Corporate Accounting And Reporting For Financial Performance: AASB 10 And AASB 101

Discuss about the Corporate Accounting and Reporting for Financial Performance.

The objective of accounting is to collect and report on the financial information pertaining to the cash flows, financial performance and position of an entity. The present report undertakes to explain the application and relevance of AASB 10 and AASB 101 of Australian Accounting through practical illustrations.

The primary purpose of AASB 10 Consolidated Financial Statements is to set out principles and guidelines to facilitate the preparation and presentation of consolidated financial reports when one or more sub-businesses are controlled by an organisation (AASB, 2011). This standard gives a novel and extended guidance on recognising whether or not control exists in a company, and hence whether it requires consolidation. The mandates of AASB 10 are based on principles and entail exercising judgment (Crowe Horwath, 2011).

At 1 July 2016

Net fair value of identifiable assets and liabilities = ($100000+$50000+$10000) equity +

=$10000 (1-30%) inventory+

=$10000 (1-30%) plant + 90000 (1-30%) patent

-15000 (1-30%) legal claim

= $226 500

Consideration transferred =$88 000

Capital reserve =$138 500

Worksheet entries

Entries	Dr.	Cr.
1. Inventory Dr	10000
Deferred tax liability Cr		3000
Business combination valuation reserve Cr		7000

2. Patent Dr	90000
Deferred tax liability Cr		27000
Business combination valuation reserve Cr		63000
3. Accumulated depreciation – equipment Dr	20000
Equipment Cr		10000
Deferred tax liability Cr		3000
Business combination valuation reserve Cr		7000
4. Deferred tax liability Dr	4500
Legal claim Dr	10500
Legal claim Cr.		15000
5. Business combination valuation reserve Dr	138500
Capital Reserve Cr.		138500

Entries	Dr.	Cr.
Retained earnings Dr.	10000
Share capital Dr.	100000
General reserve Dr.	50000
Shares in Kam Ltd. Cr.		88000
Business combination valuation reserve Cr.		72000

Entries	Dr.	Cr.
Business combination valuation entries
1. Cost of sales Dr.	10000
Income tax expense Cr		3000
Business combination valuation reserve Cr		7000
2. Patent Dr	90000
Deferred tax liability Cr		27000
Business combination valuation reserve Cr		63000
3. Accumulated depreciation – equipment Dr.	20000
Equipment Cr		10000
Deferred tax liability Cr		3000
Business combination valuation reserve Cr		7000
4. Depreciation expense Dr.	5000
Accumulated depreciation Cr (1/2 x $10 000)		5000
5. Business combination valuation reserve Dr.	138500
Capital reserve Cr.		138500

Pre-acquisition entries

The pre-acquisition entries are affected by:

-transfer from business combination valuation reserve

Entries	Dr.	Cr.
1. Retained earnings Dr.	10000
Share capital Dr.	100000
General reserve Dr.	50000
Shares in Kam Ltd. Cr.		88000
Business combination valuation reserve Cr.		72000
*Alternative BCVR entry for Equipment
Accumulated depreciation – equipment Dr.	20000
Equipment Cr		20000
Equipment Dr.	10000
Deferred tax liability Cr		3000
Business combination valuation reserve Cr		70000

Asset’s value is presumed to be before depreciation as on 1.1.2006.
It is presumed that Lisa Ltd. profit margin is 10%.

Statement of Affairs

An Abstract of Consolidated Balance Sheet of Lisa Ltd.
as at 30 June 2016
	Notes	Amount of $
ASSETS
Financial Assets
Cash and cash equivalents		–
Trade and other receivables		–
Total financial assets		–
Non-Financial Assets
Land and buildings		–
Property, plant and equipment		–
Fixtures & Fittings		45,000
Intangibles		90,000
Other		–
Total non-financial assets		1,37,000
Total Assets		1,37,000
LIABILITIES
Non-Current Liabilities
Long Term Loan		–
Other		–
Total		–
Current Liabilities
Provisions
Employee provisions		–
Other		15,000
Total provisions		15,000
Net Assets		15 000
EQUITY
Reserves		122,000
Total Equity		1,37,500

This Standard lays down the grounds for presenting the financial statements thereby ensuring their comparability both with the company’s financial statements of earlier accounting periods as well as with the financial statements belonging to other businesses (Berrington and Bhandari, 2011). It prescribes the complete requisites for presenting the financial statements, minimum disclosures of their content, and principles guiding their structure (AASB Standard, 2015).

Statement of Profit or Loss and Other Comprehensive Income
	Note	In $’000s
Income
Sales		50,00,000
Expenses
Cost of Sales		35,00,000
Expenses
Marketing Cost		66,000
Administrative Cost		99,000
Distribution Cost		2,00,000
Finance Cost		1,00,000
Profit before Income Tax		10,35,000
Income Tax		3,10,500
Profit for the year after tax		7,24,500
Profit distributed as Dividend		10,000
Profit retained by the company		7,14,500
Total other comprehensive Income		0
Comprehensive profit for the year		7,14,500

Conclusion

The prescribed ways of reporting financial statements have been learnt from the above examples.

References

AASB Standard. 2015. Preparation of Financial Statements. [pdf]. Available through: <https://www.aasb.gov.au/admin/file/content105/c9/AASB101_07-15.pdf>. [Accessed on 15^th September 2016].

AASB. 2011. Consolidated Financial Statement. [pdf]. Available through: <https://www.aasb.gov.au/admin/file/content105/c9/AASB10_08-11.pdf>. [Accessed on 15^th September 2016].

Berrington, M. and Bhandari, V., 2011. Pinnacle Financial Statements. IFRS System.

Crowe Horwath. 2011. AASB 10, 11 and 12 – How Will They Affect You? [Online]. Available through: <https://www.crowehorwath.net/uploadedfiles/au/insights/insights-assets/a_issue%20of%20aasb%2010%2011%20and%2012_sept11_final.pdf>. [Accessed on 15^th September 2016].

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