ACCT7104 CORPORATE ACCOUNTING

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ACCT7104 CORPORATE ACCOUNTING - CASE STUDY

CONSULTATION IN RELATION TO THE CASE STUDY

To ensure consistency of information, please place all questions relating to the case study on the Blackboard Discussion Board Case Study thread. We will respond to questions promptly when using this platform. We will not be discussing the case study in private consultation sessions.

One of the overarching learning goals of Corporate Accounting is the accounting for the relationships that can exist between investor and investee. Using the requirements of the relevant Australian Accounting Standards (AASB Standards), the case study requires students to research and critically analyse information to identify the relationship between several entities. In addition, students must consider the accounting implications of the relationships and transactions which have been undertaken by corporate entities identified to prepare, if applicable, simplified consolidated financial statements.

The assessment will be marked out of 20 marks, which will represent 20% of the total marks for the subject grade. The allocation of marks is as follows:

Individual Business Report (Maximum 1,500 words)

Appendices – Consolidated Financial Statements and

Consolidation Worksheet and associated journals

Total 20 marks

DUE DATE: Friday, 8 October 2021 by 1.00pm

Case Study Information

Superior Homes Pty Ltd has a long history of operating in the residential building sector within the Queensland region. The company has undertaken significant expansion during the year to broaden its offerings and enable “one-stop-shop” arrangements for customers seeking to build new residential homes. The Directors of Superior Homes Pty Ltd (a large proprietary company and reporting entity) have come to your accounting firm to seek advice on how to account for the investments made in the current year in the three (3) entities-- Sustainable Energy Pty Ltd, Complete Pools Pty Ltd, and Fencing and Walls Pty Ltd. All shares issued by each of the entities are ordinary shares with normal voting rights. All key facts as known to the company are provided below:

Complete Pools Pty Ltd

. Superior Homes Pty Ltd acquired 90% of the issued capital on 1 July 2020.

. Management and some employees own the remaining 10% of the issued capital as part of an employee share plan.

Superior Homes Pty Ltd have four appointees on the board of directors whilst an independent director sits on the five-member Board representing the interests of the management and employees under the terms of the employee share plan.

Sustainable Energy Pty Ltd

. Superior Homes Pty Ltd owns 20% of the issued capital, acquired on 1 July 2020. . Complete Pools Pty Ltd owns 25% of the issued capital, acquired on 1 July 2020.

. Three original investors or founders of the business equally hold 50% of the issued capital. These shareholders regularly attend meetings and vote.

The remaining 5% of the issued capital are owned by family members associated with the original investors who each hold a small parcel of shares, many of whom are unlikely to attend meetings.

Fencing and Walls Pty Ltd

. Superior Homes Pty Ltd owns 50% of the issued capital, acquired on 1 July 2020.

. Gao Holdings Pty Ltd owns the remaining 50% of issued capital.

. Superior Homes Pty Ltd and Gao Holdings Pty Ltd have rights to the net assets of Fencing and Walls Pty Ltd.

The shareholders of Fencing and Walls Pty Ltd have a contractual agreement whereby Superior Homes Pty Ltd or Gao Holdings Pty Ltd cannot make any operating, investing, or financing decisions without the expressed consent of the other party.

Date of Acquisition Information

The consideration paid for the investments made in the 3 companies are outlined in Appendix A – Date of Acquisition Details. The shareholders’ equity section and details related to the fair value of the identifiable assets and liabilities of the companies at the date of acquisition are also provided.

Trial balance Information 30 June 2021

The simplified trial balances for the year ended 30 June 2021, drawn from the accounting system for the entities specified, have been presented in Appendix B – Trial Balances as at 30 June 2021. Details of transactions which may impact the presentation of any consolidated financial statements required to be prepared by the company in accordance with AASB 10 – Consolidated Financial Statements is outlined in the next section entitled Additional Information.

Additional Information

Complete Pools Pty Ltd

Trading in the company has deteriorated in the second half of the financial year because of key management personnel leaving the business to establish a new company in competition to the business conducted by Complete Pools Pty Ltd. Several employees and sub-contractors have been lured to work with the newly established business. Sales performance has been significantly reduced on recent prior years.

The company has required a loan to cover regular obligations and working capital requirements. Superior Homes Pty Ltd advanced a loan on 1 January 2021 in the amount of $1,500,000 with interest to be paid 6 monthly on 30 June and 31 December each year for the five-year term of the loan. Interest applied at the rate of 8% per annum on the loan in view of it being an unsecured loan.

As a result of the change in trading conditions the directors of Complete Pools Pty Ltd believe the value of goodwill arising on consolidation should be impaired by $3,500,000.

A dividend had been paid in September 2020 in the amount of the $500,000 prior to the change in management personnel.

Sustainable Energy Pty Ltd

Sustainable Energy Solutions Pty Ltd, in contrast, have had a stellar year of profitability on the back of investment being made by homeowners in sustainable energy solutions and large residential housing projects being undertaken. The company paid a dividend of $150,000 on 28 February 2021 and have declared a further dividend of $200,000 on 20 June 2021 which is payable on 01 September 2021.

The entity undertook a revaluation of its land purchased and buildings constructed in an industrial estate as they had been purchased and constructed some 10 years ago. The revaluation increment, net of tax, was $700,000.

Fencing and Walls Pty Ltd

Fencing and Walls Pty Ltd, have also experienced improved profitability on the back of investment being made by homeowners. The company paid a dividend of $250,000 on 29 January 2021 and have declared a further dividend of $400,000 on 15 June 2021 which is payable on 01 September 2021.

Accounting policies

Superior Homes Pty Ltd uses the perpetual method of inventory. As the fair value of the non-controlling interest in Complete Pools Pty Ltd was the same as the non-controlling interest proportionate share of its unidentifiable net assets at acquisition date, the proportionate interest goodwill method has been elected to measure non-controlling interest in Complete Pools Pty Ltd.

The applicable company tax rate to each of the entities within the group is 30%.

Details Sought by the Directors

As a consultant, you are required to prepare a business-oriented memorandum (maximum 1,500 words) for the directors of Superior Homes Pty Ltd to explain the way in which Superior Homes Pty Ltd would account for its investment in the three entities. Specifically, you report should address the three issues as follows:

First, given the information above, the directors of Superior Homes Pty Ltd would particularly like to know (estimate 1,200 words):

. the type of investment for each entity (i.e., you need to clearly identify the investor-investee relationship) including a summary of the identifying criteria and an application of this criterion;

. the accounting method to be adopted for this type of investment;

. which entities, if any, would form part of the Superior Homes Pty Ltd Group.

You must justify your conclusions with suitable referencing to the relevant Australian Accounting

Standards. Your memorandum should include any assumptions made and is to clearly identify what, if any, additional information Superior Homes Pty Ltd would need to make a final determination if there is any uncertainty.

Second, the directors have specifically asked for you to identify disadvantages of preparing consolidated financial statements, as it may apply to Superior Homes Pty Ltd. Your identification of disadvantages must be supported by at least three peer-reviewed journal articles in reputable academic accounting related journals (estimate 300 words).

Finally, based on the information provided in the appendices to the Case Study, you have been requested to prepare:

. a draft consolidated Statement of Financial Performance and Statement of Financial Position for the year ended 30 June 2021 (to be attached as an Appendix to your report). You can ignore any allocation of profit and elements of shareholders’ equity between parent and any non-controlling interests, and

. the supporting consolidation worksheet from which you extracted your financial statements and all supporting consolidation adjusting journals entries, including narrations, posted to the worksheet (to be attached as a separate and additional appendix to your report).

Requirements:

Prepare and submit a memorandum to the Board of Directors of Superior Homes Pty Ltd that summarises your responses to the queries raised by the Board in the case study. This should be aformal professional report and your memorandum should clearly recommend a reporting method for each of the entities within the corporate group and reflect the method chosen, if applicable, in a Consolidated Statement of Financial Performance and a Consolidated Statement of Financial Position for the year ended 30 June 2021.

Format: The assignment is to be prepared as a pdf document using Times New Roman 12-point type with single line spacing. The report does not require an Executive Summary and Table of Contents given the brevity of the required information.

. Overall word limit is 1,500 words excluding appendices (at least two of which are required as outlined above). Additional words placed in appendices will be ignored for marking purposes.

a. 1. Any Consolidated Financial Statements that you have prepared.

b. 2. The Consolidation Worksheet that you have created version with appropriate reference column and showing the consolidation adjusting journal entries, appropriately referenced, that have been prepared to arrive at the Consolidated Financial Statements you may have prepared.

. All calculations should be rounded to the nearest whole percentage amount in terms of voting rights and whole dollars, ($’000), in relation to the Consolidated Financial Statements and Consolidation Worksheet and related journals.

. You must cite the specific provisions including paragraph from the relevant AASB using one of the following two examples for in-text referencing: AASB 102:11 or AASB 102 para. 11. You might find the following links helpful:

http://www.utas.edu.au/accounting-communication-matters/writing-an-essay- orreport/referencing/accounting-standards

Write, cite and submit - Library - University of Queensland (uq.edu.au)

Referencing style: Harvard referencing should be adopted for in-text references and for the reference list.

. Do not reproduce significant parts of the regulations / standards in your report. The focus should be on interpretation and application of the standard, with a concise, well-structured analysis for your client with key referencing to critical elements of the appropriate accounting standards.

. The use of tables/figures/diagrams is essential. For example, a diagram is to be used to demonstrate the shareholding relationship between each entity and table/s is/are to be used to summarise voting rights and interests held. These should be inserted into the body of the report NOT included as an appendix.

. This assessment must be the sole work of the individual student and not done in collaboration with other students. Students may discuss with one another the general principles of the Accounting Standards and its application to the various transactions; however, you may not collaborate/discuss

on the specifics of the report or how the Standards are relevant to the report.

. The deadline for the upload of the report is 1.00 pm on Friday, 8 October 2021.

Blackboard assignment instructions:

1. Please ensure you upload:

A PDF of the memorandum including appendices requested, within 1,500 words limit to the Blackboard submission link (under “Blackboard/Assessment/Assessment 2 Individual Case Study”). ” .The file name for the submission should be prepared as: “Given name” “Family name” “Student ID” ACCT7104 (for example: Tina Gao 41234567 ACCT7104)

2. You have a maximum number of THREE submission attempts. The system will only keep the last submitted paper. So please make sure that your last submission is the correct version. Submissions via email are not acceptable and hence will not be graded.

3. After submission, you should receive a notification email from your student email account confirming the successful submission of your work. Keep the email secure as your proof of submission.

4. Students are reminded of their obligations under the Student Charter obligations which can be reviewed with the following links:

3.60.01 Student Charter - Policies and Procedures Library - The University of Queensland, Australia (uq.edu.au)

Plagiarism: All cases reports will be reviewed for plagiarism and independent content. The University has adopted the following definition of plagiarism: Plagiarism is the act of misrepresenting as one's

own original work the ideas, interpretations, words, or creative works of another. These include

published and unpublished documents, designs, music, sounds, images, photographs, computer codes and ideas gained through working in a group. These ideas, interpretations, words, or works may be

found in print and/or electronic media. Students are encouraged to read the UQ Student Integrity and Misconduct policy (http://ppl.app.uq.edu.au/content/3.60.04-student-integrity-and-misconduct) which makes a comprehensive statement about the University's approach to plagiarism, including the

approved use of plagiarism detection software, the consequences of plagiarism and the principles associated with preventing plagiarism. Check the similarity index of your case report through

Turnitin. There could be zero mark for the cases such as cooperation between students; copy from case reports of students enrolled in previous semesters.