Friday, April 12, 2019
Accounting for Business Combination and Ethics Assessment Essay Example for Free
Accounting for Business Combination and Ethics Assessment judgeEarly 2011, Yung Limited acquired 75% interest in Chum Limited. This is the first time of Yung Limited preparing the consolidate statement. A few issues regarding to the first amalgamated financial statement have been raised up. This report is use to solve the raised issues and explain general principle of consolidation account statement.Before the acquisition, Yung and Chum was a adversary to each other. Their financial statement only reflects their own financial position. Thus, the balance and transaction would state in the financial statement. The reason is that they are put oned as two entities from different aspect.However, after the acquisition, Yung and Chum became a individual(a) combined entity as Yung held 75% interest in Chum. It means Yung so-and-so direct business decision of Chum according to its preference. This view would be reflected in the consolidated financial statements. Since the cons olidated financial statements view Yung and Chum as a single combined entity, the balance due to each other would be eliminated as a result. As Yung and Chum are the single entity, the come due to Yung is set take away by the amount due from Chum. One entity cannot lead money to itself in order to create a liability or asset.See more(prenominal)Capital budgeting essayAs Yung and Chum are a single entity, transactions with each other are just a transfer of assets or liabilities, or a relocation of assets, this would not recognise as a transaction in the consolidated financial statements. Gener eachy, profit margin is added to those transactions. These profit margins would raise book range of assets in the transactions. The common example is line and non-current assets. Those profit margins can only be realised in the sales or disposal to outdoor(a) parties. Thus, the consolidated financial statements would eliminate those unrealised profit also. fit in to the above statement, Y ung gets the power of control in the Chum. It means every transaction can be related to Yung and its decision. The relationship between Yung and Chum would be a parent-subsidiary, and not just similar to other associate as investor-investee. Therefore, it is required to show consolidated financial statement of Yung and Chum. The distinction between consolidation and equity basis of accounting is power of control. Generally, if an entity holds more than 50% interest of some other entity, the entity is required to consolidate the controlled entity.However, if an entity holds about 20% to 50% interest of another entity, the entity is required to practising the equity basis of accounting. Comparing with the two methods, consolidation basis of accounting would reflect a smaller net income if there are a large amount of inter-comp both transactions. Equity basis of accounting only show the share of profit in associate as an extra item in the income statement of investor (parent in consol idation). Thus, it would be a greater net income unless there is a net liberation in the associate. In conclusion, different methods change the net income.The financial statements for equity basis of accounting are only included the investment in associates as non-current assets, and recorded as speak to plus attractive value adjustments in the net shares of equity. The consolidated financial statements are the combination of the parent and subsidiaries, and goodwill, excluding inter-company balance and cost of control. Thus, Yungs financial statements would be greater value in statement of financial position if all investments were consolidated, but smaller value in income statement as there are large amount inter-company transactions between Yung and Chum. Equity basis of accounting could provide a greater asset value to Yung, but a smaller net income to Yung also.Dear Mr. Li,Memo regarding the revenue cut-off problem of Yung LimitedAccording to the recent conference with ster n Au, President of Yung Limited, he reported that the sales of Yung Limited in 2010 wrong included sales in 2011. However, we did not discover this hooey error by our scrutinise work. This material error overstated the profit of Yung in 2010 by 10%, but understated the profit of Yung in 2011 by the same rate. John Au also mentioned that he prefers to ignore this error because he can get benefit from this error as the understated profit.Ignoring revenue cut-off problem leads to conflicts in ethical and professional. This conflicts with sound ethical principles, such as integrity, objectivity and professional behavior. In the integrity aspect, we should not disclose any untrue financial statements. In the objectivity aspect, our professional judgments should not be influenced by reputation of our audit firm and any potential legal sue. In the professional behavior, we should comply with relevant laws and regulations relating to this revenue cut-off problem.The undermentioned are s ome of my recommendation on this revenue cut-off problem. The first recommendation would be reporting to the jump on of directors directly. This material error should be report the board of directors of Yung Limited. This report could give directors chance to decide the interference of this material error. They could estimate effect of this material error. The second recommendation would be following John Aus suggestion, ignoring this material error.This could be a way to accommodate our client. The third recommendation would be requiring John Au to correct this material error. This could reflect the true financial position of Yung Limited. The fourth recommendation would be convening an extra-ordinary general meeting with all shareholders of Yung Limited. This EGM could give shareholders opportunity to aware this material error, and understand the potential.Finally, I would recommend asking John Au to correct this material error. Although this correction would make him loss of a bonus, this is a fair treatment to all stakeholders at all. Also, this solution could reflect the professional position of our company.