ACCM4300: Financial Reporting – Individual Assignment Solution

Financial Reporting

Your Task

You are required to prepare a business letter to answer key accounting issues in regard to acquisition analysis of partly owned subsidiary and intra-group transactions.

Assessment Description

Assume that you are a team of graduate accountants working for Hero Accounting Group, a public accounting firm situated at 346 Gregory Street, Sydney, NSW 2000. The Manager of your firm, Ms. Grace Harper, has asked you to prepare the SOA in response to an email received from a client, Mr. William Kane, the Managing Director of Amy Ltd, raising several accounting issues. Please refer to the email on the next page.

The maximum length for the body of the letter is 1,500 words. You should address all the technical issues/discussion in the letter, followed by a Reference List.

• Part A: Technical component 25% – This mark covers the technical content of your advice and the explanation of each of the issues, the calculations, and the sources used. Also letter Writing covers the generic skills of Letter writing; layout, clear meaning, structure and organisation, appropriate tone and grammar, spelling, and punctuation, etc. throughout the whole
• Part B: Communication Skills – Letter Writing 5% – This mark covers the generic skills of Letter writing; layout, clear meaning, structure and organisation, appropriate tone and grammar, spelling, and punctuation, etc. throughout the whole assignment.

Case Study

One of your clients has emailed your firm with several queries. Draft a business letter in reply and make sure you reference any relevant sources relating to your advice, for example, AASBs, Corporations Act, and relevant websites. See the email below.

Re: Accounting Issues: Year Ending 30 June 2021 From: William Kane (wkane@amy.com.au)

Sent: 8 July 2021

To: Grace Harper (grace.harper@herogroup.com.au)

Dear Grace,

As discussed, our chief accountant is currently on leave. I need to understand the following transactions and events to present to the Board regarding the financial impacts of our recent takeover. The chief accountant left me a note, but I am unsure of the effect of the below transactions. Can you please provide me with a more detailed explanation just in case the board request further information? Please remember the Board of directors have varying degrees of accounting knowledge, so please limit the use of technical accounting terms.

Recently Amy Ltd acquired 100% of the issued shares of Astra Ltd for $80,000 (Astra Ltd.’s owner’s equity at the time of purchasing was $100,000 made up of share capital of $80,000 and retained earnings of $20,000). One of the liabilities of Astra Ltd was $18,000 for the dividend payable but not yet paid, and our accountant informed me that the shares were acquired based on Ex-dividend. In addition, one of the areas of discussion during the negotiation process was the current court case that Astra Ltd was involved in. No monetary amount was disclosed, but the company’s lawyers had placed a $6000 amount on the probable payout to settle the case.

Having prepared the acquisition analysis as part of preparing the consolidated financial statements for Amy Ltd, can you explain how the unrecorded contingent liability of $6,000 by the subsidiary Astra Ltd affects the group’s goodwill? I believe the goodwill for Amy Ltd should be $20,000 (being $80,000 less $100,000). Is this correct?

In addition, will the dividend payable by the subsidiary entity Astra Ltd impact the acquisition analysis? Please explain?

The accountant told me that she had eliminated transactions incurred between the companies Amy Ltd and Astra Ltd. The sales are legitimate, we have exchanged invoices and contracts, so can you explain why we need to eliminate the inter-company transactions? I have extracted two examples below. Would you please examine the following transactions for errors? If incorrect, explain why and provide me with the corrected journal entries.

1. At the beginning of the current period, Amy Ltd sold Equipment to its wholly-owned subsidiary, Astra Ltd, for $320,000. Amy Ltd had initially paid $800,000 for this asset, and at the time of sale to Astra, Ltd had charged depreciation of $600,000. This asset is used differently in Astra Ltd from how it was used in Amy Ltd; thus, whereas Amy Ltd used a 15% p.a. straight-line depreciation method, Astra Ltd uses a 25% straight-line depreciation In calculating the depreciation expense for the consolidated group, the group accountant is unsure which depreciation rate should be applied and which depreciation rate to use.

2. On 1 May 2021, Astra Ltd sold inventory for $25,000 to Amy Ltd at cost plus 25%. On 30 June 2021, Amy Ltd sold two-thirds of the inventory to other entities for $25,000 but still holds one- third of these inventories as of 30 June 2021. Can we debit Sales for $50,000, credit the Cost of Sales for $25,000 on 30 June 2021? Do we need to do anything else?

Please respond by letter (not email) as I would like to present this to the Board. I look forward to hearing from you shortly.

Regards William Kane

Managing Director, Amy Ltd Level 6, 4300 Random Street,

Sydney NSW 2000

Assessment Instructions

• The assignment file will need to be submitted electronically through the student portal – use the link under “Assessments”.

Referencing

• Any sources that you use need to be acknowledged in order to avoid Information on referencing can be found in the Guidelines for Referencing and Presentation at the Kaplan website using the following address: (https://elearning.kbs.edu.au/mod/page/view.php?id=128881).

In‐Text Referencing and the Reference List

• Sources of information must be cited both in the body of the text (in‐text referencing) and the end of the assignment (reference list). Failure to do so will result in penalties. Remember that when referencing an Annual Report, it is a corporate document that does not have a particular author but it will still require referencing any time you use information from it. Any other documents or books or other references you use will also require

Please note

• Any work which has been copied or shared between students will result in a Fail grade for all students concerned. Therefore, please make sure that the answer to this assignment is your work and not copied or bought from any source. In completing this assignment make sure you follow the guidelines for assignments especially those relating to the presentation of written work, late assignment policy and academic

Important Study Information

 

Academic Integrity Policy

KBS values academic integrity. All students must understand the meaning and consequences of cheating, plagiarism and other academic offences under the Academic Integrity and Conduct Policy.

What is academic integrity and misconduct? What are the penalties for academic misconduct? What are the late penalties?

How can I appeal my grade?

 

Click here for answers to these questions: http://www.kbs.edu.au/current-students/student-policies/.

Word Limits for Written Assessments

Submissions that exceed the word limit by more than 10% will cease to be marked from the point at which that limit is exceeded.

Study Assistance;

Students may seek study assistance from their local Academic Learning Advisor or refer to the resources on the MyKBS Academic Success Centre page. Click here for this information.