Case study 1 Legal rights and obligations of a small business Visit the website of the Australian Government’s Attorney-General’s Department dealing with the law and find the Corporations Act 2001. Assuming that you are the director of a small proprietary company, find the ‘small business guide’ and learn of your rights and obligations under the Act for managing your business. Prepare a brief report.
Case study 2 The AASB
Visit the AASB website and find out the following items:
1. Who is the Chair of the AASB?
2. Who are the members, and which organisations do they represent?
3. Which accounting standards have been issued in the past year?
4. Why are there differences in the numbering systems for current accounting standards (e.g. AASB x, AASB xxx and AASB xxxx)?
5. What current projects (if any) is the AASB working on in cooperation with the IASB?
Case study 3 Setting up a company
Visit the website of the Australian Securities and Investments Commission and find the form(s) that you must complete to start a company, assuming that you wish to set up a small proprietary company to take over your current successful business, which has been operating as a partnership (with three partners).
Charles Beetles (or You), Donald Chris and Evelyn Worker have been operating a successful Computer Programming Business as a partnership together for 4 years. Now they want to set up a small proprietary company to take over the current business. Assuming you are one of the three partners, find the required form or forms to start a
company, and complete it.
Case Study 1 Applying AASB 3
Bass Ltd has recently undertaken a business combination with Bream Ltd. At the start of negotiations, Bass Ltd owned 30% of the shares of Bream Ltd. The current discussions between the two entities concerned Bass Ltd’s acquisition of the remaining 70% of shares of Bream Ltd. The negotiations began on 1 January 2016 and enough shareholders in
Bream Ltd agreed to the deal by 30 September 2016. The purchase agreement was for shareholdersin Bream Ltd to receive in exchange sharesin Bass Ltd. Over the negotiation
period, the share price of Bass Ltd shares reached a low of $5.40 and a high of $6.20. The accountant for Bass Ltd, Mr Spencer, knows that AASB 3 has to be applied in accounting for business combinations. However, he is confused as to (a) how to account for the original 30% investment in Bream Ltd, (b) what share price to use to account for
the issue of Bass Ltd’s shares, and (c) how the varying dates such as the date of exchange and acquisition date will affect the accounting for the business combination.
Provide a report for Mr Spencer with advice on the three issues that are confusing him, making specific reference to the application of AASB3.
Case Study 2 Identifying the acquirer
White Ltd has been negotiating with Cloud Ltd for several months, and agreements have finally been reached for the two companies to combine. In considering the accounting for
the combined entities, management realises that, in applying AASB 3, an acquirer must be identified. However, there is debate among the accounting staff as to which entity is
A. What factors/indicators should management consider in determining which entity is the acquirer?
B. Why is it necessary to identify an acquirer? In particular, what differences in accounting would arise if White Ltd or Cloud Ltd were identified as the acquirer?
Module 3: Select and answer two (2) of the Case Study Questions below.
Case Study 1 Nature of control
The following comment was made by the Swedish Financial Reporting Board to the IASB in response to the issue of ED 10 Consolidated Financial Statements, and received by the
IASB on 6 April 2009: We agree that consolidated financial statements would be improved, if they include entities under ‘de facto’ control. However, the problem is to establish which entities are really under ‘de facto’ control. There are situations where it is very clear that the dominant shareholder de facto controls another entity, but there are also lots of situations, where it is not clear that the dominant shareholder de facto controls the other entity. We suggest that the requirement for consolidation based on ‘de facto’
control is restricted to situations, where it is beyond reasonable doubt that control really exists.
Discuss whether AASB 10 meets the problem raised by the Swedish Financial Reporting
Case Study 2 Power and relevant activities According to paragraph BC43 of the Basis for Conclusions on IFRS 10 Consolidated
Respondents to ED 10 did not object to changing the definition of control to power to direct the activities of an investee. Many were confused, however, about what the Board meant by ‘power to direct’ and which ‘activities’ the Board had in mind. They asked for a clear articulation of the principle behind the term ‘power to direct’. They also expressed the view that power should relate to significant activities of an investee, and not those activities that have little effect on the investee’s returns.
Discuss what AASB 10 has done, if anything, to meet the comments made by the respondents to ED 10.
Case Study 3 Business combinations
Popeye Ltd has recently acquired all the issued shares of Bluto Ltd and will be required to prepare consolidated financial statements at the end of the next financial year. The accountant for Popeye Ltd, Ms Olive Oyl, has been informed that she will need to consider applying AASB 3 Business Combinations in preparing these statements. Unfortunately,
this has caused Olive some confusion as she is not aware of any links between AASB 3 and AASB 10. She has asked for your advice.
Module 4: Answer both of the Case Study Questions below.
Case Study 1 Accounting for assets and liabilities
Mensa Ltd has acquired all the shares of Cancer Ltd. The accountant for Mensa Ltd, having studied the requirements of AASB 3 Business Combinations, realises that all the identifiable assets and liabilities of Cancer Ltd must be recognised in the consolidated financial statements at fair value. Although he is happy about the valuation of these items, he is unsure of a number of other matters associated with accounting for these assets and liabilities. He has approached you and asked for your advice.
Write a report for the accountant at Mensa Ltd advising on the following issues:
1. Should the adjustments to fair value be made in the consolidation worksheet or in the accounts of Cancer Ltd?
2. What equity accounts should be used when revaluing the assets, and should different equity accounts such as income (similar to recognition of an excess) be used in relation to recognition of liabilities?
3. Do these equity accounts remain in existence indefinitely, since they do not seem to be related to the equity accounts recognised by Cancer Ltd itself?
When Hydra Ltd acquired the shares of Draco Ltd, one of the assets in the statement of financial position of Draco Ltd was $15 000 goodwill, which had been recognised by Draco Ltd upon its acquisition of a business from Valhalla Ltd. Having prepared the acquisition analysis as part of the process of preparing the consolidated financial statements for Hydra Ltd, the group accountant, Asmund Asmundson, has asked for your opinion.
1. How does the recording of goodwill by the subsidiary affect the accounting for the group’s goodwill?
2. If, in subsequent years, goodwill is impaired, for example by $10 000, should the impairment loss be recognised in the records of Hydra Ltd or as a consolidation adjustment?
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