Intermediate accounting II Essay

The action by Coca-Cola Company and Marriott Corporation to form separate companies and transfer their debts to them is geared towards posting a good position in their financial records. Owning less than 50% of the other company makes it an associate company rather than a subsidiary. Consequently the Coca-Cola Company or Marriott Corporation world not include the associate’s accounts in their consolidated accounts, thus the debts transferred to these associate companies will not affect the groups’ consolidated accounts in a negative way. According to accounting practices the accounts of an associate company are not consolidated in the holding company’s consolidated accounts. The investment made by the holding company is reflected in its accounts as an asset. The Coca-Cola Company and the Marriott Corporation would thus post a good position in their financial records because the debt they transferred to the associate companies would not be reflected instead their investment in the associate companies is reflected thus further making their position favorable. These actions are appropriate for the Coca-Cola Company and Marriott Corporation as posting a favorable position will enable them attract investors, loan financing and increase their reputations. However, this treatment does not post a honest economic reality to the investors and customers. According to generally accepted accounting principles a company is supposed to make full disclosure of all information relevant for a third party to make informed decision about the company as explained in Investor words.com website (http://www. investorwords. com/2108/full_disclosure. html) and in Gaap handbook of policies and procedures,1999 ( Siegel,Qureshi, 1998). The Generally Accepted Accounting Principles should be amended so as the holding companies can be forced to reveal in their financial records, their share of liability held through the associate companies. This will ensure that their records post an honest economic reality of their operations.