Sample answers Non-controlling interest When there is consolidation of a subsidiary that is not wholly-owned and there are two parties who own shares in the subsidiary, one is the parent entity while the other is non-controlling interest. Qantas has subsidiaries that are partially owned such as Jetstar Asia Airway, Jetstar Pacific, Jetstar Japan and Jetstar HongKong, therefore those entities have Qantas as a parent company and other parties are referred to as non-controlling interest or minority group. The Non-Controlling Interest (NCI) in a subsidiary is part of the equity of the consolidated group. Thus the NCI is recorded as an equity in the consolidated statement , separately from the parent’s equity in accordance with AASB 101 (Leo, Hoggett & Sweeting 2012). In addition, the Non-Controlling Interest can be classified as either direct NCI (DNCI) or indirect NCI (INCI). According to Leo, Hoggett & Sweeting (2012) Direct Non-Controlling Interest is “a NCI that holds shares directly in a subsidiary”, in contrast when the subsidiary becomes the parent and has its own subsidiary, a small portion of Indirect NCI may exist in the subsidiary after removing the original parents share and the Direct NCI’s share. Share of our Non-Controlling Interests are displayed below. As a result, the Non-controlling interest in Jetstar Pacific is 54%, Jetstar Japan is 58%, Jetstar Hongkong is 66.7% and Jetstar Asia is 51%. Non-controlling interests are shown separately in the Consolidated Income Statement, Consolidated Statement of Comprehensive Income and Consolidated Statement of Changes in Equity, Consolidated Balance Sheet and Consolidated Cash Flow Statement in the Qantas Annual Report 2013 page 98 to 105. Intra-group transactions: The intra group transaction is the interaction between entities, such as, trading, borrowing and lending money to each other. The preparation of consolidation financial statements of the group these transactions must be adjusted to show the effects on the group with external entities (Leo, Hoggett & Sweeting 2012). According to the paragraph B86(c) of AASB 10 Consolidated Financial Statements:“Eliminate in full intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between entities of the group (profits or losses resulting from intragroup transactions that are recognised in assets, such as inventory and fixed assets, are eliminated in full). Intragroup losses may indicate an impairment that requires recognition in the consolidated financial statements. AASB 112 Income Taxes applies to temporary differences that arise from the elimination of profits and losses resulting from intragroup transactions”. This type of adjustment isshowed in the report of Underlying PBT in the note 2 of the consolidate financial statements of Qantas and the effects of these transactions are made only in order to make the consolidated financial statements, and these adjusting entries are recorded in the worksheet only, not in the books of the entities, with the purpose to present a consolidated financial statements with the transaction of external entities and toavoid double accounting between parent and subsidiaries. In Notes 1 to the Financial Statements in point D explains how is treatment of the intragroup transactions "balances and unrealised gains and losses on transactions between group companies are eliminated in preparing the Consolidated Financial Statements" (page 104). As shown in the table below the eliminations on the analysis by operating segment. This is included in the Note 2: Underlying PBT and Operating Segments in the Financial Statements Qantas 2013. The report is used by the heads of the organisation for decision-making, because this evaluates the purpose of the performance of the group divided by operating segments. This means that the heads of the organisation can evaluate which segment is profitable or not, and why. Foreign subsidiary companies Foreign and Local subsidiaries are both accounted for as “consolidated entities” under note 33 of the annual report 2013. Country of establishing the subsidiary and the percentage holding is also provided. Subsidiaries are entities controlled by Qantas. This means that Qantas can overlook and also change the operating and financial policies of the entity for its own benefit (Qantas Annual Report 2013, p 104). Foreign subsidiaries financial statements are added to the consolidated financial statements from the day Qantas gets control over the entity till the day the control does not exist (Qantas Annual Report 2013, p 104). Foreign subsidiaries get their assets and liabilities translated into the group’s functional currency at the spot rates on balancing date (Qantas Annual Report 2013, p 105). Corporate Governance Everything in respect to corporate governance (Qantas Annual Report 2013, p. 64), policy on sustainability (Qantas Annual Report 2013, p. 168), audit committees (Qantas Annual Report 2013, p. 67) and solvency (Qantas Annual Report 2013, p. 163) under director’s declaration is clearly given in the annual report under its own section and detailed information about the topic. Corporate governance I needed to make sure that the shareholder value is protected and enhanced. The Board is required to maintain the highest level of corporate ethics. It mainly comprises of Executive and Independent Non-Executive Directors who have the perfect mix of skill sets to manage the group at the highest level possible (Qantas Annual Report 2013). The audit committee is given under the corporate governance section; the board appoints the committee as per Clause 6.20 of the Qantas Constitution. The committee’s job is to maintain the integrity of the financial reports, comply with legal objectives and make sure risk management measures are executed effectively and also overlook independence of internal and external auditors (Qantas Annual Report 2013). In accordance to, The Corporation Act 2001, directors are responsible to state whether or not Qantas and it controlled entities are capable of paying off their debts when required or due. Therefore, insolvency is stated under Directors Declaration. Key finding The operating segment of Qantas International shows an excellent improvement when comparing 2012 to 2013. The explanation of this is showed in the next part of the key report “Underlying PBT”: It is mentioned in the CEO’s Report the Qantas International shows an improvement due to the global network that it has built during this financial period. In addition, the partnership with Emirates provides more destinations across Europe, the Middle East and North Africa. Qantas International has managed to increases the numbers of passengers. Consequently, with this partnership the company now can offer almost 900 destinations around the world. All these things are reflected in the Underlying EBITDAR (Earnings before income tax expense, depreciation, amortisation, non-cancellable aircraft operating lease rentals and net finance costs) an increases of $178M is reflected in the figures ($317M in 2012 and $495M in 2013). Another point to mention is that the Non-cancellable operating lease rentals decreased by $35M ($103M in 2012 and $68M in 2013). Lastly, the Depreciation and Amortisation also was reduced by $25M ($698M in 2012 and $673M in 2013). Asa result,QantasInternationalsegmentshowsan improvementof 49%compared to the lastfinancial period ($484M in 2012 and $246M in 2013).