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Assignment ACCM4300.odt

Telstra Group has many foreign subsidiaries located around the world. These subsidiaries' financial statements are translated from their local currencies to Australian dollars for consolidation into Telstra's financial statements. Goodwill of $1,346 million was recognized on acquisitions, with $64 million added this year. An impairment loss of $246 million was recorded against goodwill. Intra-group transactions are eliminated in the consolidation process to avoid distorting the Group's performance.

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106 views

Assignment ACCM4300.odt

Telstra Group has many foreign subsidiaries located around the world. These subsidiaries' financial statements are translated from their local currencies to Australian dollars for consolidation into Telstra's financial statements. Goodwill of $1,346 million was recognized on acquisitions, with $64 million added this year. An impairment loss of $246 million was recorded against goodwill. Intra-group transactions are eliminated in the consolidation process to avoid distorting the Group's performance.

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Tony Nguyen
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6.

Group’s foreign subsidiaries and how they have been accounted for in the financial
statement
There are many foreign subsidiaries in Telstra Group Ltd in such countries as New Zealand, China,
Korea, the UK and the US. All subsidiaries are showed in the file available at
http://www.telstra.com/investor (Telstra annual report 2016, P139).

Telstra has to consolidate subsidiaries from the date of the acquisition and obtaining the control
over them until the date on which control ceases. There is a need to translate the subsidiary's
account balances in different foreign currencies to a given presentation currency (Australian dollars)
before the consolidation process (AASB 121).

How have the subsidiary company’s financial statements been translated?


There are three currencies: Local currency, Functional Currency and Presentation currency (AASB
121). The subsidiaries of Telstra use Telstra's presentation currency which is Australian Dollar
rather than their local currencies (Section 7.1.2 Foreign currency translation, Telstra annual
report 2016). Telstra Limited translates foreign subsidiaries’ financial statements from functional
currencies to Australian Dollar and integrates them to the consolidated financial statements. The
reporting period is the same for parent company and its subsidiaries. If the functional currency is
different with presentation currency, the transactions and balances of controlled entity are translated
as follows:
● Assets and liabilities including goodwill and fair value adjustments arising on consolidation
are translated at reporting date rate (30 of June 2016);
● Equity items are translated at The initial investment date rate.
● Income and expenses are translated at average exchange rate

The amount from exchange differences on translation of foreign controlled entities are recognised
in Statement of Comprehensive Income in the foreign currency translation reserve.

4. Has there been any goodwill on acquisition? Or any gain on bargain purchase? Where
would you find it in the financial statements and what does it mean? Have there been any
impairments to assets during the period?

The balance of Goodwill for the Telstra Group was $1,346m with $64m recognised during the
financial year 2016, and it is presented under the title of intangible assets ($9,229m) in the
Statement of Financial Position as a non-current asset (Telstra annual report 2016, page 79). The
detail of information about Goodwill is found in the note 3.2 Goodwill and other intangible assets
of Statement of Financial Position. According to AASB 3, Goodwill is recognised and measured
when company acquired an entire business and paid greater than the fair value of the identifiable
assets and liabilities of that business acquired.

There was $246 million impairment loss against goodwill during this financial period for Cash
Generating Units (Telstra annual report 2016, page 101). Impairment loss is recognised in the
income statement in the reporting period when the carrying amount of the asset exceeds the
recoverable amount (AASB136).

5. Intra-group transactions and balances: How much are they? In which set of financial
statements will we be able to locate them? Are they an important part of the consolidation
process? Why or why not?
Inevitably, there are some intra-group transactions within the Telstra Group. However, the details of
those are not published in any of Telstra's financial statements (AASB 127). The consolidated
statement of comprehensive income and statement of financial position of the entities that are
members of the Telstra Group are presented after elimination of all transactions between members
of the Telstra Group. (Telstra annual report 2016, P82; AASB 127). Adjustments for inter-group
transactions are an important part of the consolidation process. It helps to avoid distorting the
financial position and performance of the Group by excluding those elements of financial
statements that relate to transactions within Telstra Group. Consolidation is therefore helpful by
showing true financial results and overview of the group’s preformance to interested parties.

8. Any other relevant matter that you may wish the board of directors to make note of in
respect of some transaction or event, balance of account or disclosure that will assist them in
understanding the financial statements of the group.
Telstra has numerous subsidiaries. Regular internal audit procedures should be practiced for the
benefit of better control over subsidiaries. 28 out of 221 subsidiaries have different reporting date to
the parent company with 22 companies reporting at 31 December. The maximum allowable
difference between the end of parent company’s reporting period and that of a subsidiary is three
months. It is advisable to change and match a subsidiary’s reporting date with that of the parent
company to enhance accuracy

Australian Accounting Standard Board, 2015, AASB 3, ‘Business Combination’.


http://www.aasb.gov.au/admin/file/content105/c9/AASB3_03-08_COMPjan15_01-16.pdf

Australian Accounting Standard Board, 2011, AASB 121, ‘The Effects of Changes in Foreign
Exchange Rates’.
http://www.aasb.gov.au/admin/file/content102/c3/AASB121_07-04_ERDRmay11_07-11.pdf

Australian Accounting Standard Board, 2007, AASB 136, ‘Impairment of Assets’.


http://www.aasb.gov.au/admin/file/content105/c9/AASB136_07-04_COMPapr07_07-07.pdf

Australian Accounting Standard Board, 2015, AASB 127, ‘Separate Financial Statements’.
http://www.aasb.gov.au/admin/file/content105/c9/AASB127_08-11_COMPjan15_07-15.pdf

Telstra Corporation Limited, 2016, 'Telstra Annual Report'.


https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf-e/FY16-Annual-Report.pdf

Telstra Corporation Limited, 2016, 'List of our investments in controlled entities'.


https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf-e/FY16-Group-Structure.pdf

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