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Semester 2 2016
Administrative Matters
Welcome!
ACCT7104
CORPORATE ACCOUNTING
ACCT7101 is a pre-requisite.
Knowledge of ACCT7102 material would be advantageous,
Key Textbooks
Reference Material
Dagwell, R., Wines, G and Lambert, C. 2012. Corporate Accounting
in Australia, Pearson Australia
Deegan, C. 2012. Australian Financial Accounting. 7th Edition,
McGraw Hill Australia Pty. Ltd.
Jubb, P., S. Haswell and I. Langfield-Smith (2010), "Company
Accounting", 5th edition, Thomson Learning Australia
Leo, K., Knapp, J., McGowan, S. and Sweeting, J. 2015. Company
Accounting. 10th Edition, John Wiley & Sons Australia, Ltd
AASB website (www.aasb.gov.au/)
IFRS website (www.ifrs.org/)
CPA & CAANZ websites
Summary of Assessment
BlackBoard
Announcements
Seminar slides, practise questions & answers
Specific additional content
General information
Moderated Discussion Board
Project Group page (including Group Blog)
Yourselves!!
ECP Course Profile
Workshops
Consultations
Wednesdays, 2.00 pm 4.00 pm
My office in Joyce Ackroyd Building (Bld 37-418)
Other times by arrangement (confirmed e-mail)
Any mutually convenient time you find me in my office
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Seminar 1
Control & Basic Introduction to Groups
Assessment Task
Due Date
Weighting
Learning
Objectives
Wednesday,
7 September 2016
Seminars 1 - 5 plus
workshop/revision
activities
30%
1, 2,
4, 6
25%
(being
10%
Individual
+ 15%
Group)
1, 2, 3,
4, 5, 6
Examination Period
45%
1, 2,
3, 6
Financial Statement
Project
(Individual/Group)
ACCT7104
Semester 2 2016
Seminars
every week
sources
1.
For most weeks before each seminar, MCQs based on the current
weeks material will be posted on BlackBoard for students to
attempt anonymously, the results of which will be immediately
available to you from BlackBoard. The cumulative results will
indicate the weaker areas of understanding, thus allowing
concentration on these areas when discussing the key points;
2.
3.
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1 Understand how the umbrella themes of control and influence pervade all
aspects of accounting for corporate structures through clear application and
interpretation of both key issues to all specific topics.
2 Gain an overview of current international trends of reform in the reporting of key
accounting areas, recognising their impact on Australian reporting entities, and
linking these to the relevant Australian Accounting Standards relating to
intercorporate investments.
3 Explain the process of consolidation and undertake the accounting procedures
required to consolidate a parent entity and its controlled entities (including partlyowned controlled entities) in compliance with applicable accounting regulations.
4 Display a practical ability to account for: interests in associated companies using
the equity method of accounting; investments in entities where the investor is a
party to a contractual arrangement conferring joint control; the translation and
consolidation of financial statements of foreign operations; segment reporting,
determining reportable segments and the disclosure thereof; and the liquidation and
divestment of a controlled entity.
5 Analyse and critically evaluate real world presentations of accounting topics,
showing the ability to present findings to peers and professional accountants.
6 Consider both ethical and cultural issues facing accountants in organisations,
being able to explain and present such problems to peers and professional
accountants.
Seminar 1
Control & Basic Introduction to Groups
ACCT7104
Semester 2 2016
Seminar Objectives
Final Examination
Decreased from 50% => 45%
New hurdle rate:
Must obtain at least 40% of available marks in examination if
course is to be passed overall
1. Control
1.1 Range of business transactions/combinations
1.2 Explain the meaning and indicators of the power to control
1.3 Contrast control with significant influence
1.4 Understand various levels of business
2. Basics of Consolidation
2.1 What is a simple Group?
2.2 What financial accounts are required?
2.3 Fair Value Adjustments & Subsequent Depreciation
Total >50% (that is, 72/100), BUT FE < 40%, => FAIL COURSE
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a)
b)
3.
4.
a)
Seminar 1
Control & Basic Introduction to Groups
b)
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ACCT7104
Semester 2 2016
Arthur textbook
Issued before new AASBs introduced
Refers to old AASB127 (now redundant)
Need to be sure that you understand new AASBs
You will not be assessed on anything related to AASB127
Practical elements of accounting in this area have not
changed greatly, except for terminology
Arthur kept as preference as still best book for practical
questions
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Seminar 1 Objective 1
1. Control
1.1 Range of business transactions/combinations
In relation to the first part, power is defined to exist when the investor has the current ability to:
direct the relevant activities, that is, the activities that significantly affect the investees returns
(IAFR 10 para. 10).
The principle difference between these two standards definition of control is the AASB 127 control
concept and IFRS 10 power concept. IFRS 10 requires power over the significant activities of another
entity and activities which significantly affect investors returns. As stated in Section 1.5.4 this could
be a problem as power could relate to a group of assets (a silo) as opposed to the investee as a
whole. AASB 127 applies control on the basis of strategic policy decision making over another entity
to achieve benefits without any link to the effects on a parent entitys return. AASB 127 control
concept is different to IFRS 10 power concept as it has introduced the aspect of a parent entitys
exposure and variable return on its investments into the definition of control.
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Business Transactions
Seminar 1
Control & Basic Introduction to Groups
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ACCT7104
Semester 2 2016
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Business Combinations:
via controlling share acquisitions
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Categories:
1) Trading investments financial assets at fair value
2) Available-for-sale investments
3) Investments providing the power to exert control, joint control
or significant influence
Categories 1) & 2)
AASB 139 Financial Instruments: Recognition and Measurement
contains the requirements for accounting for 1) Trading investments and
2) Available-for-sale investments, and is covered in ACCT7102.
This is gaining an investment
That is, no significant influence, no joint control & no control
Seminar 1
Control & Basic Introduction to Groups
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ACCT7104
Semester 2 2016
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Key concepts:
Control of Relevant Activities
Power
Rights
Variable returns
Ability to Exert Power through Rights to Variable
returns
Actually receive the benefit
Seminar 1
Control & Basic Introduction to Groups
ACCT7104
Semester 2 2016
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Effect of Control
Control
B Ltd
Control
C Ltd
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Significant Influence
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Control & Basic Introduction to Groups
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ACCT7104
Semester 2 2016
Significant Influence
Significant Influence
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Remember:
Seminar 1
Control & Basic Introduction to Groups
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Summary
In order of increasing complexity, the purchase of:
A. A single asset
} Previously covered:
B. A group of assets (not a business) } (ACCT7101 material)
C. A group of assets (a business)
AASB3 Business Combination
AASB 10 Consolidation
D. Shares directly from a shareholder (private company) or on a stock
exchange (public company)
1. Gaining an investment
AASB139 Financial Instruments
(ACCT7102 material)
2.
3.
4.
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AASB128 Associates
AASB11 Joint Arrangements
AASB10 Consolidation
ACCT7104
Semester 2 2016
Seminar 1 Objective 2
Basics of Consolidation
2. Basics of Consolidation
5. The parent will buy the subsidiary on the 1st day of the
2.7 Dividends
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AB Group Limited
Control
100%
B Ltd
A Ltd
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Less
Plus
A Ltd
B Ltd
Equals
Group
Adjustments
Group
GROUP ACCOUNTS
Seminar 1
Control & Basic Introduction to Groups
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ACCT7104
Semester 2 2016
A Ltd
B Ltd
Equals
Less
Plus
WHAT THE
GROUP WANTS
Group
Adjustments
Group
reporting
Regardless of how the Parent & Subsidiary account for value,
GROUP ACCOUNTS
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Remember:
the Group Accounts must always be at Fair Value
Example 1
A Ltd buys 100% B Ltd (that is, A Ltd controls B Ltd
=> B Ltd is subsidiary of A).
B Ltd accounts for non-current assets at cost, and has land
with carrying value $100,000, but with fair value of $150,000.
What Group consolidating adjustment is required at the date of
acquisition assuming a 30% tax rate?
Dr Land
50,000
Cr Revaluation Surplus
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X
X
15,000
15,000
That is, a recognition of later tax charge through deferred tax that
needs to be recognised by the Group in the current year
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Example 1 (continued):
Dr Revaluation surplus
Cr Deferred tax (liability)
50,000
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Control & Basic Introduction to Groups
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ACCT7104
Semester 2 2016
Sometimes, the new parent will offer cash greater than the
Fair Value of the subsidiarys net assets
Thus, the Fair Value of the subsidiarys net assets (WANTS) is:
accounts
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When a company gains control of another, the Group is only allowed to take its share of the
accumulated wealth (reflected in equity changes) of the new subsidiary from the date of acquisition
When the separate books of accounts are added together, all of the subsidiarys accumulated wealth
Acquirer("parent")
Acquiree ("subsidiary)
Acquirer("parent")
Acquiree ("subsidiary")
Date of acquisition
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Date of reporting
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Investment in Subsidiary
Summary
There are three (3) values thus that must be eliminated/recognised at the date of
acquisition:
1.
Investment paid for the subsidiary by the parent (shown originally in separate
books) to be eliminated from the Group accounts (section 2.5.1 above);
2.
3.
Example 2
A Ltd buys 100% of B Ltd (that is, A Ltd controls B Ltd => B Ltd is
subsidiary of A Ltd) for $400,000. The fair value of B Ltds net assets (which
is the same as B Ltds shareholders equity) is $350,000 at date of
acquisition, which is the value shown in B Ltds separate books of account.
What consolidating adjustment journal will be required?
Note: Amount paid ($400,000) less FV B Ltds net assets/equity ($350,000)
= Goodwill created on acquisition ($50,000)
All these requirements are combined into one Consolidating Adjustment Journal
(the elimination journal), in the following format:
Dr Subsidiarys pre-acquisition equity (separate accounts)
Dr Revaluation Surplus (due to FVA)
Cr Investment in Subsidiary
Dr Goodwill (balance)
X
X
X
350,000
400,000
50,000
This is what Part (b) of B86 AASB10 refers to (see earlier slide), that is:
Offset (eliminate) the carrying amount of the parents investment in each subsidiary and the parents
portion of equity of each subsidiary (AASB 3 explains how to account for any related goodwill).
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Control & Basic Introduction to Groups
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ACCT7104
Semester 2 2016
Combined Example
Combined Example
Example 3
Example 3
A Ltd buys 100% of B Ltd (that is, A Ltd controls B Ltd => B Ltd is
subsidiary of A Ltd) for $900,000 in cash on 1 January 2012. B
Ltd accounts for non-current assets at cost. On 31 December
2011, B Ltd has land with carrying value $75,000 (fair value of
$85,000) and total shareholders equity of $800,000. What
Group consolidating adjustments are required for the year ended
31 December 2012, assuming no other intra-group transactions
and a 30% tax rate?
Required:
1. FVA to increase value of B Ltds land to fair value in the Group
accounts;
2. Deferred tax adjustment related to FVA above; and
3. Elimination of pre-acquisition equity of B Ltd, and the goodwill
created.
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10,000
3,000
3,000
10,000
External Sales
A
Internal Sales
AB Group Limited
This is what Part (c) of B86 AASB10 refers to (see earlier slide):
Eliminate in full intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions
between entities of the group (profits or losses resulting from intragroup transactions that are recognised in assets,
such as inventory and fixed assets, are eliminated in full).
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ACCT7104 Seminar 1 Semester 2 2016
In this introduction, it is assumed that the only type of intragroup transaction is the selling of inventory in the current
year
Example 4
A Ltd sells $600,000 inventory to B Ltd in current year. The profit
on this transaction shown in A Ltds separate books is $200,000.
B Ltd has not sold any of the inventory to external parties (thus
no external transaction, only between group companies).
Questions:
1. Has an intercompany sale/purchases been recorded in
the separate books? (if yes, must always be eliminated)
2. What inter-company profit has been recognised in the
separate books? (must be eliminated, unless 3. applies)
3. Has this profit been realised by being subsequently sold
to a third party outside the Group? (no profit elimination
required)
4. Is the Group value for inventory correct?
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Control & Basic Introduction to Groups
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ACCT7104
Semester 2 2016
Example 4
Example 4
Example 4
2. As the value of the inventory (asset) has been reduced,
the current year tax payable by the Group must also be
reduced (WANTS) . However, as the full tax has already
been provided for in the separate books of A Ltd (HAS),
when the inventory is sold externally in a later period, the
Group will have recognised a deferred tax asset as the tax
has already been provided in the separate books.
Thus:
Dr Deferred Tax Asset
Cr Income Tax Expense
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60,000
60,000
Deferred Tax
2.7 Dividends
The following assumes knowledge of the treatment of
declared and paid dividends in separate books of accounts
If uncertain, review in Revision Material on BlackBoard
Again, this is what Part (c) of B86 AASB10 refers to (see earlier slide):
Eliminate in full intragroup assets and liabilities, equity, income,
expenses and cash flows relating to transactions between entities of
the group (profits or losses resulting from intragroup transactions that
are recognised in assets, such as inventory and fixed assets, are
eliminated in full). Intragroup losses may indicate an impairment that
requires recognition in the consolidated financial statements.
AASB 112 Income Taxes applies to temporary differences that
arise from the elimination of profits and losses resulting from
intragroup transactions.
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ACCT7104
Semester 2 2016
2.7 Dividends
2.7 Dividends
Example 5
Example 5 (continued)
2. Receivable/Payable
Dr Dividend payable (HAS from B Ltd)
Cr Dividend receivable (HAS from A Ltd)
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50,000
50,000
Broncos Scenario
51% Shares Scenario
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Control & Basic Introduction to Groups
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