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Chapmans Limited is an Australian investment Company which caters the needs of the customers in the area of the growth capital and advisory services to private and public companies across the diverse range of the industries. The resources that are included are engineering and technical services along with mobile information technology.
In the lieu of the AASB 128 Investments in Associates the major objective of this standard is to deliver the fact that the investor needs to use the equity method of accounting for the investments at the cost. Post recognition any transactions between the investee and the investor. For the other investments, AASB 139 which will apply, whereby the unlisted investments will be accounted for the price available of in the case where the fair value can be not measured reliably. As per the AASB 128 the entities are exempted from consolidating underlying investees it controls in accordance with the AASB 10 Consolidated financial statements (AASB, 2018).
An examination of the basis of accounting treatment earlier adopted by the Chapmans is outlined below.
In the earlier scenario the Chapmans Limited treated itself as an entity of the investment for the purpose of the accounting and the subsidiaries were recognised as an associate as investments on the fair value. The treatment followed by the company is that investments were recognised at the fair value which is not in accordance with the AASB 128 Investments in associates and Joint Ventures. According to the Accounting standard 128 the assets are recognised on the initial recognition under the equity method for the purpose of the investment in an associate or joint venture and the same has been recognised at cost and whatever amount left is the carrying amount which is increased or decreased to recognise the investor share of the profit and the loss of the investee once the date of the acquisition has arrived. The value of the carrying amount may also be deduced from the distributions received from an investee (Chapmans Limited, 2017).
Basis of the concerns raised by the ASIC
ASIC notes the decision taken by the ASX listed Chapmans Limited to restate the results for the year ending 31st March 2016. After that there were certain issues which were raised by the ASIC such as the ASIC raised the concern of not consolidating the subsidiaries and accounting associates in the financial report for the financial year 2016. The biggest concern was that the Chapman considered the transactions of the investment at the fair value. Due to this The Chapmans had to restate the financial statement and reissue the financial analysis report for the year ended 31st December 2016 to consolidate and equity account the investments. This step will also reduce the net assets as at 31st December 2016 by $3.2 million. Under the note 4 in the financial statement released by the Chapmans the summary of the adjustments is included (ASIC, 2017).
1. AASB, (2018) Investments in Associates and Joint Ventures [Online] Available from https://www.aasb.gov.au/admin/file/content105/c9/AASB128_08-15_COMPdec15_01-18.pdf [Accessed on 28th September 2018]
2. ASIC, (2017) Chapmans restates results to 31 December 2016 [Online] Available from https://asic.gov.au/about-asic/social media-centre/find-a-media-release/2017-releases/17-306mr-chapmans-restates-results-to-31-december-2016/ [Accessed on 28th September 2018]
3. Chapmans Limited, (2017) CHP company review [Online] Available from https://www.investsmart.com.au/shares/asx-chp/chapmans-limited [Accessed on 28th September 2018]