600) Retained earnings at year end (165,300) For consolidated Income statement, Income Statement date is consolidated while excluding Inter transaction entries which gives the actual profit for the whole entity. Consolidated Balance Sheet For the period ended 30th June 2016 BALANCE SHEET PARTICULARS AMOUNT ($) Equity Share capital 1,138,000 Retained earnings (165,300) Current Liabilities Accounts payable 1,327,000 Income tax payable 165,200 Dividends payable 100,000 Non-Current Liabilities Loans 753,500 Deferred tax liability 21,400 3,339,800 Current Assets Cash 123,200 Accounts receivable 421,000 Allowance for doubtful debts (22,400) Dividends receivable 84,400 Inventory 214,800 Non-Current Assets Loan receivable 0 Land and buildings 1,304,300 Plant - at cost 1,612,700 Accumulated depreciation - plant (898,200) Investment in Man Ltd 500,000 3,339,800 WORKINGS: Particulars GOOD Ltd MAN Ltd Total Marked Up Cost Marked Up Cost Opening Inventories 168,000 120,000 21,000 15,000 Purchases 200,000 160,000 280,000 224,000 368,000 280,000 301,000 239,000 Sales 280,000 224,000 200,000 160,000 Mark Up Value 56,000 40,000 96,000 Analysis on Acquistion On June 30th 2010, the Man Ltd was acquired by the Good Ltd through acquisition of 100% issued share capital. The Man Ltd became the Good Ltd.s wholly owned subsidiary from the acquisition date. Consolidated statements along with statements of subsidiaries are essential for true and fair presentation of financial statements to the public. Accordingly, the Good Ltd is accountable to showcase the consolidated financial statement along with those of Man Ltd. Many entries are removed in the financial statements since they are useless because transaction lies with subsidiary company. Consolidation: It describes the procedure for combining and showing both subsidiary and parent companys financial statements as though a single firm. It makes users to clearly analyze and comprehend the position of company financially. They can also analyze companys investment based on financial position along with capabilities. Thus providing returns and benefits of subsidiary to parent one. Consolidated Income Statement It represents and reports parent companys expenses and incomes alongside those of subsidiary. It becomes inflated and bulky because of items combination. It allows investors to gauge the companys true performance, investments and interest. Income and expenses items are eliminated from it where an income of an entity is anothers expense. Consolidated Balance Sheet It denotes and reports companys position financially besides subsidiaries. It helps users to comprehend companys collective standings. Certain receivables and payables items are excluded as inter dues. Consolidation Aspect Goodwill It is intangible asset acknowledged solely at purchase event and generates revenues in future. It is unaccounted for in books of account because of self-development. It is impaired from accounts where evidence for further incomes is lacking. When recognized, its impairment charge produces partial income generated if it were impaired fully. IAS disallows impairment loss reversals recognized linked to goodwill. Good Ltd.s Board of Directors lacks power to revalue already completely impaired acquired goodwill upwards by 100,000 dollars. Good Ltd.s management errored in opinion and move to surge goodwill on Man Ltd returned to profitability fast completely unanticipated. Goodwill recognized solely when purchased. It becomes additional amount paid as purchase consideration of net asset value. Where purchase consideration is less relative to net assets, same will be recognized as capital reserve. Control in Accounting Environment: Accounting is essential for business. Business operations depend on companys business model. Companies financial are business blood. It is necessary to control companys accounting records to recognize outcomes through useful internal control. Control help acknowledge deficiencies existing in business process. Business process run smoothly with Internal Financial Control by managing fund flow based on IT resources. Control helps mitigate risks in business by minimizing risks to tolerable levels hence maximized results. High results means tolerable risk levels hence control brings business smooth running. Business Model (BM) in Integrated Reporting BM is central to organization linked with other aspects thereby dictating functionality. BM helps transform inputs into outputs via business process activities thereby creating and developing value. BMs inputs include funds, resources, human and technology while service or product describe outputs. BM covers many internal and external environmental factors dictating BMs performance. Based on missions, visions and operations analysis reveal organizational risks and opportunities. Formulating strategies and plans help effectively use such opportunities for risk elimination. Consideration: INPUTS-The primary factors useful for business process model and dictate entitys capabilities for value creation. Financial Capital-Key input which entails funds required for operating activities. It encompass debt, equity, working capital arrangement besides received grants model. Intellectual Inputs-Works towards users value-creation and regards copyrights, patents besides other IPs. Human Resources (HR)-Primary element in BM to complement machines by operating and monitoring. HR entails skilled workforce, qualified officers and experienced staff to work and monitor and remain BMs active component. Raw Materials-Primary substances used in manufacturing process of final service/products. All arranged funds, invested in machines, trained HR and acquired IP are waste and useful without raw materials. OUTPUTS-Final product/service of entire process that is of greater value and societal useful. BUSINESS ACTIVITY-an activity to transform inputs into output through resources and machines such as product-manufacturing in plants. 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