Answer to Question #167991 in Management for Soyans Asare

Question

was Aluworks right in presenting separate financial statements. Do you see any issues bordering on consolidation

Answer 1

Aluworks Limited is an aluminium continuous casting and cold rolling mill in Ghana. It supplies high-quality aluminium coils, discs, flat sheets, and sheet-in-coil raw material to small- and medium-scale factories throughout the West African sub-region. These factories manufacture household cooking utensils, corrugated roofing sheets, and general fabrication products. Separate financial statements are those presented by a parent who is an investor with control of a subsidiary or an investor with joint control of, or significant influence over, an investee, in which the investments are accounted for at cost or in accordance with IAS 109, Financial Instruments. Aluworks was right in presenting separate financial statements they are considered useful to a wide range of users such as equity investors, debt providers, employees, other creditors, prudential and market regulators, tax authorities and customers, in making economic decisions. Investors and shareholders of Aluworks will be much concerned about the financial health of each subsidiary as they give a broad picture of the future prospects of the company's growth or failure. Consolidation of the financial statements is also of much importance for analysis and summary of the financial status of the subsidiaries. However, consolidation will hide a poor performing subsidiary and may end making a poor decision to invest or not. Further, intercompany transactions that may be eliminated can be of substantial importance in decision making.