Financial Instruments and Consolidations - Assignment Example

QUESTION 3: FINANCIAL INSTRUMENTS AND CONSOLIDATIONS By (Student’s Name) Professor’s Name Course Name+ City Date Question 3: Financial Instruments and Consolidations AASB 139, financial instruments, recognition and measurement. AASB 139 sets out the following requirements. That the financial liabilities and assets should be recognized in the prepared balance sheet statement Financial liabilities should be classified in one of the two set categories Financial assets classification should be undertaken in the four categories set That the initial measurement of both financial assets and liabilities be recorded at fair value. Subsequent measurement of financial assets and liabilities should be done at the fair value or amortized cost. This will depend on the recognition class. The increase or decrease in the financial assets and liabilities value is recognized in the profit or loss or equity depending on the class. That the financial assets to be impaired where there exists objective evidence. The assets and items of property, plant and equipment have been recorded at cost Recognition of the assets and liabilities in the balance sheet The financial assets of Telstra corporation have been classified into fixed assets and current assets Recognizing the financial assets into their categories The financial liabilities of the corporation have been categorized into long term liabilities and short term liabilities. Recognizing the financial liabilities into their categories The stated cost of the property plant and equipment is originally in its cost Stating the initial measurements financial assets and liabilities at their fair value The stated figure in the financial statements is cost less the amortized amount. Subsequent recognition of financial assets and financial liabilities at the amortized cost. The additional plant, property and equipment purchased and acquired have been included in the financial statements. The increase or decrease in the financial assets and liabilities value has been recognized in the profit and loss and equity accordingly depending on the class Indefinite assets of Telstra corporation are not subject to amortization but are annually tested for amortization or whenever there exist an indication for amortization Impairment of financial assets. 2. Consistency of the disclosures in the statement of the financial position, statement of changes in equity and the comprehensive income statement with AASB 7. AASB 7 Financial instruments: Disclosures For the financial position of Telstra Corporation the following disclosures have been done in accordance to the AASB 7. First, the investments that are held to maturity have been valued at $32 million. Second, the amount of loans and the receivables are valued at $ 2,349 million. Third, the available for sale financial assets are depicted with a value of $ 754 million. Fourth, the financial liabilities are stated at their fair value, which is valued at $ 2,349 million. Fifth, the financial liabilities have been measured at their amortized cost of $ 299million. In the statement of comprehensive income, the followings of income, gains, losses and expense have been disclosed in accordance to the AASB7. The standard requires that the entity to disclose the above in either the statement of comprehensive income or in the notes accompanying the financial statements (International Accounting Standards Board, 2002). In the notes accompanying the financial statements, it can be seen that the company has been regularly informing the users of its report on how it arrived on the net gains and losses. Also, it has informed them on the fact that the financial assets and financial liabilities have been quoted at their fair value through the profits and losses respectively. This has been separately shown since the financial assets and liabilities are designated from those financial assets and liabilities that are classified to be held for the purposes of trading The statement has also fairly disclosed the held to maturity investment, the loans and the receivables and the financial liabilities as having been measured at their amortized cost (International Accounting Standards Board, 2003). 3, Subsidiaries of Telstra Limited Name of company Type of ownership Comments Telstra Europe 33% Telstra has been in the markets of Europe operating since the year 1992. The company has a customer base of 7000 customers who buy the voice, data and network hosting services. Telstra clear 0% After Telecom New Zealand and the Vodafone New Zealand was the third largest New Zealand’s telecommunication provider. The company was founded in the year 2001 from the merger of the subsidiary Telstra Saturn in a joint venture of 50/50 with Austar. In the July 2012, the intention of Telstra was announced of selling Telstra clear to New Zealand’s Vodafone for NZ$840 million (A$660million) Reach Asian undersea cable 49% The acquisition was in 1999. This was during the communications boom, in the 2003 February, Telstra had its book value downgraded to zero and its debt renegotiated in 2004 and has since then been restructured to operate as an international requirements vehicle for the holding company Telstra corporation. Ad stream Australia 58% The acquisition was added in 2006 by Telstra when it offered $20 million. The company increased its shareholding from 53 to 58 per cent. Nor star Media 50% Telstra acquired undisclosed stake in Telstra Japan 100% Owns and operates telecoms in large scale multiple cities, circuits and facilities in Japan 5, Comparison of the issued share capital of the Group with that of the parent company The issued and paid up share capital is recognized and stated at fair value of the company’s received consideration as it is received by the company. Any of the arising costs from the issue of ordinary shares are recognized in the equity directly net of tax by reducing the share proceeds received. Telstra Corporation records the Telstra entity purchase of share trusts plan as a share capital reduction (International Accounting Standards Board, 2002). The group share capital increased from $5610 in the year 2011 to $5635 in the year 2012. In comparison, the parent company recorded the same amount for the both years that is $5610 and 5635 for the year 2011 and 2012 respectively. The amount is similar because Telstra parent controls decision making of the subsidiaries, this means that the shares are issued from the main office of the parent company and the individual subsidiaries cannot make the decision to issue out shares. 5, Evidence of Non Controlling Interest (NCI) in Telstra Corporation AASB 10 requires that the non- controlling interest to be presented by a parent company in the consolidated statement of financial position. The presentation must be done within the equity section and should be conducted separate from the equity of the parent company’s owners (International Accounting Standards Board, 2002). It also requires that the changes in the interest’s ownership of the parent company in a subsidiary should not necessary result to the parent losing control over their subsidiary thus being treated as equity transactions. This is evidenced when the parent Telstra Corporation increased its share control in Ad stream Australia from 53% to 58 %, it was considered as a transaction between owners at their individual capacity rather than the owners of the company. In the case where a parent company has its control diluted or lost, then the parent company should stop any recognition of the assets and liabilities of its former subsidiary in the consolidated financial statements. It also requires that any investments left being recognized at their fair value and then applying the relevant standards account for the owed amounts either to it or to the former subsidiary. The fair value used shall be recognized according to AASB 9 on the initial financial asset recognition. This was the case in July 2012 when Telstra sold Telstra clear. Thus, Telecom New Zealand and the Vodafone New Zealand were the third largest New Zealand’s telecommunication providers. The company was acquired by Telstra Corporation in the year 2001 from the merger of the subsidiary Telstra Saturn in a joint venture of 50/50 with Austar. Finally, the standard requires that the loss or gain that is attributed to the loss of control should be recognized in the financial statements as was duly done by Telstra Corporation limited. 7, Notes regarding the consolidation methods/ principles and their consistency with AASB requirements AASB 12 is an accounting standard that issues a guide on the disclosures of interests in other entities. The main objective in this case is to look at the nature of risks that are linked to interests in other entities and then, evaluating the impacts of those interests in the financial performance of the entity, financial position and cash flows. AASB 3 is an accounting standard that looks at business combinations, it measures recognized identifiable assets and liabilities and any non-controlling interest within the recently acquired entity. It also recognizes the goodwill that has been acquired in the business and also the types of information to be disclosed to the stakeholders to enable them evaluate the financial effects and nature of the business combinations (International Accounting Standards Board, 2002). Company Information Comparison To Corresponding AASB In the consolidated financial statement of Telstra Corporation, the company has disclosed the interest in its subsidiaries; the interests to its subsidiaries have had a decreasing impact on the net free cash flow of the parent company. AASB 12, interest disclosure, considering the nature of risk in the financial performance of the entity. The assets that have been shown in the financial statements, the property and plant of the Corporation have taken into consideration the acquired assets within the subsequent subsidiaries. AASB 3, business combinations, measuring and recognizing the identifiable assets and liabilities. Reference List International Accounting Standards Board, 2003, Financial instruments, London, International Accounting Standards Board International Accounting Standards Board, 2002, Exposure draft of proposed amendments to IAS 32, financial instruments, disclosure and presentation [and] IAS 39, Financial instruments, recognition and measurement: comments to be received by 14 October 2002. London, International Accounting Standards Board. Telstra Corporation Limited, 2012. 20102 annual financial statement, http://www.telstra.com.au/abouttelstra/investor/calendar/annual-results-announcement-5.xml Read More