Case 2: Sandberg Company

Introduction

Accounting concepts are very important as it offer a basic framework for financial reporting. Accounting authorizes has set standards for companies so that each company can be on same the track while posting their figure in financial statement and there would be same notion when treating each header in financial statements.

The focus of this paper would be on Case 2 i.e. Sandberg Company in which the discussion will cover the how net income and gain are realized when company has wholly-owned subsidiaries.

Discussion

Overview of the Case

This case is about Sandberg Company that has two wholly-owned subsidiaries, Lee Corporation and Ruiz Company. Lee Corporation sold one of their assets to Ruiz Company and Lee posted a gain transaction worth of $19,000 while recognizing net income of $33,000 along with the gain. Comparing to Ruiz they recognized income worth of $51,000. Without any consideration of gain or loss, Sandberg posted net income worth of $23,000. Hence, according to accounting standards this treatment does not favor overall end result of net income.

Accounting policies for Wholly Owned Subsidiaries- Sandberg Company

According to accounting standards, when parent company prepare consolidation financial statement they take account balances from subsidiaries accounts. This consolidation is prepared after all adjustment has been made by each subsidiary. Furthermore, according to IFRS 3 and IAS 27 business combination, when assets are purchased from another subsidiary the effect would be on subsidiaries transaction rather than the financial statement of parent company. Such as, if ABC owns two subsidiaries and subsidiary A purchase asset worth for $500 from subsidiary B, parent company will post this as $500 since investment is within group and none of the cash or asset has been outflow from the group (International Accounting Standard 27, p. n.d).

Overall, when realization takes place the effect would ...