Corporate Accounting - CSL Limited - Assignment Example

Corporate accounting Contents Step Group Accounts 3 Identify subsidiary companies 3 Identify activities of subsidiary companies 3 Non-controlling interests – identify and discuss 4 Non-controlling interests – discuss what they mean to you 6 Discuss parent company’s investments in subsidiaries 6 Describe and reflect on your discussions with others 7 Step 2: Inter-Company Transactions 8 Clear description of your firm’s disclosed inter-company transactions 8 Identify and discuss parent and subsidiary companies’ balance dates 8 Identify and discuss takeover/acquisitions/business combination 9 Goodwill – identify and discuss 9 Goodwill – discuss what it means to you 10 Describe and reflect on your discussions with others 11 References 12 Step 1: Group Accounts Identify subsidiary companies CSL Limited is a global pharmaceutical company in the industry of bio-technology that is engaged in developing, manufacturing and marketing speciality medicine products that enables the people to lead healthy lives. The group accounts reveal that CSL has subsidiary companies through which it carries out its business operations in the areas of blood-plasma derivatives, anti-venom, vaccines and cell culture used in research of genetic field of medicine (CSL Global, 2014, p.1). CSL Limited is headquartered in Melbourne, Australia and the subsidiaries of the company include CSL Behring, BioCSL supported by research and development. CSL Behring has its operations spread over several countries like Australia, US, Germany and Switzerland. The company has around 10000 employees spread across 27 countries all over the world. BioCSL carries out operation from Melbourne and caters medical solutions to customers all over the world. The group accounts also reveal that CSL Limited carries out research and development to support its global operations. Identify activities of subsidiary companies CSL Behring carries out activities of developing and marketing blood plasma derivative and recombined medical solution, bio-therapies for its customers all over the globe. The bio-therapies of the company provides solutions in developing immune systems against diseases like haemophilia, hereditary syndromes, von Willebrand, angioedema etc. The therapy solution developed by the companies also used for treating heart diseases, burns and shocks, transplantation of organs and also for treatment of newly born babies. BioCSL is another subsidiary that carries out the function of developing anti-influenza vaccines, anti-venom and diagnostic reagents to the global markets like Papua New Guinea, New Zealand, Asia-Pacific, etc. The research and development wing of the company is dedicated to support the bio-pharmaceutical business by developing protein-based medicines which are sold in licensed versions. The company is focussed on developing the existing products as well as developing break-through solutions through use of DNA technologies. The research and development wing is also looking at improving their capabilities in the area of haemophilia, blood coagulation, etc. Non-controlling interests – identify and discuss The non-controlling interests of CSL Limited could be understood from the following table as given below. The percentage of shareholding of the company by the various shareholders has been given in the following table. The percentage of shareholdings of the shareholders has been depicted in descending form. Since CSL Limited is a multinational company which has the constitution of a limited enterprise, the shareholders with shareholding percentage of less than 5% are said to have non-controlling interests in the operations of the company. The total number of shares of the company and its subsidiaries is 487462182. The major shareholders of CSL and its subsidiaries are HSBC Custody Nominees (Australia) Limited, Nominees (Australia) Limited, J P Morgan and National Nominees Limited. The other shareholders in the list as depicted below have identified to have non-controlling interests on the operations of CSL and its subsidiaries. The shareholders that have been identified to hold non-controlling interests in the operations of CSL and its subsidiaries are namely, Custodial Services Limited, RBC Investor Services Australia Nominee Pty. Ltd, DWS Nominees Pty. Limited, Navigator Australia Limited, Australian Foundation Investment Company Limited, Dr. Brian Anthony McNarnee, BNP Paribas Nominees Pty. Limited, Argo Investments Limited, UBS Wealth Management Australia Nominees Pty. Limited, Citicorp Nominees Pty. Limited and others. All these shareholders have been found to hold shares of the subsidiaries constituting the CSL group to an amount that is mostly less than 1% and in some cases less than 5%. These shareholders do not have control over the operations of the company (CSL Limited1, 2013, p.32). The remaining shares of the CSL and its subsidiaries are held by retail investors which together comprise of 32.86% of the shareholding volume of CSL and its subsidiaries. Since these shareholders also have very little percentage of shares as compared to the total number of shares of the company, they are also not able to execute any control over the operations of CSL and their subsidiaries. These shareholders are, therefore, said to have non-controlling interests over CSL and its subsidiaries. Non-controlling interests – discuss what they mean to you I have gone through the annual report and balance sheet of CSL Limited which includes the activities and operations of its subsidiaries. I have been able to figure out that that the liabilities of CSL to its shareholders are limited to the value of the shares held by each of them. The distribution of shares of the company and its subsidiaries has led to the dilution of ownership and control of the owners. The shareholders by virtue of their percentage of shareholders have been able to exercise their control in the decision of company matters. The shareholders which have a shareholding percentage of less than 5% have been identified to be having non-controlling interests in the operations of the company and its shareholders. This means that these shareholders are not able to exercise their opinion and control over the operations of the company (Verma, 2010, p.26). By this I mean that since these shareholders have shareholdings which form a minimal percentage of the total shares sold by the company, they are not considered as part of the decisions taken by the board. The non-controlling interests in the business of CSL Limited and its subsidiaries meant these shareholders do not have voting rights in company affairs and also not allowed to participate in board meetings and discussions. Discuss parent company’s investments in subsidiaries The parent company, namely CSL Limited has made investments in its subsidiaries namely, CSL Behring and BioCSL with a view to develop the existing medicine products and solutions delivered by then and also to attain break-through solution for delivering the unmet needs of medical treatment in the various countries like Australia, New Zealand, US, Asia Pacific, etc. The parent company has invested in the research and development in order to support the operations of the subsidiaries. The investments have been made for the research and development of the blood plasma derivatives, bio-therapies, speciality medicines like anti-influenza vaccines, anti-venoms and cell culture for researches in the field of genetics. The investments has also been made in the subsidiaries for expansion of operational capacities in US, Switzerland, Germany, Japan, etc through researches in the field of blood coagulation, immunoglobulin and haemophilia. The investments by the parent company in the research and development carried out by subsidiaries have increased from 370 million US dollars in 2010-11 to 434 million US dollars in 2012-13. Describe and reflect on your discussions with others I have discussed about the business operations of the subsidiaries of CSL Limited with my friends and found that the parent company is headquartered in Melbourne, Australia and carries out its operations through the subsidiaries namely, CSL Behring and BioCSL in the world markets of US, New Zealand, Australia, Germany and Asia Pacific. CSL Behring develops and markets the medical solutions of blood plasma derivatives, bio-therapies, etc. I have also found that the BioCSL carries out its business through development and marketing of anti influenza vaccines, anti-venoms and cell culture in the field of genetics. Interestingly, I have found that the parent company have also invested in the expansion of capacities of the operation of the operation of its subsidiaries in several markets like Switzerland, Germany, US and Asia Pacific. The investments have increased in the last three years in the field of research and development so that the lifecycle of the existing medical products and solutions. The investments were also aimed at finding break-through solutions in the field of genetics, blood coagulation, immunoglobulin and haemophilia. Step 2: Inter-Company Transactions Clear description of your firm’s disclosed inter-company transactions The intercompany transactions of the subsidiaries of CSL Limited have been reviewed. I have found the following observation which has been explained as follows. CSL Limited carries out its operation in the industry of bio-technology and bio-pharmaceuticals through two of its major subsidiaries namely, CSL Behring and BioCSL. In this case, the parent company CSL and its subsidiaries are operating in the same industry. The operations of the subsidiaries are controlled by the parent company and the transactions recorded in the consolidated statement of accounts of the group. This is due to the fact that the line of business of the subsidiaries are not different from each other and the decisions of investment and company operations are taken by the board of directors of the parent company. This is different from the case where the parent company has diversified business and the subsidiaries of the company carries out separate businesses from each other. In such cases, the inter-company transactions are recorded unlike the case of CSL Limited and their subsidiaries. The major transactions of the subsidiaries of CSL are done after the approval from the governing body of the parent company is given on the said matter. The transactions of the company are affected by the exchange rate, interest rates and market volatility. The net cash flow from the operational activities is $1311.7m. The cash outflows due to financing and investment activities are $1218.5m and $449.5m respectively which has given the company a net decline in cash position through the transactions by an amount of $356.3m. Identify and discuss parent and subsidiary companies’ balance dates The balance dates of the parent company CSL and its subsidiaries namely CSL Behring and BioCSL are the same with no differences. The balance dates are the end dates as on which the statement of accounts of the company are prepared. The balance dates are fixed according to the Corporation’s Act of the country in which the company is located. CSL Limited is headquartered in Melbourne, Australia. The subsidiaries CSL Behring and BioCSL are also headquartered in Melbourne, Australia through which the company carries out its operations and research in the field of bio-pharmaceuticals and bio-technology. The statements of accounts are consolidated and then published in the group’s consolidated accounts. The balance date is for the parent and the subsidiaries are, therefore, 30th June of the financial year (CSL Limited2, 2012, p.68). Identify and discuss takeover/acquisitions/business combination CSL Limited which operates in the field of developing and marketing the medicine products and therapies in the field of bio-technology and research operates through its subsidiaries under the name of BioCSL and CSL Behring which are also headquartered in the same country of the parent company that is Australia. In order to spread its business in the foreign markets, the subsidiaries of CSL have entered new markets through the acquisition and takeovers by the parent company. The acquisitions have been made by CSL where they owned majority shares of the company. CSL has taken over 74% shares of Cervax Pty Limited in Australia. The acquisitions where CSL owns 100% shares are Iscotec AB in Sweden, Zenith Therapeutics Pty Limited in Australia, Amrad Pty Ltd. in Australia, ZLB GmbH in Germany. After reviewing the operations of CSL and its subsidiaries, I have found that CSL has engaged into the acquisitions and take-over in both domestic and foreign markets in order improve their business capacities and invest more in developing its ability to provide break-through medical solution in the world. Goodwill – identify and discuss I have been able to identify that CSL has allocated the goodwill of its subsidiaries to the cash generating units and then consolidated the company goodwill in its statement of accounts. CSL Limited has a total goodwill of 687.5 million USD in 2013 which has increased as compared to 2012. Out of the total goodwill of the company, the goodwill of CSL Behring is 676.3 million USD. The remaining 11.2 million USD has been allocated to the CSL Intellectual properties. The total goodwill of the company has increased from $682.2m in 2012 to $687.5m in 2013. The intangible assets of CSL include the intellectual properties, software and intangible capital work (CSL Limited3, 2011, p.91). The company has reported an increase in the intangible assets and the rise in goodwill over the last years. The rise in the goodwill of the company has resulted due to the increase in capacity of the subsidiaries to develop and market break-through solutions in providing medicines through cell culture and research on genetics. The people in various countries all over the world has been able to receive improved treatments in diseases related to blood coagulation, haemophilia, immunoglobulin, shock and burn treatments, etc. Goodwill – discuss what it means to you Goodwill is an intangible asset of the firm. To me it means the brand value that the firm has been able to generate in the course of its operations over the years. The firm records the fair valuation of its net assets which includes the contingent liabilities of the company. In the course of share trading the valuation of the firm increases due to factors like fluctuation of demand, forecasted operations of the company, etc. The excess of the fair value of the company with respect to the market valuation of the firm could be measured as the goodwill which is expressed as n intangible asset. To me, goodwill provides the measure of the brand performance and brand loyalty of the company which is reflected in the valuation of its net assets over the fair value. In cases of mergers and acquisition, the good will of the firm is again estimated at fair value (Ahmed, Khan and Kumar, 2010, p.95). The price of purchases including all expenses could be compared to the fair valuation of the net assets of the company. The net increase in the market price compared to the fair value of the acquired assets adds to the goodwill of the company. The goodwill is measured at cost minus the expenses incurred during the period of one year for which financial statements have been prepared. Describe and reflect on your discussions with others I have reviewed the annual reports and financial statements of CSL which contains the activities of its subsidiaries. The parent company has controlled the operations of the subsidiaries over the years. The transactions of the subsidiaries have been consolidated into the group account from the date of acquisition of the subsidiaries. The balance date of the consolidated statement of accounts has been taken on the basis of the Corporations Act of the home country. The balance date of the statement is 30th June of the financial year. The goodwill of CSL has been allocated to the various cash generating units of the company in the domestic and the overseas market. The goodwill of CSL has been has been measured at the excess of fair value of the net assets with respect to the market price of the net assets of the company. Among the subsidiaries, CSL Behring has the highest goodwill in the markets. The goodwill of the subsidiaries has been developed due to the development of the existing products and enhancing the lifecycle of the bio-pharmaceutical solutions. The researches carried out by the subsidiaries in providing break-through solutions in biotechnology and DNA technology have allowed the patients to get improved treatments in the field of blood coagulations, heart diseases, haemophilia, etc. The goodwill of the firm has helped to increase the sales and revenue of CSL subsidiaries over the years. References Ahmed, N., Khan, N. A. and Kumar, R. 2010. Fundamentals of Corporate Accounting. New Delhi: Ane Books Pvt Ltd. CSL Global. 2014. Our Products. [Online]. Available at: http://www.csl.com.au/. [Accessed on 20 January, 2014]. CSL Limited1. 2013. Annual Report 2012-2013. [Pdf]. Available at: http://www.csl.com.au/docs/335/826/CSL_AR_2013,1.pdf. [Accessed on 20 January, 2014]. CSL Limited2. 2012. Annual Report 2011-2012. [Pdf]. Available at: http://www.csl.com.au/docs/494/678/csl_ar_2012,0.pdf. [Accessed on 20 January, 2014]. CSL Limited3. 2011. Annual Report 2010-2011. [Pdf]. Available at: http://www.csl.com.au/docs/621/800/csl_ar_2011,0.pdf. [Accessed on 20 January, 2014]. Verma, K. K. 2010. Corporate Accounting. New Delhi: Excel Books India Limited. Read More