Financial Status of My Firm: Onthehouse

Name

Institution Affiliation

Date

Financial Status of My Firm: Onthehouse

Executive Summary

The information that I am going to share in this report will reflect on my firm’s 2012 and 2013 financial statement. The information will seek to clarify that my made losses for a general decline in activities. For this reason, the report will examine the number of the subsidiaries affiliated to my firm, and this information will seek to clarify the percentage ownership that my firm owns each of the subsidiaries. This information will illuminate on the later sections of the report that will explore in depth the income statement and the balance sheet. The second section of this report will clarify on the nature of the in contemporary transactions.

Does your company have subsidiary companies? How can you tell whether your company has subsidiary companies or not?

A subsidiary company is a company that is owned partly or fully by the main company. The main company naturally acts as a holding company and provides administrative provisions, policies to the daughter corporation.

My company has plethora subsidiaries located in Australia and New Zealand. Some of these are; Subsidiary of Console Australia Pty limited and Subsidiary of Console New Zealand limited and Subsidiary of Residex Pty Ltd. These subsidiaries have been listed in the company financial statements. Besides, they have been offered equity interests and each of the revenue has been registered on the financial statements. A close example of these subsidiaries is Suncorp subsidiary and REA group (Seltzer, 2010, p. 21).

If your company does have subsidiary companies (and, yes, every listed company I have ever come across has subsidiary companies), how many subsidiary companies do your firm have? Has this varied over the past three years?

From the year 2011 to 2013, My Company has acquired nine subsidiaries. The firm’s most subsidiaries are in the property industry. As stated earlier, all subsidiaries are in either Australia or New Zealand.

Name Country of Incorporation Equity 2012 Equity 2013

Onthehouse.com.au.Pty Limited Australia 100 100

Console Australia Pty Limited Australia 100 100

Console New Zealand Limited (ii) (vi) New Zealand 100 100

PortPlus Pty limited Australia 100 100

PortPlus (NZ) limited (ii) (vii) New Zealand 100 100

Agent Apps Pty Ltd (iii) Australia 100 100

Residex Pty Ltd (iv) Australia 100

Residex Technologies Pty Australia 100

The Ad Network Pty Ltd (v) Australia 100

What activities are conducted in your company? Why does not your firm simply conduct all its activities in a single company rather than in a group?

The firm is common in the businesses providing housing Mortgages to Australians and New Zealanders people. For specialization purposes, the firm does not desire to conduct its business in one house since this is financially constraining. Secondly, the goal of profit maximization is a key objective for the firm. Most of these firms provide services to other companies/ clients, which is not part of my company business. Additionally, the subsidiary companies are not necessary mortgage companies. Most of these companies either are in service resale or involved in direct technology orientation (Investopedia. (n.d.). My company naturally consolidates a company on a single console or a double console brand. Our company subsidiaries have been full consolidated and transferred to the group. The process of acquisition is based on accounting audits that determine the value of the group to the acquiring company (Investor Centre. n.d.). Any company carrying out the process of acquisition does this always. The approach enables the development of non-controlling interests in the results and equity as demonstrated separately in the statement of comprehensive income statement and financial position. In this case, my company obtains control over the subsidiary. This can be accounted in the group as a jointly controlled entity. Additionally, the group measures the fair value of identifiable net assets as considered on the bargain price in profit or loss parameters (Seltzer, 2010, p. 34).

The group also operates interests in joint ventures. A joint venture is a contractual arrangement between two or more parties entitled to undertake an economic activity. The jointly controlled entities are incorporating the group’s financial statement by applying the equity method of accounting. This is further achieved by integrating the group’s share interests on net assets of the jointly controlled entity. The existing entity carries a statement about the financial position at cost plus post-acquisition changes of the group’s share of net assets (Rexel Worldwide. (n.d.).

Does your firm have non-controlling interests (or minority interests) in its balance sheet and income statement? Why or why not?

According to Investopedia, Non-controlling interest is a stake corporation investor has not influenced on the company’s decision. Indeed, the majority of investor positions are considered as non-controlling interest since its ownership is insignificant or relative to the total number of share being offered (Investopedia, 2014).

Our group has non-controlling interests and they are presented in the group’s financial statements. These are presented in the profit and loss controlling subsidiary of the reporting period. In this case, losses are allocated to the parent and the non-controlling interests may exceed their respective interests. Thus, the company continues to offer subsequent periods of excess as well further losses located in the parent and non-controlling interests. However, in our company, non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of comprehensive income and statement of financial positions. However, my company does not have non-controlling interests in the balance sheet. For all the eight subsidiaries, my company owns one hundred percent of all shares and this ownership has been maintained with time (Investor Centre, n.d.).

If your firm does have non-controlling interests (or minority interests) in its balance sheet and income statement, what are they? What do these items mean to you?

As stated, non-controlling stipulates that the subsidiaries in our firm do not have a decision making power. In addition, the firm subsidiaries are not accrued to losses incurred by the firm. This means that the subsidiaries are autonomous and cannot suffer from losses incurred by our firm. If your firm does not have non-controlling interests (or minority interests), identify the firm of another person in our course that does have non-controlling interests. I identified Jacob Martins choice of company Relex Holdings Australia as a firm that had non-controlling interests. This firm has invested in technology, and all of its subsidiaries are in the mining or engineering sector (Seltzer, 2010, p. 47).

Discuss with that other person in our course what they think non-controlling interests are for their firm. Describe carefully what they think their firm’s non-controlling interests mean to them. Do you agree or disagree with them?

The firm Ideal Electrical Supplies specializes in supplying complete data, and lighting services and devices to home. The firm was established in 1990 operates within five locations. The firm operates over forty-five lighting showrooms in Victoria and Queensland. Rexel holdings Australia acquired Ideal Electrical in the year 2009 on 72 percent basis. After conversing with my friend, I realized that Ideal Electrical Supplies are presented by the parent entity Rexel holding in the group financial statement. This is included in the equity section of the consolidated financial statements, albeit segregated from the parent entity stockholders’ equity interests. In addition, the long tradition of displaying Ideal Electrical supplies as subsidiary category is reflected on a double basis of debt and equity (Relex, 2014).

Additionally, I leant that under the income of each component and the comprehensive income statement is attributed to controlling and non-controlling interests. In this case, minority interest will not be displayed as a deduction in the income statement. As a result, this attributes will not be included in the equity section of the consolidated financial statement. In fact, Rexel holdings push them below debts sections (Accounting Information, 2014).

Why do firms show non-controlling interests in their balance sheets and income statements? ….. What do these items tell us?

When a firm does not control 100% of the total share, it means that the subsidiary firm does have a collective justification in the decision making process. Secondly, the parent firm consolidates all assets and liabilities. This shows the interest of the outside shareholders as a non-controlling interest. In this case, a specialty of IFRS standards requires that a non-controlling interest is indicated in the balance sheet within the group’s equity. This prompts the indication of equity on a separate section from the financing side of the balance sheet (New investor Perspective, 2014).

Secondly, it is important for the parent firm to produce the general-purpose reports. General purpose financial reporting is to present financial information about the reporting entity. This information is directed to present useful and potential equity investors, creditors, and lenders thus making decisions in the capacity of capital providers. In this case, financial reports communicate information about entity economic resources, transaction events, and circumstances that change the nature of the reports.

How are your firm’s investments in subsidiaries treated in your parent company’s accounts? … Why or why not?

In my firm, investment in subsidiaries is treated as separate legal entities. Each prepares its own financial statement, but a copy is forwarded to the parent firm for clarification. However, ownership of not less than 50 percent of voting stock required in accounting recognition of control. Because of their special relationship, they are viewed for external financial reported purposes as single driven entity. Hence, there is a derivative need to combine the financial statement into a single set of statement named consolidated financial statements.

This item appears on the firm consolidated financial statements. My company considers this a convenient for economic, legal, and tax to operate parent-subsidiary relationships. The inventory accounts include the inventory held and its subsidiaries. Hence, the consolidated income statement includes the sales account of the total revenue from the sales by the company and its subsidiaries. The overview is vital in helping management, creditors, and stockholders of the company progress in meeting its goals (Investopedia. (n.d.).

Participate in the discussion forum “General Discussion” on Moodle.

My company has eight subsidiaries companies which six of them in Australia and two in New Zealand. The direction of my discussion was centered to investigate whether my company subsidiaries were presented in my company and whether the benefits were instrumental to the development of the firm. In the year 2012, my company acquired three companies and integrated them into business. This was impressive since the revenue was impacted on EBTDA growth. In fact, growth met 2012 prospectus forecasts. This led to an increase by 19% and continued strong operating cash flow. In fact, my company has realized that periodically investment to potential firms adds the total value of reinvestment (New investor Perspective, 2014). Now my question is, according to this result, do you consider my firm profitable to the nature of investments?

For the part of the answer, my company has consistently demonstrated strong financial performance in the year 2013 financial year. In the year ending June 30, 2013, the operating revenue had increased by 19 percent to 24.1 million up from 20.3 million. This was after acquisition of the three companies. Secondly, the decision to expand our workforce by a magnitude of 40 percent resulted to an approximately 8 million increase in revenue.

Discuss the issues on how your firm shows a group of accounts rather than simply the accounts of a single company

Group accounts should comply with regulations 5 (1) (b) as if the undertakings included in the consolidation were a single company excepts where the group will qualifies as a small or medium-sized group. These groups of accounts are presented in the company financial statement. Firstly, the firm request for separate disclosures in respect to the auditing of the accounts in questions and each of the services. Separate disclosures are required in respect to the services supplied to the company and its subsidiaries. Secondly, there was a disclosure is not required of remuneration of receivable for the supply of service.

According to the discussion from the income statement, the amounts on the balance sheets inventory naturally differs based on the subsidiary. In this other words, the inventory is reported on the amounts. Thus, in my company, the interpretation of what should constitute of a fair and genuine view varies with time on the requirements of accounting standard being pursued by at the time.

How helpful did you find these discussions… What insights have you gained?

After discussing with others, I realized the differences in having non-controlling interests and not having them. I discussed with my friend Jennifer to determine the understanding of non-controlling interests. The discussion later found out that the advantages of that my firm is accrued to for owning 100% of a firm.

Step 2: Intercompany transactions

After closely looking the consolidated income statement for the year ended 2013, one will notice that my company combined revenues and expenses of the parents and subsidiary companies. This means that my company had complex activities between the company and its subsidiaries. Combining was essential since it would prevent double counting of revenue and expenses. This list of transactions is notable after observing my company performances and they are included in the group’s financial accounts. Firstly, income and expenses related to receivables, loans, bond indebtedness between my company and its subsidiaries. Secondly, there is a complex interrelation between income and expenses. Thirdly, there are sales and purchases of goods and services parents and subsidiary (Seltzer, 2010, p. 63).

My company realized that the only way to maximize earning is by jointly participating in cash management plan. This has allowed the intra-company borrowing in order to reduce reliance on third party loans. When you look closely at the balance sheet, you will realize that subsidiaries were either borrowing from each other or borrowing to the main company. This has aggregate maximized the total earning that my firm has with time generated (New investor Perspective, 2014).

Does your firm’s parent company and subsidiary companies have the same balance date?

Yes, since the companies are owned entirely by my company on a 100 % basis, it is appropriate to have the same balance date. Since both my company and the firm subsidiary operate on the consolidated balance sheet, goodwill will appear on the assets representing the portion. Running the same balance data is based on the knowledge that cost of investments over book will not be allocated to any specific assets. Indeed, my company pays less than the book value for its investment in the subsidiary. This is derived from the reason that the marketable securities are among least reliable of estimates. Thus, my accounting principles board advises from applying negative goodwill but this is not applied in all cases.

Does your firm have Goodwill in its balance sheet? Why or why not?

Yes, my firm improvises goodwill on its balance sheet, and since it owns the subsidiaries 100 percent. Our valuation expert accepts 10 percent of the net earnings as takeover price. This then added as goodwill amortization. This then implies that earning is adjusted upwards to include net annual earnings of all subsidiaries plus the parent firm (Investopedia. (n.d.).

If your firm does have Goodwill in its balance sheet, what is this item? … If so, why? If not, why not?

The items on the goodwill provision include the foreign currency translation. According to the balance sheet, my company made profits. Profits were attributed to the owners of the Onthehouse holdings limited. The firm offered and identifiable net assets of 295; hence, goodwill arising on acquisition stood at 1,502. In 2012, my firm earned 2141 and 2013 was 1008 in profits and this could be attributed to a shortfall in general operations. This means that my firm made a loss of 1,133. This further means that each subsidiary is treated independently from one another.

Did your company acquire (or dispose of) any companies or businesses during the past three years? …

My company acquired three companies courtesy of Residex Pty Ltd (iv), Residex Technologies, and The Ad Network Pty Ltd. The firms have showed good prospects of success as seen from their financial performance. The financial statements were also clean and had not involved themselves in any underhand dealings that would later mar the reputation of my company.

Clear description of your firm’s disclosed inter-company transactions If the company does not disclose the information, students could either talk about the intra-group transactions of other person or their understanding of intra-group transactions.& Identify and discuss takeover/acquisitions/business combination & Describe and reflect on your discussions with others

Intra-group transactions refer to activities that are carried between the group and the parent company. For the parties, these transactions refer to members of the same groups who conduct similar transactions in the general intra-group entity. In relation to my companies, it is notable that transactions between entities in an economic environment are recorded in separate accounts. This will require any minimum amounts owed to, or are receivable between members of a given economic entity within my company inter-entity transactions. For this reason, the inter-entity transaction creates loss or profits realized by the economic entity which are eliminated when developing consolidated accounts.

After conversing with my friend Audry Hao, I realized that the consequent acquisition of the parent company to subsidiaries was primarily responsible for increasing existing capital stake reaching desirable thresholds. These increases in overall stake portfolio were primarily responsible for the expansion of limited liabilities within companies. In fact, Hao made me understand that his company choice losses were evenly distributed reducing the overall risk involved in the production. However, different subsidiaries are at given thresholds in terms of financial development. As a result, intra-group transactions result to deductible or assessable temporary differences. For this reason, Hao made me understand that these differences are caused by adjustment of the amount of assets for accounting purposes. Hence, eliminating entries causes temporary differences between accounting and accrued tax.

I had to explain to Hao that taking acquiring new business was for the best interests for my company. Taking over and acquiring Residex Pty Ltd (iv), Residex Technologies Pty, and The Ad Network Pty Ltd (v) was a collective strategy since it allowed welcoming of investors and entrepreneurs. New investors and entrepreneurs will expand the capital base for financing other ailing firms within the holding. As a result, this year is expected to be prosperous in relation to total growth in assets and activities.

Bibliography

Money Instructor. 2014, Accounting Relationship: Linking the Income Statement and Balance Sheet | Money Instructor. (n.d.). Money Instructor. Retrieved May 16, 2014, from http://content.moneyinstructor.com/1496/linking-income-balance.html

Investor Centre. (n.d.). â onthehouse.com.au. Retrieved May 16, 2014, from http://investors.onthehouse.com.au/

New Investor Perspective. 2014. Dynamic risk management-accounting in an age of complexity. IFRS -. Retrieved May 16, 2014, from HYPERLINK “http://www.ifrs.org/Alerts/Publication/Pages/New-“http://www.ifrs.org/Alerts/Publication/Pages/New-Investor-Perspectives-article-Dynamic-risk-management-accounting-in-an-age-of-complexity-April-2014.aspx

Investopedia. (n.d.). Non-Controlling Interest Definition | Investopedia. Retrieved May 16, 2014, from http://www.investopedia.com/terms/n/noncontrolling_interest.asp

Rexel Worldwide. (n.d.). Rexel – Electrical Supplies Distribution – Rexel – Electrical Supplies Distribution – Rexel Worldwide. Retrieved May 16, 2014, from HYPERLINK “http://www.rexel.com/en/rexel-“http://www.rexel.com/en/rexel-worldwide/ideal-electrical.php?do=2&id=5

Seltzer, J. C. 2010. An Approach to Issuance Modeling Of Financial Statements. Revista Universo Contábil, 6, 114-128.