Alibaba Case Study
The company has established a network around its platform comprising of buyers, sellers, strategic alliance partners, and third-party service providers. The paper studies this case of Alibaba of Consolidation of Financial Statements. Consolidated Financial Statements It is a method that a parent uses on its books to account for its investment in a subsidiary will affect. The final consolidated financial statements will be the same regardless of the method used by the parent on its books; only the details of the process of developing those statements will be different. The primary difference will be like the investment eliminating entry on the worksheet. The earlier ASC 810-10-05-8 identifies the VIE as acceptable entities with equity investors who will not risk minus some extra help.
By refereeing to the ASC 810, describe Variable Interest Entity. Variable Interest Entity was an idea of FASB which aimed at defining entities' subject relationship rather than just their legal structures. According to ASC 810-05-11 and 10-05-10, the creation of VIEs does not include a governing board, and their activities are defined by the agreements, bylaws, and articles of incorporation with an objective of fulfilling arrangements or transactions. Even though the requirements can be seen from a face value point, certain considerations can be broken down into either quantitative or qualitative analysis. Discuss the reasons for the entities creation. Explain the entities' ownership rights. The structure of Alibaba's ownership has two parts, that is; onshore and offshore. The offshore company had the Alibaba Group Holding Limited which was entirely owned by foreign investors.
The onshore enterprise is sub-divided into two parts, i. In this category, Alibaba holding was restrained from taking part in direct overseas investment and hence placed under the Chinese citizens-owned entities. Therefore, according to FASB 810-10, Consolidated Variable Interest Entities was done to allow issuance of LPO and investments. For these restrictions to be avoided, solutions were developed that allowed foreign investments in the private inter companies of China (Burke and Eaton, 2016). By 2005, the $1 billion of Yahoo!'s investments placed its ownership at 46% in the Alibaba group, earning it the power to exercise substantial influence over both financing and operating policies. However, due to constant operational disagreements over the years, Yahoo! considered selling its ownership. Variable Interest Entity (VIE) will be of no significance if in the event Chinese government decides to change the standards of foreign investors and enable privately owned organizations to be listed directly on the U.
S. stock trades. According to the ASC 810-10-05-11, Variable Interest Entity is generated mainly to assist in law binding agreements, hedging and renting or leasing in that case. Alibaba itself can compete itself like other large business organizations based in the U. In summary, Alibaba Group does not take part in direct sales, hold inventory or compete with marketplace merchants. Its revenues are derived from charges from the purchase of memberships on their marketplaces, commissions based on gross merchandise volume, and online marketing services. Alibaba Group makes a lot of high risks in dealing with foreign companies. The laws and Exchange rule are often different. The Company operates in Chinese law is different from the US or Hong Kong’s.
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