Analysis of consolidation Jio subsidiaries Ayisha Nizar

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 Ayisha Nizar 2024

Final Year Project Report

Analysis of Consolidation of NESTLE

Subsidiaries
Student’s first and last name

A report submitted in part fulfilment of the degree of

BSc (Hons) in Commerce
Supervisor: ISDC

Department of Commerce

Queens Margaret University , Edinburgh

August 15, 2024

Analysis of consolidation Jio subsidiaries Ayisha Nizar

Declaration

I hereby declare that I know what plagiarism entails, namely, to use another’s work and to
present it as my own without attributing the sources in the correct manner. I further
understand what it means to copy another’s work.

• I know that plagiarism is a punishable offense because it constitutes theft.

• I understand the plagiarism and copying policy of Queen Margaret University.

• I know what the consequences will be if I plagiarize or copy another’s work in any of the
assignments for this programme.

• I declare therefore that all work presented by e for every aspect of my programme, will
be my own, and where I have made use of another’s work, I will attribute the source in the
correct manner.

• I acknowledgment that the submission of the assignment answer document constitutes

my agreement with the above.

Word Count: 1000

Student Name: Ayisha Nizar

Date of Submission: 15-08-2024

Signature:

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Project Title Student’s first and last name
 Analysis of consolidation Jio subsidiaries Ayisha Nizar

Table of Contents
1. Abstract

2. Project Specification

3. Executive Summary

4. Methodology

5. Analysis

6. .Critical Evaluation And Conclusion

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1.Abstract

Revolutionizing India’s digital landscape with affordable 4G internet, transforming lives

and empowering millions. This project involves examining and understanding the
subsidiaries and associate companies of Reliance Jio Infocom Limited.
Analysis of consolidation Jio subsidiaries Ayisha Nizar

2.Project specifications :

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Analysis of consolidation Jio subsidiaries Ayisha Nizar

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3.Executive Summary
Reliance Jio is a provider of mobile telephony, digital services and broadband services in India,
subsidiary of Reliance India Limited is the first telecom company to hold pan India Unified
License using volte technology. Jio following IFRS for its financial reporting.

Management overview: In macroeconomic view, infrastructure development and industrial growth

are soe of the factors that affect the country’s growth rate.

Risk management: The company is committed to maintaining financial stability and sustainability
through a robust risk management framework that includes detailed risk policies and limits, closely
monitored to ensure stability. The Company and its subsidiaries are primarily exposed to the below
key risks are, credit risk, operational risk, outsourcing risk etc.

Intra-Group Dynamics: Financial transactions between Jio and its parent company are loans and
advances, service agreement, revenue sharing, transfer of assets, reimbursement of expenses,
interest payments, royalty payments and inter-company deposits.

The company maintains financial stability through a robust risk management framework,
addressing key risks such as credit, operational, outsourcing, market, liquidity and compliance.
Project Title Student’s first and last name

4. Methodology
Methodology for Analysing Jio’s Consolidated Financial Statements

This project will analyse the consolidated financial statements of Reliance Jio Infocom
Lmited (JIO) for the year ended March2024

Data Collection:

Source: The primary source of information will be Jio annual report for 2024.

Specific Sections: The analysis will focus on the following sections of the annual report:

- Consolidated Financial Statements: Balance Sheet, Income Statement, Statement of Cash

Flows, and Notes to the Accounts.
- Management Discussion & Analysis (MD&A)
- Corporate Governance Section

Analysis Procedures:

• Group Structure.

• Accounting Policies:

- Goodwill: Reference: IFRS 3

- Non-Controlling Interest (NCI): Reference: IFRS 3

• Intra-Group Transactions:

• Presentation and Disclosure Assessment:

- Evaluate whether the consolidated financial statements are presented in accordance

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With IFRS 10 “Consolidated Financial Statements.”

Critical Evaluation:

- Rapid network expansion.

Limitations:

- Quality of service concerns.

- High debt levels.

Reporting:

- The report will include sections on:

Intra group transactions

5. Analysis

Identify criteria used for classifying subsidiaries and associates (e.g. voting rights significant
nfluence).

Subsidiaries are classified based on control, where the NHI Group controls a company when it is
exposed to, or has rights to, variable returns from its involvement with the company and has the
ability to affect those returns through its power over the company. Subsidiaries are fully
consolidated from the date at which the NHI Group obtains control.

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Associates are companies where the NHI Group has the power to exercise significant influence but
does not exercise control. Significant influence is determined by the power to participate in the
financial and operating policy decisions of the investee. This may be evidenced when the NHI
Group has 20% or more of the voting rights in the investee or has obtained representation on the
Board of Directors or otherwise participates in the policy-making process of the investee.
Associates are accounted for using the equity method.

Analyze the composition of the Nestle group, including the number and geographical
distribution of subsidiaries and associates.

Based on the information provided in the annual report, the composition of the Nestlé Group
includes subsidiaries and associates. Here is an analysis of the composition:

Subsidiaries:

Number: The Nestlé Group has several subsidiaries, with Nestlé Holdings, Inc. ("NHI") being the
main holding company for the Nestlé Group's principal operating subsidiaries in the United States.

Geographical Distribution: The subsidiaries are primarily located in the United States, with
operations in various sectors such as food products, pet care products, premium waters, beverage
products, and nutrition and health science products.

Key Subsidiaries: Some key subsidiaries mentioned in the annual report include Nestlé USA, Inc.,
Nestlé Purina PetCare Company, and Nestlé Capital Corporation.

Associates:

Number: The Nestlé Group also has associates, which are companies where the NHI Group has the
power to exercise significant influence but does not exercise control.

Geographical Distribution: The associates mentioned in the annual report are involved in renewable
energy projects in the U.S.

Key Associates: Stampede Holdings, LLC, Ganado Solar Holdings, LLC, and TE Taygete Energy
Holdco LLC are some of the associates mentioned in the financial report.

Overall Composition:

The Nestlé Group's composition includes a mix of subsidiaries and associates, each playing a role
in the overall operations and performance of the group.

The subsidiaries are primarily focused on various product categories and operate in different
geographical regions, with a significant presence in the United States.

The associates are involved in specific projects, such as renewable energy, indicating
diversification in the Nestlé Group's investments and activities.

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Analysing Goodwill and NCI

Goodwill: For Goodwill, Nestlé uses valuation methods that involve measuring the excess of the
cost of an acquisition over the fair value of the acquired net assets. Key assumptions include
identifying cash-generating units and determining the useful life of Goodwill.

Non-Controlling Interest (NCI): Regarding Non-Controlling Interest, Nestlé measures and

presents NCI in the consolidated financial statements in accordance with IFRS 3 standards. This
involves recognizing the participation of non-controlling shareholders in the company's earnings
and assets.

The main subsidiaries of Nestlé Holdings, Inc. ("NHI") include:

1. Nestlé Capital Corporation

2. Nestlé USA, Inc.

3. Nestlé Purina PetCare Company

These subsidiaries individually comprise more than 10% of the total assets of the NHI Group
as of December 31, 2023.

Analysis of accounting policy

The accounting policies related to Goodwill recognition are as follows:

- Goodwill is initially recognized during a business combination and subsequently measured

at cost less impairment.

- Goodwill impairment tests are performed at least annually and whenever there is an
indication of impairment.

- The impairment tests are performed at the cash-generating unit (CGU) level.

- For indefinite life intangible assets, the impairment tests are performed at the level of the
smallest identifiable assets or group of assets that generates cash inflows largely
independent of other assets.

- Impairment losses on goodwill are never subsequently reversed.

- The impairment tests involve comparing the carrying amount of the assets with their
recoverable amount, usually based on fair value less costs of disposal or value in use.

- The impairment tests consider factors such as cash flows, discount rates, and risks specific
to the CGU.

- The NHI Group provides disclosures regarding the impairment charges recognized during
the year and the annual impairment tests conducted.

- the accounting policies related to NCI recognition are not explicitly outlined.

Review disclosures about the nature and extent of intra-group transactions (sales, loans,
management services).

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The following intra-group transactions occurred within the Nestlé Group:

1. Royalties to Affiliated Companies:

The NHI Group incurred royalties to affiliated companies totaling $3.4 billion in 2023 and $3.2
billion in 2022. These royalties were in line with the approved general licensing agreement and
indicate payments made for the use of licensed brands and intellectual property within the
Nestlé Group.

2. Loans from/(to) the Parent and Affiliates:

There were loans from the parent and affiliates amounting to $4.1 billion in 2023 and $5.9
billion in 2022. These loan transactions represent financial activities involving borrowing or
lending between the NHI Group and its parent company and affiliates within the Nestlé Group.

3. Intergroup Receivables and Payables:

Intergroup receivables for the NHI Group were $356 million at December 31, 2023, and
intergroup payables were $1.1 billion at the same date. These figures indicate trade receivables
and payables between different entities within the Nestlé Group.

While the annual report does not provide detailed information on other specific intra-group
transactions such as management services or other types of transactions, the disclosed
transactions above reflect significant financial interactions and relationships within the Nestlé
Group.

Analyze the potential impact of these transactions on the group's financial performance
and the consolidation process

The intra-group transactions within the Nestlé Group, as outlined in the financial report, can
have several potential impacts on the group's financial performance and the consolidation
process:

1. Financial Performance:

Revenue Recognition: Intra-group transactions, such as royalties paid for the use of licensed
brands and intellectual property, can impact the revenue recognition process. It is essential to
ensure that these transactions are appropriately accounted for to reflect the true economic value
generated within the group.

Cost Allocation: Loans from/to the parent and affiliates can affect the cost structure and
financial position of the entities involved. Interest payments on these loans can impact the
profitability of the group as a whole.

Cash Flow Management: Intergroup receivables and payables can influence the group's cash
flow management. Timely collection of receivables and management of payables are crucial for
maintaining liquidity and financial stability.

2. Consolidation Process:

Elimination of Intercompany Transactions: In the consolidation process, intra-group

transactions need to be eliminated to avoid double counting of revenues, expenses, assets, and
liabilities. Proper elimination entries are required to present a true and fair view of the group's
financial position.

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Impact on Financial Statements: The consolidation process involves combining the financial
statements of all subsidiaries and affiliates. The accuracy and completeness of information
related to intra-group transactions are vital for preparing consolidated financial statements in
compliance with accounting standards.

Disclosure Requirements: Transparent disclosure of intra-group transactions is essential for

providing stakeholders with a clear understanding of the group's financial relationships and
potential risks. Proper disclosure enhances transparency and accountability in financial
reporting.

Overall, the proper management and accounting treatment of intra-group transactions are
crucial for ensuring the accuracy of financial reporting, maintaining financial integrity, and
complying with regulatory requirements. Effective oversight and control mechanisms are
necessary to mitigate risks associated with intra-group transactions and to support the group's
financial performance and consolidation process.

Evaluate whether the consolidated financial statements are presented in accordance with
IFRS 10 "Consolidated Financial Statements."

To evaluate whether the consolidated financial statements in the Annual Report of Nestlé
Holdings, Inc. and Subsidiaries are presented in accordance with IFRS 10 "Consolidated
Financial Statements," we need to consider the key requirements of IFRS 10 and compare them
with the information provided in the annual report.

Key requirements of IFRS 10 include:

Control: IFRS 10 defines control as the power to direct the relevant activities of an entity to
generate returns and the ability to use that power to affect the returns of the entity.

Consolidation: The standard provides guidance on when an entity should consolidate another
entity based on control.

Disclosure: IFRS 10 requires specific disclosures related to the consolidation of subsidiaries,

including information about the nature of the relationship between the parent and subsidiaries,
the basis of control, and any restrictions on the ability to access assets or settle liabilities.

To prove that the consolidated financial statements are presented in accordance with IFRS 10,
we can look at the following aspects from the annual report:

Scope of Consolidation: The annual report provides information about the scope of
consolidation, including the subsidiaries controlled by Nestlé Holdings, Inc. It mentions that
the consolidated financial statements comprise those of Nestlé Holdings Inc. and its
subsidiaries, and it explains the basis for consolidation based on control.

Related Party Transactions: The annual report discloses transactions with related parties,
including royalties to affiliated companies and intergroup receivables/payables. This
information aligns with the disclosure requirements of IFRS 10 regarding related party
transactions within the group.

Management Report: The Responsibility Statement by the Chief Financial Officer confirms
that the consolidated financial statements give a true and fair view of the assets, liabilities,
financial position, and profit or loss of the NHI Group. This statement aligns with the
requirement for fair presentation under IFRS 10.

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By analysing the information provided in the annual report and comparing it with the key
requirements of IFRS 10, it appears that the consolidated financial statements of Nestlé
Holdings, Inc. and Subsidiaries are presented in accordance with IFRS 10. The disclosures
about control, consolidation, and related party transactions support the compliance with the
standard.

Assessment of the clarity, completeness, and timeliness of disclosures

In the provided annual report, the clarity, completeness, and timeliness of disclosures
related to group structure and business activities, accounting policies applied, intra-group
transactions, and non-controlling interest can be assessed as follows:

1. Group Structure and Business Activities:

• Clarity: The annual report clearly outlines the group structure, with Nestlé
Holdings Inc. being a wholly owned subsidiary of NIMCO US, Inc., which is a
subsidiary of Nestlé S.A. It also details the subsidiaries under Nestlé Holdings Inc.,
such as Nestlé USA, Inc., Nestlé Purina Petcare Company, and Gerber Products
Company.

• Completeness: The report provides information on the primary business activities

of the NHI Group, including the manufacture and sale of food products, pet care
products, premium waters, beverage products, and nutrition and health science
products in the United States and international markets.

• Timeliness: The figures provided for sales in 2023 and 2022, along with the key
highlights per segment, indicate that the information is up-to-date for the reporting
period.

2. Accounting Policies Applied:

• Clarity: The accounting policies section is clearly highlighted with a grey

background, making it easy to identify. It covers key areas such as accounting
convention, basis for segmentation, and foreign currencies.

• Completeness: The annual report discusses key accounting judgments, estimates,

and assumptions that impact the financial statements. It also mentions the
alignment with IFRS standards and the consideration of climate impacts and
regulatory changes.

• Timeliness: The accounting policies are presented for the financial year ended
December 31, 2023, indicating that the information is current.

3. Intra-Group Transactions:

• Clarity: The disclosure of intra-group transactions, such as royalties to Nestlé

Group and intergroup receivables/payables, is specific and clear.

• Completeness: The report includes details on transactions under common control,

royalties, and intergroup receivables/payables, providing a comprehensive view of
financial interactions within the group.

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• Timeliness: The information on intra-group transactions is relevant to the

reporting period, ensuring timeliness.

4. Non-Controlling Interest:

• Clarity: The annual report mentions non-controlling interests in the context of

acquisitions and disposals, providing clarity on the treatment of non-controlling
interests.

• Completeness: The report includes information on non-controlling interests in the

context of acquisitions and disposals, ensuring a complete disclosure.

• Timeliness: The information on non-controlling interests is relevant to the

reporting period, indicating timeliness.

Overall, the disclosures related to group structure and business activities, accounting policies
applied, intra-group transactions, and non-controlling interest in the Annual Financial Report of
Nestlé Holdings, Inc. and Subsidiaries demonstrate clarity, completeness, and timeliness based
on the figures and facts provided in the annual report.

6. CRITICAL EVALUATION AND CONCLUSION

Appropriately Consolidated Subsidiaries:

- Nestlé Holdings, Inc. ("NHI") is a wholly owned subsidiary of NIMCO US, Inc., which is
an indirect wholly owned subsidiary of Nestlé S.A., the holding company of the Nestlé
Group

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- NHI serves as the holding company for Nestlé S.A.'s principal operating subsidiaries in the
United States, including Nestlé USA, Inc., Nestlé Purina Petcare Company, and Gerber
Products Company

- The document mentions the scope of consolidation, acquisitions, and disposals of

businesses, providing insights into the group's structure and subsidiaries

- These details suggest that Nestlé has appropriately consolidated its subsidiaries under NHI
to streamline operations and control its various business segments.

Consistency in Accounting Policies:

- The document includes accounting policies in the notes section, which provides
information on how the group accounts for various aspects such as inventories, financial
instruments, taxes, provisions, and more [2].

- By detailing their accounting policies, Nestlé demonstrates transparency in its financial

reporting and ensures consistency in how financial transactions are recorded and reported
across the group [2].

- This transparency helps in maintaining uniformity in financial reporting practices across

the organization.

Disclosure of Financial Position and Performance:

- The document includes key financial figures such as sales, profit, operating expenses,
taxes, and cash flow for the years 2023 and 2022 [4], [5], [6], [7], [10], [13].

- Disclosures on segments like Nestlé USA Brands, PetCare, and Other businesses provide a
breakdown of sales for each segment, highlighting performance drivers [6].

- Information on profitability metrics like net profit margin, trading operating profit margin,
cost of goods sold, distribution expenses, and marketing expenses offer insights into the
group's financial performance and cost structures [7], [8], [9], [10].

- Risks related to supply chain, raw materials, sustainability, and compliance are disclosed,
indicating a proactive approach to risk management [11], [12], [14], [15].

- The detailed disclosures in the financial report provide stakeholders with a comprehensive
understanding of Nestlé's financial position, performance drivers, and risk management
practices.

In conclusion: Nestlé appears to have appropriately consolidated its subsidiaries, applied

accounting policies consistently across the group, and provided sufficient disclosures to
understand the group's financial position and performance. The detailed financial information,
segment-wise analysis, and risk disclosures offer stakeholders a transparent view of Nestlé's
operations and financial health.

REFERENCES :

1. Nestle Annual Report : https://www.nestle.com/investors/annual-report 2.

News :

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a. https://www.livemint.com/companies/news/nestle-
indiashareholders-royalty-payment-to-parent-
maggi11716027711804.html

b. https://www.nestle.com/media/news/purina-mexico-
factoryinvestment-pet-food

3. Annual Review : https://www.nestle.com/sites/default/files/2024-02/2023-annual-

reviewen.pdf

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