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Question one

Group composition

Introduction

Rio tinto is a British-Australian worldwide metal and mining corporation with its head-quarter in London as well as its management office situated in Melbourne Australia. The group structure of the company comprise of the following:

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A. subsidiary (51% Holding in Turquoise Hill)

The company currently owns the following subsidiaries: 51% shares of Turquoise Hill; iron Ore Company of Canada, Energy resource of Australia and simfer jersey. In this regard, Rio tinto has voting right in the subsidiary companies since investment in a subsidiary according to IFRS provides that the parent company must have a voting right on a subsidiary investment while the subsidiary gets their share profit in relation to portion of the non-controlling interest.

B. Joint venture (50/50) % Agreement

Rio tinto limited has entered into a joint venture agreement with Hope Downs. The contract was agreed upon and amendment to memorandum of association as well as the article of association was effected. Consequently, joint venture and their relevant groups function, jointly as a distinct economic venture, with neither assuming a leading position. The amalgamation drawn in no amendment in the legal possession of any assets of Hope Downs or Rio Tinto Limited, nor any modification in the possession of any present shares or securities of Hope Downs or Rio Tinto Limited.

c. Investment in Associates {42.1%)

The company as an associate investment in Gladstone Power Station worth of 42.1% .The Company deals in power generation. In this regard, the international financial reporting standard as well as the Australian accounting standards provides that the parent company will not consolidate the books of the associate venture but instead the parent company will account for share of profit from investment in associates.

Question two

Preparation of consolidated statement by the parent company

According to international accounting standard (IAS 27), the standard outlines the circumstance when an entity should consolidate another company as well as the manner in which the change in ownership on interest is accounted for (Gibson, 2010). Rio tinto prepared the consolidated financial statement inclusive of the subsidiary entity since; the company has a 51% or more shareholding and thus Rio tinto has a voting right in the subsidiary companies. In this regard, Rio tinto limited will prepare a consolidated financial statement as well as ensures that the non-controlling interest is prepared since; Non-controlling interest depicts the amount of reported net profit that is fully entitled to the subsidiary company.

Question three

Non controlling interest also referred to as minority interest is found on the statement of financial position, specifically as part of the owner’s equity in many corporations. The non controlling interest is found on the company’s consolidated income statement as well as a share of subsidiary’s net income attributable to shareholders. It represents the share of the company’s subsidiary owned by minority equity holders. Rio tinto has for example a non controlling interest of (100-51) %=49%.The 49% in Turquoise Hill .NCI is attributable to subsidiary equity holders implying that the company has a direct NCI. Indirect NCI implies that a subsidiary entity of the parent company had invested in an entity in which the total shareholding contributes to a parent subsidiary shareholding indirectly. In this regard, the NCI of subsidiary investment by a subsidiary company owned by the parent company is deeming as the indirect NCI. It is important to show it as distinct NCI since, investment of the subsidiary company belongs to the parent company due to the fact the parent company has a direct shareholding in the subsidiary investment.

For example: Indirect Non controlling interest

On 24 April 2012 the Chalco consortium purchased 47% equity significance in Simfer Jersey Corporation. The Rio Tinto’s interest was reduced from 95% to 50.35% which is a change in group structure and portion of the non controlling interest from direct to indirect. In the year 2013 Chalco limited disposed off its interest to Chinalco limited which is its parent company

Question four

Goodwill on acquisition

Rio tinto reported a goodwill on acquisition in the year 2013 of (1349-2774=) $1,425.The goodwill is found in the 2013 consolidated statement of financial position of the company implying that goodwill is an intangible asset of the company. The goodwill was tested for impairment and there was no impairment on the value of the new goodwill since, the assessment of the goodwill in the year 2013 was worth $7315 which is quite lower as compared to impairment of the year 2012 which was worth $14,701.Imparement loss is accounted for in the consolidated income statement as expense. But for Rio tinto, an impairment gain is realized and thus the value of the gain is accounted for as income in the consolidated income statement of the company.

Question five

Intra-group balances

Intra group balance is accounted for and eliminated in the inventory account as well as the debtors and receivable account since, a company can acquire shares of a subsidiary entity with its debt as well as account balances and this must be accounted for. Intra group transaction and balances is therefore an important part of the consolidation process since, company indebtness must be eliminated before the transaction is fully documented, the financial statement will not portray a true and fair view of the company’s financial situation and thus the going concern assumption of the company will be queried hence inter-company indebtness must be eliminated.

Question six

Foreign subsidiary companies

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The company has foreign company namely; the New Zealand Aluminum Smelters Limited registered and operates in New Zealand. The international corporation has been accounted for in the consolidated financial statement as a subsidiary company with care given on the foreign currency translation (Clyde Stickney, 2009). The accounting standard command that a foreign entity must have its financial statement documented by the parent company and the transaction must be in local currency of the head office. In this regard, the need for foreign currency translation is to help parent company to identify whether there is a gain or loss in exchange currencies.

Question seven

Company policy on sustainability

Rio tinto financial statement depicts the corporate responsibility .According to the notes to financial statement page 60.The corporate governance policy can be broken down into the following policy.

A. The Audit committee

The audit committee of the company are bestowed with the responsibilities of assisting the board members in monitoring the in decision as well as process designed in order to guarantee the truthfulness of the company’s financial statement ,enhanced risk management practices as well as ensuring that there is sound system of internal control is put into practice.

B. corporate governance

According to page 57 of the notes to the financial statement, the corporate governance report is depicted. Rio tinto assume a unified method to the governance policy to comply with statutory obligations concerned with the three principle stock exchange listing in the United Kingdom, united state as well as Australia this are external policy as well as an obligation to the company that ought to be adhered to (Bruner, 2010). The company’s corporate governance policy is a diverse policy that both considers the internal factors that ought to be adhered with such as approach to re-election of new board members as well as the annual performance of the board members.

C. sustainability

According to page 62 of the financial report, the company has a sustainability committee bestowed with the responsibility of helping the board with managing long term planning designed to administer the social as well as the environmental exposures, administering management processes and standards and ensuring that compliance with social responsibilities and commitment is fully met (Colley, 2003). The Committee appraises the efficiency of the management as well as procedures concerned with corporate social and environmental responsibilities

Question Eight

Other relevant matter

A. Subsequent event after the balance sheet date

The company’s financial statement depicts a going concern assumption though post balance sheet event need to be ascertain since, frauds may be perpetrated after the balance sheet date by fraudulent individuals, In this regard, subsequent events will help identify those entries that were entered before the balance sheet date as well those after the balance sheet and consequently a clear understanding can be realized as well as the legitimacy of the transaction can be well comprehended.

B. The liquidity position of the company

Shareholders of the company must be aware of any debt that the company is committed to repaying them as well as assessing the impact of the level of debt in the business and its effect in the future performance of the business (Calder, 2008). These exposures will clearly define the director’s duties, responsibilities and accountability as well as ensuring that the company’s solvency position is not at risk and that the company is a going concern.

Reference list

Bhattacharyya, A. K. (2006). Financial Accounting For Business Managers 3Rd Ed.

Bruce Mackenzie, ‎. C. (2013). Wiley IFRS 2013: Interpretation and Application of .

Bruner, E. a. (2010). case study in finance managing for corporate value creation .

Calder, A. (2008). Corporate Governance: A Practical Guide to the Legal.

Clyde Stickney, ‎. W. (2009). Financial Accounting: An Introduction to Concepts, Methods …

Colley, J. L. (2003). Corporate Governance.

Fernando, A. C. (2011). Corporate Ethics, Governance, and Social Responsibility:.

Gibson, C. (2010). Financial Reporting and Analysis: Using Financial .

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Nick Antill, ‎. L. (2005). Company Valuation Under IFRS: Interpreting and Forecastin.

Tong, P. T. (2013). Consolidated Financial Statements, International Edition:.