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1
INTERNATIONAL ACCOUNTING
Marcin Jędrzejczyk ([email protected])
http://www.jedrzejczyk.com.pl/ina - working :)http://janek.uek.krakow.pl/~zkrachhttp://gat.uek.krakow.pl
Environmental InfluencesExamples
Political/legal statutory audits-accounting reports/tax issues
Economic sources of capital
Cultural budgetary control
Infrastructure communication infrastructure education of population
External Accounting Reports Standard Setters, Preparers and Users Underlying Institutional Structures Required reports
Internal Accounting Reports Decision Rights Assignment Planning and Control Performance Measurement and Evaluation
Environmental Matrix External
Accounting Internal Accounting
Political
Regulatory Structure
Market Entry
Choice/tax impacts
Economic Capital Acquisition
Risk Management
Cultural Secrecy-disclosure
Budgeting
Infrastructure Availability of Auditors
Cost Drivers
External Accounting-Environment Standard Setting Process
U.S. -- FASB - Private-www.accounting.rutgers.edu/raw/fasb/
Japan -- Ministry of Finance -www.jicpa.or.jp/
International Accounting Standards Board /www.iasb.org.uk/ Use of comment letters
Users of Statements legal/cultural driven
External Accounting External Reporting Differences
U.S., U.K., Poland -- Tax Financial Japan, Germany -- Tax = Financial
Differences in Debt and Equity Differences in goodwill treatment Differences in asset revaluation
Internal Accounting Decision Rights Assignment Planning and Control
Complications of Global Operations Co-location of Knowledge and Rights
Performance Evaluation Multiple Currency Issues Cross-border Decision Rights Issues
International Accounting Key to Understanding International
Accounting Political, Economic, Cultural and
Infrastructure Influences on: External Reporting
Taxes/Capital Markets/Gov. Regulation/Standard Setting/Reporting Requirements
Internal Reporting Planning and Decision Making Control Differences Performance Evaluation Differences
9
CONSOLIDATION OF THE FINANCIAL STATEMENTS
Marcin Jędrzejczyk ([email protected])
http://www.jedrzejczyk.com.pl/inahttp://janek.uek.krakow.pl/~zkrachhttp://gat.uek.krakow.pl
10CAPITAL GROUP
HOLDINGCOMPANYSubsidiary (subsidiaries)
An enterprise that is controlled by another enterprise
CONTROL: over more than a half of voting rights among investors, power to govern the financial and operating policies under a statue or an agreement, power to appoint or move majority of the members of the board, power to cast the majority of votes at meetings of the board of directors of the governing body
11
Consolidated accounts – an overview
GROUP FINANCIAL STATEMENTS
JOINTLY CONTROLLED ENTITY
ASSOCIATE SUBSIDIARY
12
Consolidated accounts – an overview
ASSOCIATE JOINTLY CONTROLLED ENTITY
SUBSIDIARY
Features Significant influence over the financial and operating policy decisions
Joint control over the financial and operating policy decisions
Control – power to govern the financial and operating policies
Accounting treatment
Equity method (IAS 28), share of net assets and profits
Proportionate consolidation (benchmark) or equity method (IAS 31)
IAS 22, IAS 27
Short revision: value and measureShort revision: value and measure
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FINANCIAL STATEMENTFINANCIAL STATEMENT
MEASURE of particular assets, liabilities, profits, losses or MEASURE of particular assets, liabilities, profits, losses or cash flows - depending on the statement - presented as a cash flows - depending on the statement - presented as a systematically ordered sum of all separately recorded valuessystematically ordered sum of all separately recorded values
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BALANCE SHEETBALANCE SHEET
16
Accounting treatment of the subsidiaries
Consolidation of 100% of assets Cancellation of intra-group items Minority interest shown separately Uniform accounting policies
(ACQUISITION METHOD, UNITING OF INTERESTS)
17
Accounting treatment of the subsidiaries
ACQUISITION UNITING OF INTERESTS
Features: Not a merger/acquiring a company’s benefit
Features: Combine control with mutual sharing of risks and benefits
Accounting treatment: adjustments to fair value, post acquisition results only are consolidated, goodwill arises
Accounting treatment: Pooling of resources at book value, comparatives restated, difference on consolidation adjusted against equity
18
CONSOLIDATION
The process of adjusting and combining financial information from the financial statements of the parent undertaking and its subsidiary undertaking to prepare consolidated financial statements that present financial information for the group as a single enterprise
19
Consolidated Balance SheetPurpose: To show assets and liabilities which it controls and the ownership of those assets and liabilities
Assets and liabilities: Always 100% Parent plus 100% of the BOOK VALUE of Subsidiary
Share capital: Parent ONLY
Reserves: 100% Parent plus group share of post acquisition retained reserves of Subsidiary plus/less consolidation adjustments
Minority interest: minority % x book value of the acquiree’s identifiable assets less liabilities, ignoring fair value adjustments and any goodwill on the acquisition of subsidiaries
20
Consolidated Balance Sheet
The company „Parent” acquired 100% of „Subsidiary” for $40000m. Ordinary Share Capital was equal to $25000m. Providing that pre-acquisition revenue reserves of „Subsidiary” stood at $6000m, there were no intra-group transactions and no intra-group dividends paid, prepare a consolidated balance sheet of the new capital group at the acquisition date using the acquisition method. (100%)
21
Parent ($) Subsidiary ($)
ASSETS 115000 65000
Tangible Assets 50000 40000
Intangible Assets 0 0
Investment in „Subsidiary” company 40000 -
Inventory 3000 18000
Receivables 20000 7000
Cash 2000 0
LIABILITIES 115000 65000
Share Capital 45000 25000
Reserves 12000 5000
Revenue Reserves 30000 23000
Current Liabilities 28000 12000
22
Calculating the goodwill
Cost of investment
40000
Ordinary Share Capital
25000
Capital reserves on acquisition
5000
Revenue reserves on aquisition
6000
23
Consolidated ($)
ASSETS 144000
Tangible Assets 90000
Intangible Assets 4000
Inventory 21000
Receivables 27000
Cash 2000
LIABILITIES 144000
Share Capital 45000
Reserves 12000
Revenue Reserves47000 =
17000 + 30000
Current Liabilities 40000
24
Consolidated Balance Sheet - Cancellation
The company „Parent” acquired 100% of „Subsidiary” for $40000m. Ordinary Share Capital was equal to $40000m. Providing that there were no pre-acquisition revenue reserves of „Subsidiary” stood at $6000m, there was no intra-group dividends paid, prepare a consolidated balance sheet of the new capital group at the acquisition date using the acquisition method. NOTE: Receivables of „Subsidiary” ($2000m) cancels with „Parent” liability payables ($2000m).
25
Parent ($) Subsidiary ($)
ASSETS 100000 66000
Tangible Assets 35000 45000
Intangible Assets 0 0
Investment in „Subsidiary” company 40000 -
Inventory 16000 12000
Receivables 8000 9000
Cash 1000 0
LIABILITIES 100000 66000
Share Capital 70000 40000
Reserves 16000 19000
Revenue Reserves 0 0
Current Liabilities 14000 7000
26
Consolidated ($)
ASSETS 124000
Tangible Assets 80000
Intangible Assets 0
Inventory 28000
Receivables 15000
Cash 1000
LIABILITIES 124000
Share Capital 70000
Reserves 35000
Revenue Reserves 0
Current Liabilities 19000
27
THE AREAS OF TRANSLATION
• Language• Accounting concepts• Currency
28
CURRENCY TRANSLATION
“restating an amount of foreign currency in terms of equivalent number of dollars” (Meigs, 1986, p. 521)
In consolidated statements it means also restating all the assets and liabilities present in the balance sheet into dollars
][]$[[$] zlvzlERv PolandUSA
29
Subsidiary (€)
Parent (zloty)
30
Subsidiary (zloty)
Parent (€)
31
TRANSLATION in Consolidated Balance Sheet – Case Study
The company „Poland” located in Poland acquired 100% of „USA” for 136000m złotych. Ordinary Share Capital of „USA” was equal to $25000m. Providing that there was no intra-group transactions and no intra-group dividends paid, prepare a consolidated balance sheet of the new capital group at the acquisition date using the acquisition method (exchange rate 3,4 zł/$).
32
Parent (zł) Subsidiary ($)
ASSETS 249000 65000
Tangible Assets 50000 40000
Intangible Assets 0 0
Investment in „Subsidiary” company 136000 -
Inventory 3000 18000
Receivables 20000 7000
Cash 40000 0
LIABILITIES 249000 65000
Share Capital 179000 25000
Reserves 12000 5000
Revenue Reserves 30000 23000
Current Liabilities 28000 12000
33
Calculating the goodwill ($)
Cost of investment
40000
Ordinary Share Capital
25000
Capital reserves on acquisition
5000
Revenue reserves on acquisition
6000
34
Consolidated (zł)
ASSETS 368000
Tangible Assets 186000
Intangible Assets 34000
Inventory 64200
Receivables 43800
Cash 40000
LIABILITIES + OE 368000
Share Capital 179000
Reserves 12000
Revenue Reserves 108200
Current Liabilities 68800
35
Consolidated (zł)
ASSETS 293 450
Tangible Assets 100 800
Intangible Assets 97 900
Inventory 25 860
Receivables 28 890
Cash 40 000
LIABILITIES + OE 293 450
Share Capital 179000
Reserves 12000
Revenue Reserves 59 210
Current Liabilities 43 240