Advanced financial accounting Essay Help Online

Question 1: (30 marks)
Emerging Ltd made a takeover bid for all the issued voting shares of Crown Ltd offering 3 Emerging Ltd shares for every 2 Crown Ltd shares. The offer from Emerging Ltd was accepted by 80% of the shareholders of Crown Ltd.
At acquisition date, which was deemed to be 1 January 2011, the following
information is available:

Crown Ltd at 31 December 2010 $’000
Share Capital (400,000 shares) 400
Capital Profits Reserve 600
Retained Profits 300
Total Equity 1 300

Market value of each company’s shares at 1 January 2011
Emerging Ltd $3.50
Crown Ltd $4.00

In Crown Ltd’s accounting records, land was stated at $320,000 below its cost to the economic entity (i.e. fair value at acquisition date). This is to be accounted for as a consolidation adjustment. The rate of company income tax is 30%.

Required:
(i) Complete the acquisition analysis on 1 January 2011 for Emerging Ltd’s investment in Crown Ltd as required by AASB3 and AASB10 and determine the amount of goodwill following the (a) proportional/partial goodwill method and (b) fair value/full goodwill method.
(ii) Prepare the acquisition journal entries as required by AASB10 on 1 January 2011 under each method in (i).

Question 2: (25 marks)
To increase its market share, Noah Ltd acquired all the ordinary share capital of Ark Ltd on 1 July 2011 for $4000 000. At the acquisition date, the shareholders’ equity of Noah’s Ltd consisted of:
Share capital $1 200 000
General reserve 500 000
Retained earnings at 1.7.2011 1 600 000
Total equity – $3 300 000

On 1 July 2011, land with a fair value of $1 400 000 was carried at a cost of $800 000 in Ark Ltd’s accounting records. The land was subsequently sold by Ark Ltd on 30 June 2014 for $1 800 000 cash. The company income tax is 30%.

An impairment loss of $30 000 relating to the goodwill arising on the acquisition of Ark Ltd was recognised during the year ended 30 June 2013. The directors of Noah Ltd believe that the goodwill relating to the acquisition of Ark Ltd has been impaired by a further of $40 000 during the year ended 30 June 2014.

Required:
Determine goodwill at acquisition date. Prepare the consolidation journal entries for the Noah Ltd group at 1 July 2011, and at 30 June 2014 as required by AASB 10.

Question 3: (45 marks)
Report Writing on ‘Financial Reporting Disclosures in Australian Corporate Sector’ (Word length: maximum 1 500 words and at least 5 references)
Collect a published annual report (up to year-end 2014) for two Australian parent companies listed in the Australian Stock Exchange (ASX). The company web-sites can be obtained from the web-site of the ASE at http://www.asx.com.au/research/company-research.htm or any other online resources. Identify their ‘consolidated financial statements’ reported in the annual reports. Briefly summarise, where relevant:

(a) What goodwill method is followed by the group?
(b) How goodwill or gain on bargain purchase is calculated and disclosed.
(c) How revaluation of assets of the subsidiary is done in this regard, if any,
(d) How impairment of goodwill is tested, if any.
(e) How non-controlling interest (NCI) is calculated and disclosed in the consolidated financial statements.
(f) Whether NCI shares any goodwill or not under the goodwill method applied.

Critically evaluate the financial reporting and disclosure followed by each parent company whether consistent with the requirements of the AASB 3 and AASB 10 for the users of general purpose financial reports. In your essay, identify the strengths and weaknesses of their reporting and disclosure as well as major differences along with your recommendations how to minimise reporting and disclosure gaps between them.

Attach a scanned copy of the ‘consolidated financial statements’ only, no need to attach ‘Notes’. Do not attach the entire annual report.

Specific and descriptive criteria to follow:
(1) There must be an introduction and conclusion section and references, if any, and a scanned copy of the ‘consolidated financial statement’ attached for both group of companies.
(2) There must be a very brief discussion of the selected listed groups of companies (i.e. parents) and their subsidiaries operating activities.
(3) Adequate discussion on consolidated financial statements components taken care of in the process of preparing in accordance with AASB 3 and AASB 10. A better understanding of concepts as well as group statements is expected.
(4) There must be an analysis of reporting practices as in point (3) above whether AASB 3 and AASB 10 are properly followed or not. The strengths and weaknesses of reporting should be identified from the users’ perspective. In evaluating reporting practices, any relevant comment or recommendation should be taken into account.
(5) The reporting practices of both groups of companies as in point (3) above must be compared with a decision which group is in compliance with respective AASBs than the other and why and how more compliance is achievable. In evaluating reporting practices, any relevant comment or recommendation for each group should be taken into account.

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