Coporate Accounting - Research Paper Example

There are instances in which the subsidiary and the holding company prepare their financial statements using conflicting policies and principles. In these cases, the parent company has the responsibility of making the necessary adjustments in order to have the subsidiary statements restated to become uniform to that of the holding company. This has to be done before the line-by-line consolidation of summing the respective asset and liabilities are done to arrive at the consolidated figure (Deegan, 2010).

A breach of this accounting requirement will mean that the financial statements are inconsistent with the set principles, hence making them unreliable and untrue. Consolidation of inventory will be used to show how the adjustments should be done. AASB 102 demands that inventory be measured using the lower of cost and net realizable value to ensure that the financial statements are not over or under valued. The cost here includes the purchase price, import costs and any cost incurred to bring the stock to its current state.

Inventory should also be tested for impairment in order to avoid possible overstatement in the financial statement. In case the subsidiary accounts for stock by violating this requirement, the holding company will have to do the necessary adjustment to ensure that the value posted in the financial statements are uniform. . The second financial statement asset that is susceptible to errors during consolidation is property, plant, and equipment. The property, plant, and equipment are the long-term assets of the business that are utilized in the production of goods or delivery of services in order to earn revenue to the business.

Accounting standard requires that in reporting the value of this item in the balance sheet, depreciation be subtracted from the purchase price to arrive at the net value (Deegan, 2010). Similarly, companies should test the property for impairment and expense any impairment losses in the income statement. The impairment value will also be used to reduce the value of the asset in the statement of financial position. It must, however, be noted that in calculating the depreciation amount, the holding company and its subsidiary might use different measurement bases.

Depreciation can either be calculated using the straight-line basis or the reducing balance method. The holding company will, therefore, have to make adjustment to have the depreciation value determined using same method. For example, if the holding company calculates its depreciation using the straight-line method while the subsidiary does the same by the use of reducing balance, the parent company will have to adjust the depreciation values according to the straight-line method. The final consolidated value will then be determined by summing the net values of the property, plant, and equipment.

In summary, adding the asset values that are arrived at by use of different measurement bases is inappropriate and violates the accounting rules and standards. The preparers of the financial statements must, therefore, make the necessary measurement adjustments before summing the respective assets and