Reference no: EM132935811

BAP32 Corporate Accounting - Universal Business School Sydney

Research Essay

You will be required to investigate 2 (two) ASX listed companies corporate reporting on Fair Value.

You are required to download the financial reports of any two selected companies and identify the required information from the notes on fair value disclosures. You need to compare as to how two companies' fair value disclosures are made. You must email your lecturer to receive the softcopy of the annual reports.

In your answer, you need to identify and report on comparative fair value hierarchies and methods used for differing classes of assets by the selected two companies.

Case 1: Accounting by the acquirer

The trial balance of Packman Ltd at 1 January 2019 was as follows:

At this date, all the assets and liabilities of Packman Ltd are sold to Zaba Ltd, with Packman Ltd going into voluntary liquidation. The terms of acquisition are:
(a) Zaba Ltd is to take over all the assets of Packman Ltd, as well as the accounts payable of Packman Ltd.
(b) Costs of liquidation of $700 are to be paid by Packman Ltd with funds supplied by Zaba Ltd.
(c) Preference shares in Packman Ltd are to receive two fully paid shares in Zaba Ltd for every three shares held, or alternatively, $0.80 per share in cash payable at the acquisition date.
(d) Ordinary shareholders of Packman Ltd are to receive two fully paid ordinary shares in Zaba Ltd for every share held or, alternatively, $2.50 in cash payable half at the acquisition date and half in one year's time.
(e) Debenture holders of Packman Ltd are to be paid in cash out of funds provided by Zaba Ltd. The debentures have a fair value of $102 per $100 debenture.
(f) All shares issued by Zaba Ltd have a fair value of $1.20 per share.
(g) Costs of issuing and registering the shares issued by Zaba Ltd amount to $80 for the preference shares and $200 for the ordinary shares.
(h) Legal and accounting costs associated with the acquisition of Packman Ltd amount to $2000.

The two parties agree on the terms of the arrangement, and holders of 6 000 preference shares and 10 000 ordinary shares elect to receive cash.

Zaba Ltd assesses the fair values of the identifiable assets and liabilities of Packman Ltd to be as follows:

Zaba Ltd has an incremental borrowing rate of 10%.

Required
(a) Prepare the acquisition analysis in relation to the above acquisition by Zaba Ltd.
(b) Prepare the journal entries in the records of Zaba Ltd at the date of acquisition.
(c) Prepare the journal entry for the payment of the deferred consideration in one year's time.

Case 2: Calculation of deferred tax, and adjustment entry

The following information was extracted from the records of Jackson Ltd as at 30 June 2020.

The depreciation rates for accounting and taxation are 15% p.a. and 25% p.a. respectively. Deposits are taxable when received, and warranty costs are deductible when paid. An allowance for doubtful debts of $25 000 has been raised against accounts receivable for accounting purposes, but such debts are deductible only when written off as uncollectable.

Required
1. Calculate the temporary differences for Jackson Ltd as at 30 June 2020. Justify your classification of each difference as either a deductible temporary difference or a taxable temporary difference.
2. Prepare a deferred tax worksheet and the journal entry to record deferred tax for the year ended 30 June 2020 assuming no deferred items had been raised in prior years.

Case 3: Consolidation worksheet, previously held investment in subsidiary

On 1 August 2018, Eco Ltd acquired 10% of the shares in Fico Ltd for $8000. Eco Ltd used the fair value method to measure this investment with movements in fair value being recognised in profit or loss. At 1 July 2017, the fair value of this investment was $15 400. The original investment in Fico Ltd was due to the fact that Fico Ltd was undertaking research into particular microbiological elements that could influence the profitability of Eco Ltd. With the continuing success of this research, Eco Ltd decided to acquire the remaining shares (cum div.) in Fico Ltd.

On 1 July 2017, Eco Ltd made an offer to buy the remaining shares in Fico Ltd for $151 000 cash. This offer was accepted by the shareholders of Fico Ltd. On 1 July 2017, immediately after the business combination, the statement of financial position of Fico Ltd was as follows:

On analysing the financial statements of Fico Ltd, Eco Ltd determined that all the assets and liabilities recorded by Fico Ltd were shown at amounts equal to their fair values except for:

The plant and equipment is expected to have a further 4-year life and is depreciated on a straight- line basis. The inventory was all sold by 30 June 2018.

Fico Ltd had expensed all the outlays on research and development. Eco Ltd placed a fair value of $12 000 on this asset. Fico Ltd also had reported a contingent liability at 30 June 2017 in relation to claims by customers for damaged goods. Eco Ltd placed a fair value of $3000 on these claims. The research and development is amortised evenly over a 10-year period. The claims by customers were settled in May 2018 for $2800.

The company tax rate is 30%.

Required

(a) Prepare the consolidated financial statements of Eco Ltd at 1 July 2017, immediately after the business combination.
(b) Prepare the consolidation worksheet entries at 30 June 2018.