The Consolidated Statements of Mannai Company - Research Paper Example

Research and analysis Consolidation policy Mannai Company is a registered company as a shareholding company in Qatari. The registered office is in Doha and the company is listed on the Qatar exchange. The consolidated statements of the company usually comprise the financial activities of the company together with its subsidiaries. The company prepares its financial statements in accordance with the international financial reporting standards. The accounts are usually prepared on a historical basis except for the recording of building and land which is usually recorded on its fair value. The subsidiaries of the company are usually consolidated from the acquisition date to the date that the company stops controlling the subsidiary (Gulf times.com). The accounts for the subsidiaries are prepared at the same time as that of the mother company. The accounting policies used are consistent. The group usually eliminates all its balances, losses, gains, and transactions that arise from intra group transactions. The dividends are also fully eliminated. The losses that are found in a subsidiary are usually attributable to the non controlling interest of the company even if the results may lead to a deficit balance. If there occur a change in ownership of the subsidiary without any losses, the transaction is recorded as an equity transaction. When Mannai corp. losses a subsidiary, it derecognizes its liabilities and assets that were attributable to the subsidiary. It also derecognizes the non controlling interest that was associated with the subsidiary. The translational differences that were recorded in equity are also derecognized. At the same time, it recognizes fair value of the consideration that it receives, fair value that is attributable to investments received and recognizes profits or losses that are associated with the subsidiary loss. The company then reclassifies its share of components in other income generating avenues. Acquisition policy The company celebrated its 60th anniversary in 2010 and it was named as the largest service and trading company in Qatar (mannai.com) The company refocused its business in 2001 by divesting its interest that were overseas and reducing the dependence on cyclical activities. The company achieved its restructuring goal in 2004 when the company was able to attain the capacity of delivering sustainable earnings for its shareholders. The company became a public company in 2007. In 2011, the company acquired 35% controlling interest in Axiom Company. In the year 2012, mannai corp. and EFG Hermes acquired majority stake in DAMAS Ltd. Motivation for Acquisitions Although it is not directly mentioned in the consolidated statements, from the analysis, the company has motivation for acquisitions for many reasons. First, to enhance the ability of the Group to continue as a going concern based on the fact that this can only happen if the Group has enough resources to continue operating or doing business for the foreseeable future. This is evident in the way the consolidated financial statements of the group continue to be made on a basis of going concern. Second, acquisitions help the group in minimize liquidity risk. The Group has been engaged in acquisitions with the main intention of having or consolidating adequate liquidity to help meet its liabilities, under both stressed and normal conditions, without registering unacceptable risking damage or losses to the Group reputation and operations. Thirdly, since the group depends on financing from shareholders and banks loans, the acquisitions serves to strengthen the security or collateral base for securing loans from banks. In fact, one of the risks of the group is credit risk where financial liabilities accrue as a result of banks loans or overdrafts (pp. 34). Fourthly, its motivation for acquisition is to increase market share or simply reduce competition. This is because, apart from Axiom Limited which is engaged in import, wholesale and retail sale of various mobile phones brands as well as related accessories, all other associates or acquisitions are engaged in similar trading operations in diamond jewellery, gold and gold jewellery, pearls, precious stones, watches and silver (pp. 28). There is no other explanation as why the company would want to acquire all its competitors apart from the drive and motivation to reduce competition. Impact of acquisitions and mergers Mergers and acquisitions usually have different effects on the operations of the company. The effects may affect the operations of the companies especially in the initial stages. Mergers usually lead to redundancy in the case of staffing. That means that the company will have to lay off a number of its employees so as to avoid the duplication of duties. That means that the company will have to incur extra costs that will be used to compensate its employees for the loss of their employment (Keller 217). The employees who will be left in the company will also be insecure about their position in the future because they will be uncertain about their job security. The company will also have to incur costs that will be tailored towards the training of the employees that will be retained in the company. The merger will bring rise to new operations that did not exist in the company. That means that the employees will have to be trained on the different processes and tasks that they will be responsible for. The company may also have to prepare its employees for a culture shift. The shift in the culture will be because of the different management style that may be associated with the merger of acquisition. The different managers of the companies will have different leadership styles and that will have a direct effect on the employees. That will also have an impact on the productivity of the employees. That means that the level of productivity may be low initially and that may lead to initial losses for the company. The mergers may also lead to competitiveness among employees and potential conflicts among the staff. That means that there will be a lot of effort that will be directed towards conflict resolution. A list of subsidiaries of Mannai Company and their country of incorporation Name of subsidiary Country of incorporation Non-controlling interest Mannai Trading Company W.L. Qatar 100 Manweir W.L.L. Qatar 100 Gulf Laboratories Company W.L.L Qatar 100 Space Travel W.L.L. Qatar 100 Qatar Logistics W.L.L. Qatar 100 Technical Services Company W.L.L. Qatar 100 Mansoft Qatar W.L.L. Qatar 100 Mansoft Solutions and Systems Pvt. Limite India 100 Mansoft Solutions and Systems (UAE) L.L.C UAE 100 Techsignia Solutions Pvt. Lt Oman 100 Gulf Geotechnical Services and Material Testing L.L.C. Jordan 100 Utility Networks Information Systems UAE 75 Global Trading Center FZCO UAE 100 Damas International Limited Turkey 66 GTC Otomotiv Anonim Sirketi Oman 100 Mannai Network & Solution LL Oman 100 Utility Network Co. Saudi 100 Damas LLC UAE 66 Damas Jewellery LLC UAE 66 Damas Jewellery DMC UAE 66 Al Mana Damas International LLC UAE 34 Ayodhya Jewellers LLC UAE 66 Time art watches and optics trading LLC UAE 66 Arshi Jewellery LLC UAE 50 Farhan Jewellery LLC UAE 50 Premium Investments International L UAE 66 Damas SPV Jewellery LLC UAE 66 Gem Universe LLC Oman 46 Damas Company WL Bahrain 66 Damas & Al Ghannam jewellery Co WL Kuwait 59 Damas Saudi Arabia Company Limited KSA 65 Islanders Demas Pvt. Ltd Maldives 50 Damas (Thailand) Co. Ltd Thailand 66 Source: (Mannai Corporation Q.S.C, pp. 11) The non-controlling interest of the company In accounting, non-controlling interest or simply minority interest is the share or part of a subsidiary company's stock that is not actually owned or controlled by the parent company. There are five consolidated statements. These statements include: Consolidated statement of financial position, where investment in subsidiaries is reported under the equity section. Consolidated income statement, where non controlling interests appears or is added to the profit or loss of the parent company. Consolidated statement of comprehensive income, where non controlling interest adds to the profit after tax. Consolidated statement of cash flows, non controlling interest appears as investing. Consolidated statement of changes in equity where non-controlling interests appears in the balance sheet (Mannai Corporation Q.S.C pp. 2-9). Given that the parent company, in this case, Mannai Company, fully controls its subsidiaries, by accounting regulations, even though, the two corporations may be separate lawful entities, the parent corporation must present its own financial operations as well as the financial operations of the subsidiary in a consolidated way. As such, the parent corporation does so by simply publishing or presenting shareholders with a consolidated financial statement that incorporates or combines the liabilities, assets, expenses and revenue of the parent corporation along with those of its affiliates. Minority interest or non-controlling interest belongs to other investors or shareholders and is usually is reported on the consolidated balance sheet of the owning corporation to show the claim on assets which belong to other investors, also referred to as non-controlling shareholders. Minority interest is as well reported or indicated on the consolidated income/revenue statement simply as a share of earnings belonging to minority investors. Given that this kind of reporting does not give enough information about subsidiaries, the Financial Accounting Standards Board (FASB) and Securities and Exchange Commission (SEC) attempted to address the issue that creditors and shareholders of subsidiaries face by requesting parent corporations to provide segmental reporting (these are reports about a subsidiary, its business units, as well as divisions). These mainly appears as notes to the consolidated statements (Mannai Corporation Q.S.C. P. 9). Acquisitions Significant accounting principles Revenue or incomes from investment other than that associated with joint venture investment is accounted for or treated on an accrual basis. Rental income and interest income is interest given under bank deposits or installment credit sale agreement. It is accounted for on a proportion time basis taking into consideration the outstanding principal and the applicable rate of interest rate. Fee income is realized on a proportion time basis. The existence of a lease (lessee) is determined based on the matter of the agreement at the initiation date. Payments of leases are apportioned between reduction of the lease liability and finance charges in order to achieve an interest rate that is constant on the remaining balance. Leases (lessor) specifically rental income from operating leases, on the other hand, is realized on a straight-line basis (Mannai Corporation Q.S.C., p. 21). Acquisitions The Group acquired 66 percent of the voting shares of Damas International ltd, a limited liability corporation incorporated in the Dubai. In terms of intangible assets and goodwill arising from the acquisition, DIL has an intangible amount of about QAR 0.67 Billion with indefinite useful. From the day DIL was acquired, it has contributed QR 2.275 Billion to the revenue of the parent company. The goodwill of QR 0.4 490 Billion specifically represents the amount paid for any likely strategic benefits of the Group such as future earnings of the company and management capability. The ownership of Damas SPV Jewellery LLC also was acquired 100 percent by the Group at the fair value of QR 295,515. Since the ownership of the company was previously held by retailers, the amount payable by the Group was credited to amounts due particularly from all parties involved (Mannai Corporation Q.S.C., pp. 22). Work cited Company History. The story of Mannai Corporation. Web. Retrieved on 10th December 2013 from http://www.mannai.com/about-mannai/company-history Gulf times. Mannai Corps. Web. Retrieved on 10th December 2013 from http://www.gulf- times.com/business/191/details/337087/-hsbc-leads-mannai-corp%E2%80%99s- qr684mn-rights-issue Mannai Corporation Q.S.C. "Consolidated Financial Statements." 31 December 2012. 12 December 2013 . Keller, Kotler. Cost accounting. Kogan Page, London. 1998. Print. Read More