Essay Sample: Demonstrating the Accounting Treatment for Consolidations and Related Issues

Introduction

Consolidation in accounting is a technique where the investment accounting used for amalgamating accounting statements comprises the majority ownership investments (Bergmann et al., 2016). This technique works when the parent investor has greater control over the investee, with an estimated 50% plus shares of the company (Bergmann et al., 2016). It works by disclosing the investee's balance combined statement along with the leading company's balance.

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The accounting procedure for consolidation involves several steps, which are; by grouping items of liability, equity, income, cash flow, assets, and expenses of the parent together with those of the investees—then eliminating the conveyed amount of the parent's investment in every subsidiary. Afterward, abolishing incomplete intragroup activities relating to the transaction between entities of the group. The two groups have similar reporting dates established based on extra-financial information composed by the subsidiary. The most current account information for the subsidiary is used on occasions when it is impossible to file the report on time (Bergmann et al.,2016). The time between the consolidated and the subsidiary financial information should not be more than three months.

Investments and Shareholders’ Equity Report in the Balance Sheet

The Apple Inc. company specializes in manufacturing, designing, and marketing computers, personal smartphones, tablets, and other electronic gadgets. Apple Company provides a wide range of services related to the products they produce. In the 2019 year, the total asset current assets were at 162,819 while the total assets were 338,516 million USD and unlimited liability and shareholders' equity at 338,516 million USD balancing off the balance sheet ("Inline XBRL Viewer", 2020). The company had a decrease in additional investments for the years 2019 and 2018. Over the previous financial years, the company has experienced a fall in the shareholder's equity with again from 107,147 million USD to the latest standing of 90,488 million USD in the 2019 financial report ("Inline XBRL Viewer", 2020).

Equity Method and the Income Statement Related to Investments

The Apple Inc. company uses the equity method to repost its investments. Equity investments increase the primary amount of money invested in the company. This increase will be brought by the growth of both the dividends and the capital gains. With a lower amount required during investment, investors are exposed to more different investment options. By introducing the right shares, investors can continuously maintain their assets. In the past three years, the continuous increase in the amount invested has led to a steady rise in its cash flow (Weng et al., 2017). The increased investment has increased the company's delivery of services and the production of goods. These have coursed an increase in the company's profit, which led to a rise in the cash flow.

Footnote Additional Information and Importance of Financial Information to a Manager

The footnotes provided in the financial statements aids in understanding and make decisions by the relevant investors. Information concerning the company's investment activities helps the managers and the governing boards run the company. During the allocation of the financial year funds, the manager uses financial information to support the falling sectors in the company. The information is also used to boost the already fast-growing programs faster than other running programs. The information helps the manager in knowing the number of profits that would be shared among the shareholders and that reserved back for running the company. Finally, it shows the growth rate of the company at large.

References

Bergmann, A., Grossi, G., Rauskala, I., & Fuchs, S. (2016). Consolidation in the public sector: methods and approaches in Organisation for Economic Co-operation and Development countries. International Review of Administrative Sciences, 82(4), 763-783. https://doi:10.1177/0020852315576713

Inline XBRL Viewer. (2020). Retrieved 6 October 2020, from https://www.sec.gov/ix?doc=/Archives/edgar/data/320193/000032019319000119/a10-k20199282019.htm

Weng, B., Ahmed, M., & Megahed, F. (2017). Stock market one-day ahead movement prediction using disparate data sources. Expert Systems with Applications, 79, 153-163. https://doi:10.1016/j.eswa.2017.02.041