Corporate Accounting - Brickworks Limited - Essay Example

Corporate Accounting Step Group Accounts Yes it is evident from the Balance sheet of Brickworks Limited that the company has subsidiaries. The heading of the balance sheet reads Brickworks Limited and Controlled Entities. The term, controlled entities, is used to describe subsidiaries because their operations and activities are primarily managed by the parent companies, which in this case is Brickworks Limited itself and thus, they are the controlling entity. 2. Number of subsidiaries of Brickworks Limited 2010 2011 2012 2013 85 85 85 86 As is evident from the table given above, the number of subsidiaries (wholly owned and jointly owned) remained the same in 2011 and 2012. However, in 2013, another company was added to the list of subsidiaries. 3. Table 1: Percentage shareholding (wholly owned subsidiaries) Subsidiaries 2010 2011 2012 2013 1. A.C.N. 000 012 340 Pty Ltd (formerly Eureka Tiles Australia Pty Ltd) 100 100 100 100 2. A.C.N. 074 202 592 Pty Ltd (formerly Eureka Tiles Pty Ltd) 100 100 100 100 3. Austral Bricks (NSW) Pty Ltd 100 100 100 100 4. Austral Bricks (QLD) Pty Ltd 100 100 100 100 5. Austral Bricks (SA) Pty Ltd 100 100 100 100 6. Austral Bricks (TAS) Pty Ltd 100 100 100 100 7. Austral Bricks (Tasmania) Pty Ltd 100 100 100 100 8. Austral Bricks (VIC) Pty Ltd 100 100 100 100 9. Austral Bricks (WA) Pty Ltd 100 100 100 100 10. Austral Bricks Holdings Pty Ltd 100 100 100 100 11. Austral Facades Pty Ltd 100 100 100 100 12. Austral Masonry (NSW) Pty Ltd 100 100 100 100 13. Austral Masonry (QLD) Pty Ltd 100 100 100 100 14. Austral Masonry (VIC) Pty Ltd 100 100 100 100 15. Austral Masonry Holdings Pty Ltd 100 100 100 100 16. Austral Precast (NSW) Pty Ltd 100 100 100 100 17. Austral Precast (QLD) Pty Ltd 100 100 100 100 18. Austral Precast (VIC) Pty Ltd 100 100 100 100 19. Austral Precast (WA) Pty Ltd 100 100 100 100 20. Austral Precast Holdings Pty Ltd 100 100 100 100 21. Austral Roof Tiles (WA) Pty Ltd 100 100 100 100 22. Austral Roof Tiles Pty Ltd 100 100 100 100 23. Auswest Timbers (ACT) Pty 100 100 100 100 24. Auswest Timbers Finance Pty Ltd 100 100 100 100 25. Auswest Timbers Holdings Pty Ltd 100 100 100 100 26. Auswest Timbers Pty Ltd 100 100 100 100 27. Bowral Brickworks Pty Ltd 100 100 100 100 28. Brickworks Building Products Pty Ltd 100 100 100 100 29. Brickworks Building Products (NZ) Pty Ltd 100 100 100 100 30. Brickworks Head Holding Co Pty Ltd 100 100 100 100 31. Brickworks Industrial Developments Pty Ltd 100 100 100 100 32. Brickworks Properties Pty Ltd 100 100 100 100 33. Brickworks Sub Holding Co No. 1 Pty Ltd 100 100 100 100 34. Brickworks Sub Holding Co No. 2 Pty Ltd 100 100 100 100 35. Brickworks Sub Holding Co No. 3 Pty Ltd 100 100 100 100 36. Brickworks Sub Holding Co No. 4 Pty Ltd 100 100 100 100 37. Brickworks Sub Holding Co No. 5 Pty Ltd 100 100 100 100 38. Brickworks Sub Holding Co No. 6 Pty Ltd 100 100 100 100 39. Brickworks Sub Holding Co No. 7 Pty Ltd 100 100 100 100 40. Brickworks Sub Holding Co No. 8 Pty Ltd 100 100 100 100 41. Bristile Guardians Pty Ltd 100 100 100 100 42. Bristile Holdings Pty Ltd 100 100 100 100 43. Bristile Pty Ltd 100 100 100 100 44. Bristile Roofing (East Coast) Pty Ltd 100 100 100 100 45. Bristile Roofing Holdings Pty Ltd 100 100 100 100 46. Christies Sands Pty Ltd 100 100 100 100 47. Clifton Brick (Queanbeyan) Pty Ltd 100 100 100 100 48. Clifton Brick Holdings Pty Ltd 100 100 100 100 49. Clifton Brick Manufacturers Pty Ltd 100 100 100 100 50. Davman Builders Pty Ltd 100 100 100 100 51. Dry Press Publishing Pty Ltd 100 100 100 100 52. Eureka Tiles Holdings Pty Ltd 100 100 100 100 53. Evans Brothers (Bricks) Pty Ltd 100 100 100 100 54. Evans Brothers Pty Ltd 100 100 100 100 55. Hallett Brick Pty Ltd 100 100 100 100 56. Hallett Roofing Services Pty Ltd 100 100 100 100 57. Horsley Park Holdings Pty Ltd 100 100 100 100 58. Hutton’s Bricks (Manufacturers) Pty Ltd 100 100 100 100 59. International Brick & Tile Pty Ltd 100 100 100 100 60. J. Hallett & Son Pty Ltd 100 100 100 100 61. Metropolitan Brick Company Pty Ltd 100 100 100 100 62. N.R.T. Pty Ltd 100 100 100 100 63. Newthorpe Pty Ltd 100 100 100 100 64. Nubrik (NRT) Pty Ltd 100 100 100 100 65. Nubrik Concrete Masonry Pty Ltd 100 100 100 100 66. Nubrik Pty Ltd 100 100 100 100 67. Pilsley Investments Pty Ltd 100 100 100 100 68. Prestige Brick Pty Ltd 100 100 100 100 69. Prestige Equipment Pty Ltd 100 100 100 100 70. Ralph Brittain & Company Pty Ltd 100 100 100 100 71. Southern Bricks Pty Ltd 100 100 100 NA 72. Team Securities Pty Ltd 100 100 100 100 73. Terra Timbers Pty Ltd 100 100 100 100 74. The Austral Brick Co Pty Ltd 100 100 100 100 75. The Warren Brick Co Pty Ltd 100 100 100 100 76. Triffid Investments Pty Ltd 100 100 100 NA 77. Visigoth Pty Ltd 100 100 100 100 78. Vitclay Pipes Pty Ltd 100 100 100 NA (Source: Brickworks Limited, 2010; 2011; 2012; 2013) Jointly controlled entities Table 2: Percentage shareholding (wholly owned subsidiaries) Subsidiaries 2010 2011 2012 2013 1. BGAI CDC Trust 50 50 50 50 2. BGAI Erskine Trust 50 50 50 50 3. BGAI TTP Trust 50 50 50 50 4. BGAI Capicure Trust 50 50 50 50 5. BGAI Heritage Trust 50 50 50 50 6. BGAI Oakdale Trust 50 50 50 50 7. BGAI Wacol Trust 50 50 50 50 8. BGAI Oakdale South Trust NA NA NA 50 4. The activities conducted in the subsidiaries have been in the following table: Brickworks Roofing Timber Investments others Davman Builders Hallett Brick Pty Ltd Clifton Brick (Queanbeyan) Pty Ltd Bowral Brickworks Pty Ltd Austral Bricks (NSW) Pty Ltd Hutton’s Bricks (Manufacturers) Pty Ltd International Brick & Tile Pty Ltd Metropolitan Brick Company Pty Ltd Prestige Brick Pty Ltd Southern Bricks Pty Ltd The Austral Brick Co Pty Ltd The Warren Brick Co Pty Ltd Bristile Roofing (East Coast) Pty Ltd Bristile Roofing Holdings Pty Ltd Eureka Tiles Holdings Pty Ltd Hallett Roofing Services Pty Ltd Auswest Timbers Terra Timbers Pty Ltd Triffid Investments Pty Ltd Pilsley Investments Pty Ltd Vitclay Pipes Pty Ltd Visigoth Pty Ltd Team Securities Pty Ltd Prestige Equipment Pty Ltd Ralph Brittain & Company Pty Ltd Nubrik Concrete Masonry Pty Ltd Nubrik Pty Ltd J. Hallett & Son Pty Ltd Dry Press Publishing Pty Ltd Davman Builders Pty Ltd Christies Sands Pty Ltd Bristile Guardians Pty Ltd Brickworks Industrial Developments Pty Ltd Brickworks Building Products Pty Ltd Auswest Timbers Finance Pty Ltd Austral Precast (NSW) Pty Ltd Austral Masonry Holdings Pty Ltd Austral Facades Pty Ltd The reason for conducting the activities under different subsidiaries is to be able to allocate and utilize the resources properly. In addition to that, the company can target the market according to the products and services offered through the subsidiaries. The company can also monitor and evaluate financial performances of the subsidiaries distinctively. Moreover, with the activities distributed under different subsidiaries, the company is able to manage the operations throughout horizontal chain of authority. Had the company conducted all the activities under a single entity, it would have rendered the whole business process extremely complex. 5. No, minority or non-controlling interests have not been reported within Brickworks Limited’s balance sheet or income statement. This is precisely because minority interest is only recorded in case of ownership level of less than 50%. However, in case of Brickworks Limited, it has 100% and 50% ownership over its subsidiaries (Phillips, Libby and Libby, 2011). 6. Minority interest or non-controlling interest can generally be found under the non-current liabilities section of a company’s balance sheet. It represents a parent company’s ownership level of less than 50% over its subsidiaries. 7. Since Brickworks Limited does not have non-controlling or minority interests recorded in its financial statements, I have identified another company that has been assigned to my colleague. The company has minority interest recorded in its financial statements. I had a thorough discussion with my colleague regarding non-controlling interest. The discussion revealed that a non-controlling interest is a position that a particular entity holds over another company which does not give him any power to influence the way the held company is to be managed. This means that their ownership level is considerable insignificant, compared to the total number of shares that is outstanding. I completely agree with the ideas that have been put forward. These ideas can be validated easily by comparing Brickworks Limited’s financial statement. 8. The Financial Accounting Standards No. 160 states the regulation regarding reporting the non- controlling interests in Consolidated Financial Statements. A firm needs to comply with this regulation while drafting their financial statements. The underlying reason for reporting the non-controlling interest in the financial statement is to clearly report the ownership interests in the subsidiaries, the net income attributable to both the parent company as well as the subsidiary and to report any changes in the ownership interests. This item is that part of equity in a particular subsidiary, which is not attributable directly or indirectly to the holding company (Morgan, et al., 2010; FASB, 2007). 9. The firm’s investment in subsidiaries has been reported under the section, investments accounted, for using the equity method. No, it does not appear in the consolidated accounts as it would be difficult to report the investments made in each of the 78 subsidiaries. That is why total investment made is separately reported. The consolidated financial statement includes revenues and net income generated by the company as a whole. 10. After an in-depth study of the consolidated financial statement, I was not able to evaluate the net profit contribution and net profit attributable to the company. The question that I had is how the profit gets distributed among the parent company and the subsidiaries. 11. As analyzing financial statement is a critical field, it required in-depth discussion with supervisors, colleagues, friends as well as family. The discussions that I had with them involved the different accounting procedures used by the respective companies assigned to them. We discussed about the ways a company reports its minority interests within the financial statements. We also noticed the different procedures followed by companies, while reporting the names of their subsidiaries. 12. The discussions that I had with my supervisors and colleagues served as guidance tool for me, without which completing this assignment would have been considerably tougher. The discussions were very interactive and had helped me to gain valuable insight regarding the technicalities involved, while preparing financial statements. The assignment helped me to clear confusions that I had regarding reporting subsidiaries and their financial indicators. However, I still have certain questions that have been highlighted in point 10 mentioned above. Step 2: Intercompany transactions 1. The principle of consolidation states that the consolidated financial statements includes the financial position of the consolidated entity, that comprises the parent company (Brickworks Ltd) and subsidiaries that were controlled by the parent company, during the reporting period and at the reporting date. There are no disparities in the reporting periods or accounting procedures between Brickworks Limited and its subsidiaries. The investments that have been made in the subsidiaries are included in the parent entity’s financial statement as cost. All other inter-company transactions and balances between the entities (both the parent and the subsidiary), including the unrealised profit and losses, have been eliminated on consolidation. The operating results of the controlled entities have been recorded from the date they came under control till the control over them had ceased. Reports of all the subsidiaries are included separately within the financial statement of the parent, particularly because this would complicate the consolidated financial statement and make it considerably difficult for the user to analyse and interpret the data (Wiley, 2013). 2. Yes, the parent company and the subsidiaries have the same balance date. This is precisely because financial reports are consolidated and the financial statement is drafted for the group as a whole. 3. Yes, the firm has reported Goodwill in its balance sheet. It is reported under the unit, Intangible assets, which are mentioned under the non-current assets section. Goodwill is reported because it is the acquisition of intangible assets which are acquired individually or with a group of different assets. They should be accounted for in the consolidated statement of financial position. They need to report particularly because financial analysts and external investors believe that intangible assets are gradually gaining more importance as economic resources for many companies and also, occupy a significant proportion of the total assets acquired by companies in a particular transaction. As a consequence, better information regarding intangible assets (goodwill) needs to be reported within the financial statements of a company (FASB, 2013). This regulation has been stated by the Financial Accounting Standards Board (FASB) and majority of the companies need to comply with the same. 4. Goodwill is an intangible asset that is recorded by firms, while they acquire another company at a premium value. The intangible assets include factors such as, patents, brand name, good employee and customer relations, trademarks, franchises and other economic goodwill. The underlying reason behind considering goodwill as an intangible asset is because unlike buildings and equipments which are physical assets, goodwill is not a physical asset. This factor can be easily found in the statement of financial position of a company and is generally very difficult to price (Rose and Hudgins, 2008). That is why analysts sometimes tend to either over price or under price this factor, thereby leading to many complexities. This is precisely the reason why many external investors and analysts tend to overlook or rather ignore this factor, while doing the valuation of a company. As is evident from the statement of financial position of Brickworks Limited, the value of intangible assets has changed over the last four years. The reason behind this change is that this factor is amortized every year and moreover, the company acquired 50% stake of a new subsidiary (jointly owned: BGAI Oakdale South Trust) in 2013. This has also been reflected within the financial statement of the company with a decline in the goodwill. The reason behind this fall might be the fact that the company earned negative goodwill from this acquisition. 5. Although the firm, which has been assigned to me, has reported goodwill within their financial statement, yet I have identified another colleague of mine, within the same course, who was assigned with a different company. After a thorough discussion with my cohort, I found out that the ideas that we had regarding goodwill as an intangible asset and the way it is reported are in complete alignment with each other. We had reached a common conclusion and the discussion helped us to have an advanced level understanding of goodwill. 6. Yes, over the last four years (2010-2013), Brickworks Limited has had number of business acquisitions. The key information which were reported and were relevant to these acquisitions are: Name of the acquired company, cost of acquisition, Cash paid, Net assets acquired, Inventory, Property, plant & equipment, other assets, Non-commercial contracts assumed, Employee entitlements assumed, Fair value of net assets acquired and Direct costs relating to the acquisition. 7. As mentioned in step 1, analyzing financial statement is a crucial part while evaluating a company. This makes discussing the facts with supervisors, colleagues, friends as well as family of utmost importance. The discussions that I had with them, involved different ideas regarding goodwill. We also discussed the procedures that a company follows while reporting intangible assets and why values of these factors change over time. 8. The discussions that I had with my supervisors and cohorts served as a solid foundation, that helped me to complete this assignment. The discussions were very interactive and enabled me to gain valuable insight regarding the technicalities involved, while companies take into account the intangible assets that they acquire and the way they report it within their financial statements. I was able to help my colleague and so did he, whenever we had any confusion regarding this part of the financial statement and after completion of this statement, we have developed a substantial level of understanding about goodwill. Reference List Brickworks Limited, 2010. Annual report 2010. [online] Available at: [Accessed: 18 January 2014]. Brickworks Limited, 2011. Annual report 2011. [online] Available at: [Accessed: 17 January 2014]. Brickworks Limited, 2012. Annual report 2012. [online] Available at: [Accessed: 17 January 2014]. Brickworks Limited, 2013. Annual report 2013. [online] Available at: [Accessed: 17 January 2014]. FASB, 2007. Statement of Financial Accounting Standards No. 160. [pdf] Financial Accounting Foundation Available at: [Accessed: 18 January 2014]. FASB, 2013. Summary of statement no. 142. [online] Available at: [Accessed: 18 January 2014]. Morgan, R. G., Pointer, M. M., Morgan, K. N. and Cooper, W. D., 2010. An explanation of statement FASB no. 160. Tennessee CPA Journal, pp. 20-22. Phillips, F., Libby, R. and Libby, P. A., 2011. Fundamentals of Financial Accounting. 3rd edn. New York: McGraw Hill. Rose, P. S. and Hudgins, S. C., 2008. Bank management and financial services. 7th edn. New York: McGraw Hill. Wiley, 2013. Intercompany transactions. [pdf] Wiley Available at: [Accessed: 18 January 2014]. Read More