Consolidated Financial Statements of International and Bangladeshi Company

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An Assignment On the Consolidated Financial Statements of International and Bangladeshi Company

SUBJECT: Submission of an assignment.

Group, Group Accounts and Consolidation

In simple terms a group is created where one company, the parent buys shares in another company, the subsidiary, such that the parent company controls the subsidiary. A group may include one or many subsidiaries.

A business may operate in several different markets with different characteristics. These markets will present different issue for management to address in terms of operations and finance and so on. It would be possible for the different activities to be carried out within a single limited company. Where separate divisions could be established for each activity. The owner would then receive one set of accounts for the companies, reflecting all its activities.

There are a number of reasons why the business might be structured in group:

  1. Accountability of each group of managers can be more precise.
  2. Financing may be made easier.
  3. The assets of the subsidiaries can be pledged as security for its borrowing.

The group account comprises:

  1. Consolidated balance sheet
  2. Consolidated income statement
  3. Consolidated statement of change in equity
  4. Consolidated cash flow statement
  5. Notes to the Accounts and comparative figures.

Accounting Principles for Group Accounts

The key issue underlying the group accounts is therefore the need to reflect the economic substance of the relationship between companies where one has control over another, which together comprise a group.

Producing consolidated accounts that present the group as though it were a single economic entity reflects this economic substance.

The consolidated accounts also reflect another key principle that of the distinction between-

  1. The resources controlled and the result they produce
  2. The ownership of this resources and result.

The effect of consolidation

Group accounts consolidate the results and net assets of group members to present the group to the parent’s share holder as a single economic entity. This reflects the economic substance and contrasts with the legal form, where each company is separate legal person.

Consolidated Financial Statements of Foreign and Bangladeshi Company

In this section we are going to see what the format of the consolidated financial statements is and then compare it to the financial statements of the foreign and native companies.

Consolidated financial statements includes-

  1. Consolidated balance sheet
  2. Consolidated income statement
  3. Consolidated statement of change in equity
  4. Consolidated cash flow statement
  5. Notes to the Accounts and comparative figures.

Here we are going to compare the consolidated balance sheet, consolidated income statement, and consolidated statement of changes in equity.

The selected companies are –

Foreign company: The Citi Group.

Native company: Orion group.

But because of the unavailability of financial reports of Orion group Bangladesh we take Summit group as a substitute.

The particulars and the special entries given in the consolidated financial statements of international and native company is given below:-

Particulars of Consolidated Balance Sheet

  1. The Citi Group:

Assets

Cash and due from banks

Deposit with banks

Federal fund sold and securities borrowed under agreement to resell

Brokerage receivables

Trading account assets

Investments

Loans, net of unearned income

Allowance for loan losses

Goodwill

Intangible assets

Mortgage servicing rights

Other assets

Liabilities

Non-interest bearing deposits in US office

Interest bearing deposits in US office

Non-interest bearing deposits in offices outside US

Interest bearing deposits in offices outside US

Federal funds purchased and securities loaned under agreement to repurchase

Brokerage payable

Trading account liabilities

Short term borrowings

Long term debt

Other liabilities

Stockholder’s Equity

Preferred stock

Common stock

Additional paid in capital

Retained earnings

Treasury stock

Accumulated other comprehensive income

In the notes to the account they also disclosed about the sell and purchase of the subsidiaries and the associates. Like-

  1. Sale of Egg Banking PLC Credit Card Business

On March 1, 2011, the Company announced that Egg Banking plc (Egg), an indirect subsidiary which was part of the Citi Holdings segment, entered into a definitive agreement to sell its credit card business to Barclays PLC. The sale closed on April 28, 2011. This sale is reported as discontinued operations for the full year of 2011 only. Prior periods were not reclassified due to the immateriality of the impact in those periods. An after-tax gain on sale of $126 million was recognized upon closing. Egg operations had total assets and total liabilities of approximately $2.7 billion and $39 million, respectively, at the time of sale.

  1. Sale of The Student Loan Corporation

On September 17, 2010, the Company announced that The Student Loan Corporation (SLC), an indirect subsidiary that was 80% owned by Citibank and 20% owned by public shareholders, and which was part of the Citi Holdings segment, entered into definitive agreements that resulted in the divestiture of Citi’s private student loan business and approximately $31 billion of its approximate $40 billion in assets to Discover Financial Services (Discover) and SLM Corporation (Sallie Mae). The transaction closed on December 31, 2010. As part of the transaction, Citi provided Sallie Mae with $1.1 billion of seller-financing. Additionally, as part of the transactions, Citibank, N.A. purchased approximately $8.6 billion of assets from SLC prior to the sale of SLC.

  1. Sale of Nikko Cordial

On October 1, 2009 the Company announced the successful completion of the sale of Nikko Cordial Securities to Sumitomo Mitsui Banking Corporation. The transaction had a total cash value to Citi of 776 billion yen (U.S. $8.7 billion at an exchange rate of 89.60 yen to U.S. $1.00 as of September 30, 2009). The cash value was composed of the purchase price for the transferred business of 545 billion yen, the purchase price for certain Japanese-listed equity securities held by Nikko Cordial Securities of 30 billion yen, and 201 billion yen of excess cash derived through the repayment of outstanding indebtedness to Citi. After considering the impact of foreign exchange hedges of the proceeds of the transaction, the sale resulted in an immaterial gain in 2009. A total of about 7,800 employees were included in the transaction.

  1. Summit Group Bangladesh

Assets

Intangible fixed assets

Tangible fixed assets

Investments

Investments in joint ventures

Investment in finance agreements

Debtor

Investments

Cash at bank and in hand

Capital and Reserves

Share capital

Capital redemption reserve

Revaluation reserve

Other reserve

Profit and loss account

Minority interest

In the notes to the account Summit Group elaborately showed the investments in different companies and they are given below-

(a) The Company has an investment of £329,940 in a company (Med trade Products Ltd) producing specialized wound care dressings. The holding consists of 8,130 “B” ordinary shares of 10 pence each, a shareholding of 26.67% (2010: 26.67%). The investment is held at directors' valuation, based on the last subscription price for the share issue in June 2008, and was valued at the year-end at £2,138,190 (2010: £2,138,190).

(b) The Company had a holding of 42,921 ordinary shares in ASG Media PLC (formerly Avanti Screen media Group PLC) which was previously in administration. Following a Corporate Voluntary Arrangement, 550 shares in ASG Media were converted into 1 share in the company which re-listed as Insetco PLC. The company's shares are listed on the Alternative Investment Market but it has no trade, and the investment is held at directors' valuation at the yearend of £nil (2010: £nil).

(c) The Company has a holding of 42,921 ordinary shares in Avanti Communications Group PLC. The company's shares are listed on the Alternative Investment Market. The investment is held at directors' valuation, based on the relevant quoted mid-market prices, and is valued at the year-end at £194,110 (2010: £182,736).

(d) The Company has an investment of £25,000 in a company (T-Plan Ltd) which produces test management and planning software. The holding consists of 18,085 “C” ordinary shares of 0.1 pence each, a shareholding of 2.96% (2010: 2.96%). The investment is held at directors' valuation, and was valued at the year-end at £6,691 (2010: £6,691).

(e) The Company has an investment of £160,000 in Suan Neo Ltd, a company supplying take away meals, following a further investment in the year of £10,000. The holding consists of 373 ordinary shares of £1 each, a shareholding of 28.17% (2010: 26.62%). The investment is held at directors' valuation and was valued at the year-end at £160,000 (2010: £150,000).

(f ) The Company has made contributions totaling £321,521 to Seraphim Capital LP, a fund set up to make venture capital investments, following contributions during the year of £60,709. The investment is held at directors' valuation of £217,376 (2010: £226,661).

(g) The Company has an investment of £100,000 in Voice notes Ltd, a company which transcribes detailed meeting notes for companies’ sales forces. The holding consists of 1,360 ordinary shares of £1 each, and represents a shareholding of 21.8 % (2010:21.8%).

The investment is held at directors' valuation and was valued at the year-end at £100,000 (2010: £100,000).

(h) The Company has an investment of £101,996 in a portfolio of listed shares following a further investment in the year of £2,064.

The investment is held at directors' valuation, based on the relevant quoted mid-market prices, and is valued at the year-end at £104,314 (2010: £100,407).

(i) The Company holds, via:

(i) Medical Equipment Solutions Ltd (“MESL”), an investment in United Open MRI Ltd, a company operating a specialist scanning service.

The directors of MESL hold the investment at directors' valuation of £251,565 (2010: £251,565). The holding consists of 39,307 ordinary shares, and reflects a shareholding of 12.9% (2010: 12.9%).

(ii) Dale bury (No. 31) Ltd, a holding of 415 ordinary shares of £1 each and 41,116,604 1p preference shares in Summit Alpha Ltd. This company makes investments in early stage businesses. The holding of preference shares in Summit Alpha currently represents 21.88% (2010: 19.65%) of the issued preference share capital. The number of preference shares owned reflects transfers of preference shares to the Company in part satisfaction of management fees owed to it totaling £42,026. The underlying investments were re-valued at the year-end in accordance with the guidelines issued by the British Venture Capital Association. A release of provision

of £3,459 (2010: £1,211) has been made in the year for the difference between the cost of the investments and the re-valued amount.

Particulars of consolidated Income Statement

  1. Citi group

Interest revenue

Commissions and fees

Administration and other fees

Realized gains on sales of investments

Gross impairment losses

Insurance premiums

Other revenue

Provisions of loan losses

Policyholder benefits and claims

Provision for unfunded lending commitments

Compensations and benefits

Premises and equipments

Technology and communication

Advertisements and marketing

Restructuring

Other operating

Provision for income taxes

Income from discontinued operations

Gain on sale

Provision for income taxes

  1. Summit group

Turnover: group and share of joint venture

Less: share of joint venture‘s turnover

Group turnover- Continuing operations

Cost of sales

Operating cost

Other operating income

Share of operating profit in joint venture

Net interest payable

Taxation: group

Taxation: joint venture

Minority interest

These are the particulars shown in the income statements of the selected group companies.

In the notes to the account of summit group Bangladesh they disclosed all the relating matters in the income statement, according to the numbers of the notes to the account given in the financial statements. They clearly disclosed how the account considered to be shown on the income statement and what are the adjustments are related to them. They also disclosed related measures taken in preparing the income statement at every stage of preparing the income statement.

Subsidiaries

  1. Citi group

The name of the subsidiaries of the Citi group is given below-

  1. CGMHI
  2. CFI
  3. CCC

In the financial report the citi group did not show the names of their subsidiaries and associates properly. They just once showed their name in the consolidation schedule of the income stetment.

  1. Summit Group

Directly held subsidiaries & associates of summit group are –

Name

Ownership

Summit insurance service

100%

Medtrade Products

27%

Avanti communications

Less than 1%

Tennyson

90%

Voicenotes

26.5%

Summit Asset Management

77.5%

Tennyson Insurance

38%

Summit Property

100%

ASAP

28%

Prima Public Service

75%

Conclusion

Group companies are one of the forms of business organizations. Groups are made to make the business more expanded with the expansion of the market and also with the expansion of the business. Day by day the functions of the business are becoming more complicated and also wide spread. In order to make the business more efficient and profitable group business is a dying need. After examine the consolidated financial statements of the international as well as the consolidated financial statements of the native company we can say that our native companies should disclose more and more information for the share holders as well as the investors. They should disclose the sophisticated workings and calculations to their financial reports to make it clear to the users of the financial reports. The native companies should put more emphasis on disclosing the information in the financial reports.

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