ACCT6005 Flexibility in Cash-Flow Classification Assignment Sample

• Subject Code : ACCT6005
• University : Laureate International Universities My Assignment Services is not sponsored or endorsed by this college or university.
• Subject Name : Accounting and Finance

Table of Contents

Answer to Part A..

a)

b)

Answer to Part B..

Introduction.

Discussion.

Conclusion.

Bibliography.

Company Accounting - Answer to Part A

a)

b)

Company Accounting - Answer to Part B

a) Introduction to Company Accounting

The guidelines are provided by IAS which relates to the use of equity process. It recommends the identification of the earnings that depends on the circulation which is not enough for evaluation. Thus, the revenue of the partner’s in a joint venture that we get as circulation is not that essential. It has been seen that irrespective of effect on the partner, it is possible for the participant to get joint ventures as an output for the investment on which the creditors will deliberate for the determination of income or the losses of the investor by making changes in the financial statement (El Ghoul et al., 2020). Thus, Equity Approach includes proper figures relating to the net assets and the profit and loss of the creditors.

Discussion on Company Accounting

Equity Analysis is used to find out the files of organization along with the financial proceedings. Through the various accounts, the investors commitment to equity is studied. Therefore, after the interest held by the firm is around 20-50% as dividends or as some other type of investment, there is a need for consolidated equity method. This is why cost or equity method is preferred for the internal purpose but the acquisition method has to be followed if the holdings are more than 50%. The major difference of Antara’s Ltd is the use of equity method. Accounts are not combined in the statement which is the general consolidation rule. Thus, with an increase in the income of Blanca Ltd., the investment of Antara Ltd also increases. Similarly, a payment made in the form of dividend reduces the investment of the company but there we see no impact when the dividends are paid as subsidiaries (Gordon et al., 2017).

Antara’s Ltd had an associate investment of $198,000 in their financial statement. Along with this, the financial statement will also have the post-acquisition incomes of associates which will come under Antara’s Ltd consolidated worksheet investment side. Thus, the annual report investment column of the firm has goodwill that will have disclosure.

The people who use the information for the creation of possible investment or who keep a check on the legal aspects of the organisation are the external users like investors, customers, suppliers, banks, and tax authorities. The decision of the firm about investment determines the company’s performance. The available information about Antara’s Ltd.’s external users includes: Cash Flow Consolidated Statement; Comprehensive Income Consolidated Statement; Consolidated Income Statement; Consolidated Balance Sheet and Disclosure consisting of records of financial records.

According to the information given above, we see that the information relating to taxable income calculation is important in order to know the true tax amounts by the tax consultants. This helps the government to know if the financial information by the company is legal and true. As per the regulations, the financial information should not disclose the interests of the shareholders for their benefit. The accounting records and financial statements are studied for the audit (Lestari, 2020). The financial information also interests the business analysts, journalists, and others.

Application of the equity method:

The things relating to financial reporting that need to be followed while using the equity method:

When the equity application method is used then the ownership is risked after which the carrying amount alters as well.

The gains and losses relating to income and expenditure of the company is accepted by the client.

To make evident that differences in proportionate interest of investors in investee arise from differences in investee and other sources of income of comprehensive nature, which is impacted due to the revaluation of property and variation in the exchange rate of currency doing of adjustments to the carrying value becomes important. Investor’s share that are related to these changes and variation is primarily recognised in other incomes of comprehensive nature (Nassreddine, 2016). The add on in the investments can be seen by the investors when profits are earned by the investees in case of the use of the equity financing approach because in this the profit of the investor is determined from the investees.

After acquisition, the interests and profits and losses of the firm becomes equal in order to cover the things that need the extra changes in the assets that can be depreciated and also depends on the price purchase.

The creditors need to make alterations in the financial records and the investment’s equity approach when some particular accounting practices is there.

Recommendations made on the disclosures:

The disclosure should clearly mention the associate’s financial information which shows the net assets after the deduction of liabilities and the net revenue earned which also comprises the profit and loss.

The difference in the reporting dates of the associates and the investors must be given individually (Novák, 2016).

The Restrictions that are of different nature must be highlighted.

The details about investment can be skipped.

Reference to Part A

As per IAS 28- Equity Technology, investments are called a strategy of funding in which it is known and the changes in the adjustments which needs to be done after the purchase in the share of the investor of net assets. The profit or loss of the Financier brings about the profit or loss of the company from that person and also the net profit of the financier is the taxable income.

b) The company pays the dividends after the company has paid the taxes and interests from the profit it has earned and keeping the retained earnings aside. Here, dividend is paid by Blanco Ltd to Antara Ltd and other equity holders because it earned profits.

In comparison to the consolidation method, the equity financing does not have elimination. In this the investors also see the change in the investment like when the investee earns profits because the investor gets their profits from the investee. This is also called equity pick up. So, we can say that if there is an increase in the earnings of Blanca Ltd, then a directly proportional impact will be seen in the investments of Antara Ltd. Similarly, when the dividend is paid then the investment of the company will reduce.

The receipt of dividend from Blanco Ltd. will be shown by reducing the investment account and dividend will be recorded by Antara Ltd which will imply a cash outflow from the investee’s account. The journal entry for this will be Debit of investment and Credit of Cash Account (Novák, 2016). When dividend is paid to the associate then the cash Account will be debited and the Investment account will be credited. The dividends that are earned by them increase their income but bring down their investment.

Reference to Part A

IAS 28 that is about the Investment in Associates shows that the investors majorly influence the associates who are the entity. The power of participation in operational and accounting administration is given by them where they follow the equity method of financing for the preparation of the financial statement. It also mentions the scope of the payment of dividends and exempts the distribution of the amount received by the investee that reduces the investment’s carrying value (Novák, 2016). Thus, such investments are called non-current investments, the disclosure of which is required.

Conclusion on Company Accounting

After studying this it has been observed that the problems have come in the information of accounting during the preparation on the basis of equity method shows the investment made by the associates after the deduction of dividends. When the investors receive the dividends, it increases the investors revenue as per the financial statement, except for when this reduces the investment. The disclosures that must be made in the financial statement is also mentioned in the report.

Reference List for Company Accounting

El Ghoul, S., Guedhami, O., Kwok, C. C., & Zheng, Y. (2020). The role of creditor rights on capital structure and product market interactions: International evidence. Journal of International Business Studies, 1-27.

Gordon, E. A., Henry, E., Jorgensen, B. N., & Linthicum, C. L. (2017). Flexibility in cash-flow classification under IFRS: determinants and consequences. Review of Accounting Studies, 22(2), 839-872.

Lestari, A. (2020). The Effect of profitability, investment opportunity set and free cash flow on dividends paid to companies (Empirical Study of Manufacturing Companies). Jurnal Mantik, 3(4, Feb), 597-606.

Nassreddine, G. (2016). Determinants of financial information disclosure: A visualization test by cognitive mapping technique. Journal of Economics, Finance and Administrative Science, 21(40), 8-13.

Novák, M. (2016). The Quality of Disclosure under IAS 38 in Financial Statements of Entities Listed on PSE. European Financial and Accounting Journal, 31-44.

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