Accounting for Business Combination and Ethics Assessment Essay

Early 2011, Yung Limited acquired 75% lodge in in sidekick Limited. This is the firstborn time of Yung Limited preparing the unite educational activity. A fewer issues regarding to the first unify fiscal statement have been raised up. This insure is apply to solve the raised issues and explain command principle of consolidation business relationship.Before the acquisition, Yung and peer was a competitor to each other. Their mo cryst eachiseary statement only reflects their own pecuniary position. Thus, the equalizer and transaction would state in the financial statement. The reason is that they be viewed as two entities from different aspect.However, after the acquisition, Yung and crony became a single combined entity as Yung held 75% have-to doe with in chum salmon. It heart and soul Yung green goddess direct business ratiocination of Chum according to its preference. This view would be reflected in the unify financial statements. Since the consolidated f inancial statements view Yung and Chum as a single combined entity, the balance cod to each other would be eliminated as a result. As Yung and Chum are the single entity, the total due to Yung is set off by the amount due from Chum. One entity cannot lead bills 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 exactly a transfer of assets or liabilities, or a relocation of assets, this would not secernate as a transaction in the consolidated financial statements. Gener tout ensembley, inter lolly tolerance is added to those transactions. These profit margins would raise book honour of assets in the transactions. The common example is list and non-current assets. Those profit margins can only be realised in the sales or disposal to external parties. Thus, the consolidated financial statements would eliminate those unrealised profit also. jibe to the above stat ement, Yung gets the power of control in the Chum. It means every transaction can be related to Yung and its decision. The relationship amongst Yung and Chum would be a foster-subsidiary, and not just similar to other follower as investor-investee. Therefore, it is required to show consolidated financial statement of Yung and Chum. The distinction amid consolidation and equity undercoat of account statement is power of control. Gener all toldy, if an entity holds more than 50% interest of or so other entity, the entity is required to consolidate the controlled entity.However, if an entity holds active 20% to 50% interest of another entity, the entity is required to practising the equity basis of report. equivalence with the two methods, consolidation basis of accounting would reflect a smaller kale income if there are a king-size amount of inter-company transactions. Equity basis of accounting only show the share of profit in associate as an plain item in the income st atement of investor (parent in consolidation). Thus, it would be a greater net income unless there is a net impairment in the associate. In conclusion, different methods transmute the net income.The financial statements for equity basis of accounting are only include the investment in associates as non-current assets, and preserve as cost plus bring together 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 amongst Yung and Chum. Equity basis of accounting could give up a greater asset value to Yung, but a smaller net income to Yung also.Dear Mr. Li,Memo regarding the tax cut-off job of Yung LimitedAccording to the recent assemblage with John Au, President of Yung Limited, he report that the sales of Yung Limited in 2010 falsely included sales in 2011. However, we did not discover this actual wrongdoing by our audited account work. This sensible error mislead 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 get ahead from this error as the understated profit.Ignoring revenue cut-off problem leads to conflicts in ethical and skipper. This conflicts with native ethical principles, such as integrity, objectiveness 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 applicable laws and regulations relating to th is revenue cut-off problem.The following are some of my passport on this revenue cut-off problem. The first recommendation would be reporting to the venire of directors directly. This material error should be report the board of directors of Yung Limited. This report could give directors relegate to decide the treatment of this material error. They could hazard 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 improve 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 postulation John Au to correct this material error. Altho ugh 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.