Starbucks Company: Consolidation, Translation, and Equity Method

Starbucks Company Case Study
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Week 4: Consolidation, Translation, and the Equity Method
Description of the weekly topic,
The topic of this week addresses the issue of preparing financial statements for a company having many subsidiaries through the use of consolidation, translation and equity methods. A consolidated financial statement is one set of financial statements of the parent company that combines every subsidiary's financial statements. Translation involves the quotation of an amount of money in another currency other than the currency in which the subsidiary company uses in financial statement and this is made possible by the use of the prevailing exchange rates. The equity method of accounting is use to account for the profits or losses earned by a company in investing in another company.
Description of what is or how is related with your company and why is so important
In 2011, the International Accounting Standards Board (IASB) issued three different standards that became effective starting from January 1st 2013. These standards included the IFRS 10 Consolidated Financial Statements, the IRS 12 Disclosure of Intent in Other Entities, and the IFRS 11 Joint Arrangements. The IFRS 10 replaced the IAS 27 section of consolidated and Separate Financial Statements. Consolidated financial statements are useful tools for investors to assess the performance of a particular company since they provide a broad summary of company's operations. The users of such financial statements are mainly concerned with the financial position of a business and the outcomes of the operations of the enterprise or a group of business. The statements are often prepared on the basis of financial segments of all the enterprises managed by the main business instead of the subsidiaries. Consolidated financial statements are meant to serve as a guide to potential investors in determining the potential of realizing returns upon investing in any business. If the statements indicate high profit margins realized during the past years of business operations, investors would be attracted to put their stake in the business.
Starbucks Company is the largest coffee company in the world and has stores in the United States, China, Canada, Japan and United Kingdom. The company's worldwide locations serve hot and cold beverages, pastries, snacks, or prepackaged food items. The company has expanded dramatically being profitable in most years it has been operational. Consolidated income statements report on all the revenues of an economic entity as well as all expenses incurred outside the economic entity. A consolidated balance sheet reports on the economic entity's cash, receivables, plant etc. Consolidated financial statements are imperative for the Starbucks Company since they dictate how the company expands and how the subsidiary companies are profitable to the parent company. The Starbucks Company has continually opened new stores as well as closed others as dictated by economic status of such subsidiary firms outlined in the financial statements. The opening of new stores and closure of others is a reaction to the market environment which is largely a...