Overview of JB Hi-Fi
In this study, the selected company JB Hi-Fi is listed in Australian Stock Exchange (Jbhifi.com, 2017). This company is an Australian merchant of consumer goods that mainly specializes in video games, CDs, home appliances, Blu-rays as well as DVDs and electronics or hardware. The current segment discusses the situation when equity consolidates other reporting requirements of AASB 10 that reports consolidated accounts in both of its entity assets, revenues as well as liabilities and expenses that come under single economic entity. In addition, the consolidated decisions mainly have important impacts on the reported leverage as well as cash flow of the consolidated entity and results of operations that have main implications on the decision-making of the investors. The assignment requires describing the consolidation process that is based on acquisition of JB Hi-Fi where public information is available (Weil, Schipper & Francis, 2013).
Name of the acquiring company and the acquiree
In the year 2004, JB Hi-Fi purchased more than 70% of the Clive Anthonys chain that is based in Queensland. Next, in the year 2006, JB Hi-Fi acquired the Hill and Stewart chain that is present in electronic stores that sells as well as operates in New Zealand that amounts to $17.5 million (Strong & Greig, 2014). After that, for the year 2007, JB Hi-Fi extended its grip especially in the Australian marketplace by opening a Sydney brand of Clive Anthonys that departs from the marketplace where they have strong presence in as Clive Anthonys as it specializes in white goods. For the year 2010, JB Hi-Fi finished to restore leases on Hill as well as Steward Stores especially in New Zealand where they liquidate the business as it cites the management so that they desire to construct the brand name of JB Hi-Fi in New Zealand. Currently for the year 2016, JB Hi-Fi struck a contract that was obtained by the “The Good Guys” warehouses that is within Australia and makes JB Hi-Fi group as the main electronics retailers in Australia that had been increase between the two above-mentioned trademark It’s been a long time in the works, but electronics retailer JB Hi-Fi has lastly reached conformity to obtain The Good Guys for $870 million, that it into the superior margin home electrical device and whitegood categories (Saunders & Cornett, 2014).
Amount and form of the purchase consideration and timeline of the merger or acquisition
The amount of purchase consideration is in form of cash that amounts to around $17.5 million. The ordinary manage preserve mainly depicts the surplus of the acquire deliberation that is over the stability of non-controlling interests starting from the changes in possession of a subsidiary within the Business Corporation (Sambasivan et al., 2016). JB Hi-Fi elucidation mainly records double digit sales as well as income expansion for the financial year 2016. The company tracks ways so that they can deliver the longer-term aspirational sales that targets more than $500 million per annum in both ways, be it organic or tactical acquisitions. JB Hi-Fi had acquired other company such as The Good Guys for $870 million that helped JB Hi-Fi to optimize its supply chain and leveraging the investment in digital assets.
Goodwill associated with the transaction
History of Acquisitions
Goodwill suffers from an impairment that is viewed as and when possible after turnaround of the impairment at the end of the coverage time. For JB Hi-Fi, goodwill is owed to each of the available cash create units that are benefited from the synergies of business combination (Pratt, 2013).
Goodwill as well as fair value adjustments that arise from the acquisition of JB Hi-Fi of a overseas process that are taken care as assets as well as liabilities within the operations that translates at the closing rates (Macve, 2015).
What control was acquired?
AASB 10 explains control mechanism of goodwill impairment for the company named as JB Hi-Fi. Here, an investor regardless of the nature of involvement within business entity that determines whether JB Hi-Fi by addressing whether it controls the investee. Addition to that, JB Hi-Fi is a company where an investee when it is uncovered or has privileges to changeable income from the association. Furthermore, JB Hi-Fi controls an investee if and only if the shareholder that has power over the investee (Kuliukas, Oehlers & Berlingeri, 2017).
JB Hi-Fi shall consider all details and situation at the time of assessing whether it controls over acquiree. Addition to that, the company shall reconsider whether it controls an acquiree if specifics and conditions designate that there are changes to one or more of the all the fundamentals of manage scheduled in AASB 10 for the company named as JB Hi-Fi. JB Hi-Fi has power over an investee when the JB Hi-Fi has obtainable rights that give it the present capability to express the pertinent activities that is the activities that considerably influence the investee’s income. JB Hi-Fi can have power over an investee even when other entities have obtainable rights that give them the present capability to contribute in the way of the pertinent activities, for instance when an added unit has important authority. Though, JB Hi-Fi that holds only defensive rights does not have authority over an acquiree as mentioned AASB 10, and as a result does not manage the acquiree. Therefore, a shareholder with executive rights shall decide whether it is a primary or a manager. JB Hi-Fi that is an agent in agreement with AASB 10 that does not control an acquiree that exercises administrative rights delegated to it. Therefore, Consolidation of a JB Hi-Fi shall start from the date the investor obtains control of the investee and stop when the shareholder loses control of the investee (Hoskin, Fizzell & Cherry, 2014).
Give own estimation on whether business was valuable for the shareholders of the acquiring business
Purchase Consideration and Goodwill Impairment
It is argued that JB Hi-Fi agrees to buy Good Guys that amounts to $870 million. JB Hi-Fi will look into the suppliers for improved deals after change the electronics chain as it is one of the largest appliances retailers in Australia after acquisition with the rival “The Good Guys” for getting access with the purchase price. The acquisition funded through $394 million capital that raises $500 million of debt that will help in boosting shares of JB Hi-Fi that is around $4.6 billion in the home appliances market (Henderson et al., 2015). JB Hi-Fi was really happy about the acquisition and gets benefited and it is pretty transformational as they are two great Australian brands when the Chief Executive felt that they will have their operation under one roof. The deal mainly follows with the negotiations that take place within JB Hi-Fi and The Good Guys.
Critical analysis the advantage and disadvantage of consolidated financial statements
Complete Overview of JB Hi-Fi – Consolidated statements JB Hi-Fi permit shareholder, fiscal analysts, trade owners as well as involved parties to get an absolute indication of the parent company. Addition to that, the statement can be used for viewing at the general financial health of the trade and how each auxiliary impacts the JB Hi-Fi (Glover, 2014).
Consolidated statements minimize Paperwork – Here, with the use of consolidated financial statements of JB Hi-Fi, there is no or less paperwork required. In a given situation, if the parent company owns to more than 9 subsidiaries, there are 40 divide separate fiscal information for looking at the statements where there is four fundamental financial statements for each additional plus the company named as JB Hi-Fi. In that case, not only would it be hard to follow down all these proceedings, it would be exceptionally hard to look over each of them and try to get a generally view of how the trade is functioning. Therefore, consolidated financial statements mainly cut down the reports where there are four consolidated reports (Gassen, 2014). This particular statement requires less paperwork as well as fewer attempts concerned in assessing the financial health of JB Hi-Fi.
Simplification – One of the benefits of consolidated financial statement is simplification where it helps in cutting down all the relevant transactions where it takes place between subsidiaries as well as parent company named as JB Hi-Fi. It is the case when it mainly present in the impressive scheme of the trade, these things stop each other out. Therefore, it needs eradicating for all the transactions offers a simplify scrutiny of trade presentation (Frino, Hill & Chen, 2015).
Control Mechanism of Goodwill Impairment
Updating to other Consolidated Financial Statements – Other benefit of consolidated financial statements is updating to the information as presented in the annual report of JB Hi-Fi. With the passage of time, consolidated financial statements will carry on for developing for making the procedure of evaluating the company named as JB Hi-Fi that is transparent in nature. Other reason behind that is company where JB Hi-Fi uses consolidated reports that hides all the losses as well as liabilities that is present in given subsidiaries that hides all the financial issues. Therefore, “The Financial Accounting Standards Board” and the “International Accounting Standards Board” are the two standard boards that regularly resume the description and requirements especially for consolidated statements of JB Hi-Fi that is reliable in nature (Edwards, 2013).
Demerits
Masks Poor Performance- One of the demerits of consolidated financial statement is that they mark even the poor performance for the given financial year. In a given situation, when income statements are brought jointly and reported on a consolidated basis, the items such as the revenues, expenses and net profit of the company named as JB Hi-Fi. This action actually hides most of the profitability issues that is faced within the companies. For instance, if a subsidiary lost a considerable amount of money for the financial year that poorly affect as financial statement readers may not see that facts about the company if the loss is collective with proceeds of the parent business (Deegan, 2013).
Distortion of the Financial Ratios- It noted that Consolidated financial statement skews the fiscal ratios that where shareholder charges the feasibility of a business is by its ratios. Here, it is noted that ratio are comparison between monetary declarations. For instance, the current ratio is the liquidity ratio where the formula is current assets separated by current liabilities.
Hiding on matters relating to Inter-company Sales- One of the demerits of consolidated monetary declaration is hiding inter-company sales where all the inter-company dealings are uninvolved in a consolidation. In that case, it predicts a real view of the trade by showing only monetary action with non-related Corporation.
Explaining the aspects of non-controlling interest and inspect the revelation of that interest in the consolidated financial statements
A non-controlling interest are also named as minority interest, is the section of fairness in an auxiliary not attributable, directly or indirectly in the most appropriate way (Kuliukas, Oehlers & Berlingeri, 2017). Addition to that, the object of this declaration is to develop the significance, comparability, and simplicity of the fiscal facts that a coverage unit offer in its consolidated financial statements by set up secretarial and coverage principles. This declaration alters the way the consolidated income statement is obtainable. It needs consolidated net profits to be reported where the amounts that takes into account where the amounts attributable to both the parent as well as no controlling interest.
Benefits of Consolidated Financial Statements
Conclusion
From the above analysis, it is understood that the business selected for the study is JB Hi-Fi that is deals in electronic consumer goods. This is an Australian company that had acquired The Good Guys. After important assumption, JB Hi-Fi has lastly congested a contract to obtain the Good Guys that amounts to $870 million that boost the online ability. The company has been working had for expanding their footprint in the home appliance category that rolls in the past year where they has significant pathway in the competitive field. The acquisition had actually provided JB Hi-Fi with increased scale for optimizing the supply chain as well as leveraging combined investment especially in digital assets.
Reference List
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