Accm4300 The Business Of Telecommunication Assessment Answers

Answer:

TPG Telecom engaged in the business of telecommunication service in the Australian Telecom Industry. The main motive of the company is to provide the fast, effective and efficient communication and networking services to its customers. The customer base of the company is local users, government, various types of the enterprises etc. Product list of the company includes Broadband Services, Telephony Services, NBN, etc.

1. Intra-group transactions and balances: Intra-group transactions are those transactions which are taken place among the companies of the same group. But at the time of consolidation generally these transactions does not have existence. The reason thereof is that the transactions between the companies become reciprocal to each other at the time of consolidation. It would result in that there will not be any intra-group balance (SigmaConso, no date).

For Example: A company issues the sales invoice to other company. The first company will record the transaction as the receivables in the balance sheet and sales in the income and expense statement. Whereas, other company will record the same transaction as accounts payables and as the purchase in the balance sheet and income or expense statement. At the time of consolidation, the same transaction does not have any existence as they become reciprocal to each other. As such, in consolidated statement, intra-group balances will be null.

But there may chances of difference in the intra-group balances. Reason for the same may be as under (Vernimmen, no date):

1. Difference in reporting date
2. Sales of the one company booked by other company as fixed assets.
3. Profit on sales recognized by selling company booked as cost of purchase by purchasing company etc.

In the consolidation process such differences should be reconciled and treated accordingly.

For Example: In above example, the selling company will book the sale which includes its profit margin. But the other company will book it as cost of purchase in income statement. At the time of consolidation, we will notice that there is no actual profit realized to the group. As such, this unrealized profit should be eliminated from the financial statements.

In present case, there are number of companies under the TPG Group and there were lot of transaction taken place among such companies. As per Annual Report, 2017 of the TPG Group, intra-group transaction balances are nil and the income which has not been realized in actual, have been removed from the consolidation of financial statements. 

The second question may arise that whether the intra-group transaction are important part of the consolidation process. We may guess the answer from the above discussion. As we discussed above that there may be differences in intra-group transactions which need to be reconciled at the time of consolidation. If we do not consider the intra-group transactions in the consolidation process, there may not be better presentation of financial statement of the group. For example: During consolidation we did not considered the intra-group transactions of sales among the companies. It means we have recognized the unrealized gain even such gain would not be realized in future in any way. That would result in the group’s financial statements are not showing better presentation (Velocity, 2012).

1. Accounting of foreign subsidiaries financial statements: There may be a case that the company has its subsidiary company in a country which is different from the country of holding company. In that case, company and its subsidiaries will prepare its financial statement in their own functional currency. But, at the time of compilation of the financial statement of both the companies, consolidation will become difficult as currency is not same (AccountingTools, 2018). Since, only one currency is used for the preparation and presentation of the Financial Statements of a group. Majorly it is presented in the currency of holding company, this currency is called as reporting currency.

Where the parent and its subsidiary companies are located in different countries, which has its own currency, then financial statement of subsidiary company shall be converted in the functional currency of its parent company. Any difference arose in such conversion that will be reported as gain and loss from change in exchange rates (Deloitte, no date).

For Example: A company is located in USA and its subsidiaries located in Singapore. Both the country has its own currencies. Both companies will prepare its financial statement in its own currency. But, for the purpose of consolidation, financial statement of Singapore based company (subsidiary) need to be converted into the currency of USA based company (parent) for better presentation of financial statement.

IAS 21 has come up to deal with such types of cases. IAS 21 prescribed the manner in which transaction of foreign currency to be considered in the financial statement of an organization. It also dealt with the conversion of foreign currency to presentation currency for the purpose of reporting of financial statement. Such conversion can be done as under (IFRS, no date):

1. Assets & Liabilities: Rate applicable on reporting date.
2. Income & Expenses: Rate applicable on transaction date.
3. Equity Transaction: Rate applicable on transaction date.

In the case of conversion of foreign currency entity into currency of the holding company, following method is applied for:

1. Assets and liabilities will be converted at the rate of reporting date.
2. Income and Expenses is converted at the rate of date of occurrence of transaction.
3. Equity Transaction: Rate of transaction date.
4. Unrealized profit: At the rate of date on which underlying transaction was taken place.
5. Apportionment of expenses or others: At the rate of date on which apportionment took place.

In the present case, company is an Australian Company and presentation currency is Australian Dollar. Most of its subsidiaries are located in Australia. But, there are some foreign subsidiaries which are located in Singapore, New Zealand and USA and currency thereof is different from the Australian Dollar (TPG, no date). For the purpose of consolidation purpose, it needs to convert such foreign currencies financial statements into Australian Dollar (Presentation Currency). The company has translated the financial statement of foreign subsidiary into the Australian dollar and recognized difference in exchange rates according to method as discussed above (IAS 21).

In this section we are discussing the events occurred after balance sheet date. There are two subsequent events have been occurred which are as under:

1. The board has declared a final dividend for the FY 2017 of 2 cents per share.
2. The group has entered into revised debt financing agreement.

More detail discussed in PPT.

References

TPG (no date), Annual Report 2017

SigmaConso (no date), Intra-group transaction: indentifying differences.

AccountingTools (2018), Foreign Currency Translation.

Deloitte (no date), IAS-21 Effect of changes in Foreign Exchange Rates.

Silvia (no date), Consolidation with foreign currencies

IFRS (no date), IAS-21 The Effect of Changes in Foreign Exchange Rates 

Vernimmen (no date), Definition for: Intra-group transaction.

Velocity (2012), Intra-group Transaction