COMPANY ACCOUNTING

Company Accounting

Students Name

Question 7

Crown Resort Group owns various subsidiaries either partially or wholly. In Australia, it owns two subsidiaries wholly; one of the subsidiaries also owns a subsidiary. Crown Resort Limited also has foreign subsidiaries and associates such as Crown Aspinall’s located in London and Cannery Resorts based in the United States respectively. The financial statements show records of foreign transactions between the company and its subsidiaries overseas. The company reported foreign exchange rate fluctuations on revaluation of monetary liabilities and assets. The parent company uses the local Australian Dollar ($) as the functional as well as the presentation currency. The subsidiaries on the other hand use their respective local currencies, that is, the USD and Sterling Pound as the functional currencies. Statements are presented in Australian Dollar ($) which is used as the functional currency by the parent company. Under Other Comprehensive Income section of the income statement, the company reported a positive foreign currency translation of $388,950
which was reclassified to its year ending profits.

International Financial Reporting Standards (IFRS) clearly specify when and whether the amounts formerly recognized in other comprehensive in sections are reclassified to loss or profit reported. In the incorporation of the reclassification adjustments, they are included with the associated components of other comprehensive income realized in the period under consideration (Barth, Landsman & Lang, 2008). For instance, realized gains on the disposal of the good available for sale are included in the profit or loss of the period in consideration. The company recognized in the other comprehensive income as unrealized gains so as to avoid double entry of these amounts in the comprehensive income statements. Unrealized gains are deducted from other comprehensive income for the period in which they were realized (AASB, 2004).

Financial transactions from Crown Resort’s foreign subsidiaries have been consolidated into the parent company’s financial records as per the requirements of the International Financial Reporting Standards. Intercompany trades such as the direct sale of assets have been exempted from the final statement of affairs to avoid double inclusion and overstatement of the value asset. The shareholding capital reflected in Crown Resort Limited’s financial statements is only that of the parent company. Shareholder’s capital from foreign subsidiaries has been assumed to have contributed in determining the company’s capital reserves thus have been excluded from the consolidated financial statements.

The pre-acquisition financial profits and reserves have been treated as capital gains to the parent company and thus, have been credited in the cost of control account. However, the post-acquisition profits and reserves have been included in the comprehensive income statement statements as revenues. Some of the goods Crown Resort Limited (Holding company) sold to its subsidiaries remained unsold at the end of the financial year. The company eliminated all possible gains attributable to the unsold goods as per requirements of AASB (2004) so as to account for the unrealized profits. Assets like machinery that the company sold to Aspers Group (a subsidiary in the UK) were subjected a depreciation charge that also affected its reported capital reserves.

Question 8

According to AASB (2004), any depreciation overcharge or undercharge attributable to the sale of the fixed asset to a subsidiary of by a subsidiary of a parent company ought to be eliminated from the financial statements.

All its financial statements, the company, should treat the minority interest in each of its subsidiaries as a liability and subtract/ exempt them from the consolidated statements. Minority interest of a company its subsidiary can include the shareholding capital and reserves attributed to the outsiders. For instance in Aspers Group, the company only has 50% controlling interest. They are treated as liabilities because the outsiders have financial claims over the assets that are beyond the holding company’s cost of control (AASB, 2004).

The Board of Directors ought to understand the concept of reclassification adjustments. These adjustments arise in financial statements when the hedged forecast transactions influence the profit or loss of an entity and through the disposal of foreign operations. Crown Resort has their subsidiaries and associates, which as the parent company; they need to consolidate their accounts to incorporate financial reports from these branches. (Ball, 2006). Additionally, an inter-company trade involving a parent and a subsidiary may lead to the rise of reclassification adjustment. Another reason that may lead to the rise of reclassification adjustments is when an entity fails to recognize the goods available for sale as in the statement of affairs (AASB, 2004).

Increased financial disclosure reclassification adjustments such as effects of the foreign currency transactions and effects of income tax will enable Crown Resort to avoid instances of double accounting for such elements and possible overstatement of profits or losses.

References

AASB, A. S. (2004). Presentation of Financial Statements. Balance Sheet,68, 73.

Ball, R. (2006). International Financial Reporting Standards (IFRS): Pros and cons for investors. Accounting and business research36(sup1), 5-27.

Barth, M. E., Landsman, W. R., & Lang, M. H. (2008). International accounting standards and accounting quality. Journal of accounting research46(3), 467-498.

http://www.crownresorts.com.au/investors-media/annual-reports