Biloniti Tasta Italia Case example essay topic

Case: which consolidation method to choose? Read the extracted article about Ahold and discuss the main covered accounting issue. Analyze Biloniti & Tasta Italia Case. Extracted from New York Times (February 25, 2003) Ahold's Accounting Scandal Raises Questions on What's Being Cured By FLOYD NORRIS But another accounting change, which the company said was made after its auditors learned more information about its various international subsidiaries, will reduce reported sales but apparently will not affect profit.

Those subsidiaries had previously been consolidated, even though they were not fully owned. That meant all the revenue was reported by Royal Ahold, although it would then deduct from its profit the portion of profit controlled by other investors in the subsidiaries. Now the subsidiaries will be partly consolidated. The effect will be that a subsidiary that was 50 percent owned, with $1 million in sales, would now show as having provided only $500,000 in sales. Such partial consolidation is acceptable under Dutch accounting rules, the company said.

And while it is not allowed for American companies, the Securities and Exchange Commission allows foreign companies to keep such consolidations when they reconcile their financial statements to United States rules. Just what facts the auditors found to make them want to stop the company from fully consolidating the sales was not clear, and Mr. de Ruyter said he could not comment on it. But the effect will be to reduce the explosive top-line growth of the company. In 1992, the year before Mr. van der Ho even took over, Royal Ahold had sales of 9.8 billion euros. By 2001, that was up to 66.6 billion euros, and in 2002 reported sales were up 12.2 percent for the first nine months. Case: Biloniti & Tasta Italia The Biloniti SA is an Italian company specializing in the production and marketing of frozen Italian traditional food, like pizza, lasagna and mixed cooked pasta.

Thank to the success of its business, the company expanded its covering in France by founding in the Nice region a subsidiary Tasta Italia in 2000. Biloniti holds 60% of the capital of Tasta Italia. Here are the balance sheets and income statements of Biloniti and Tasta Italia companies, as of 31 December 20 x 1. Required Analyze the following different situations and use the appropriate method to prepare the consolidated balance sheet and income statement: Situation No. 1: Biloniti holds 60% of the capital of Tasta Italia and executes an exclusive control on the latter. Full consolidation Situation No. 2: Biloniti holds 60% of the capital of Tasta Italia. However, Tasta Italia was founded with a French partner (who holds 40% of the capital).

In the contract, two parties agreed to share the control of Tasta Italia. Biloniti is listed at the Milan Stock Exchange. Proportionate consolidation Situation No. 3: Biloniti holds 60% of the capital of Tasta Italia. Biloniti is listed at NASDAQ. Equity method Discussion Compare the consolidated sales in the three situations and comment the differences. By using the Ahold case above, think about the possible financial and economic consequences from these different consolidation methods.