Corporate Accounting

Corporate Accounting
This assignment is to be completed in groups of two and comprises 20% of the marks for this course. There are three questions.

Assessment Criteria:

Student work will generally be assessed in terms of the following criteria:

1. Effectiveness of communication – i.e. readability, legibility, grammar, spelling, neatness, completeness and presentation will be a

minimum threshold requirement for all written work submitted for assessment. Work that is illegible or incomprehensible and does not meet the

minimum requirement will be awarded a fail grade.
2. Demonstrated understanding – This will be evidenced by the student’s ability to be dialectical in the discussion of contentious issues.
3. Evidence of research – This will be evidenced by the references made to books, journal articles and inclusion of a bibliography.

1. All written work must conform with the Federation University General Guide for the Presentation of Academic Work.

2. For all written work students must ensure that they submit their own original work. Any act of plagiarism will be severely penalised.

Plagiarism is presenting someone else work as your own and is a serious offence with serious consequences. As set out in the University

Regulation 6.1.1, students who are caught plagiarising will, for a first offence, be given a zero mark for that task. A second offence will

result in a failing grade for the course(s) involved and any subsequent offence will be referred to the Student Discipline Committee. Student

must be aware of the University Regulation 6.1.1 Student Plagiarism.

Students must:
• fully reference the source(s) of all material, even if you have re-expressed the ideas, facts or descriptions;
• acknowledge all direct quotations; and
• not submit work that has been researched and written by another person.

PART A (1.25 x 7 = 8.75 marks)
Critically evaluate the Australian requirements for accounting for business combinations.
In your discussion you should specifically address the following issues:

• Exclusions from the scope of Accounting Standard AASB3 Business Combinations.
• The implications of the requirement to use the acquisition method of accounting for business combinations
• The identification of an acquirer in a business combination
• The determination of fair values of assets in a business combination
• The reasons for the choice of fair value to measure assets and liabilities acquired in a business combination
• The nature and treatment of goodwill or bargain purchase arising on a business combination.
• The two different ways in which a business combination can be accomplished.

PART B (8 marks)

Federation Ltd acquired the net assets of an existing business Nigeria Pty Ltd on 1 July 2015. The statement of financial position of Federation

Ltd immediately prior to the acquisition is as shown below:

Federation Ltd
Statement of Financial Position as at 1 July 2015
Cash at bank 40,000
Accounts Receivable 95,000
Inventory 110,000
Shares in Wesfarmer’s Ltd 80,000
Plant and Equipment (net) 550,000
Land and Buildings (net) 650,000

Total Assets 1,525,000

Accounts Payable 220,000
Provisions 80,000
Bank Loans 200,000

Total Liabilities 500,000

Shareholder’s Equity
Issued Capital 900,000
Retained Earnings 125,000

Total Shareholder’s Equity 1,025,000

The identifiable net assets of Nigeria Pty Ltd acquired by Federation Ltd, valued at fair value at date of acquisition comprise the following:

Assets acquired:
Accounts Receivable 20,000
Inventory 60,000
Motor Vehicles 50,000
Plant and Equipment 150,000
Land and Buildings 300,000

Liabilities assumed:
Accounts Payable 105,000
Bank Loan 100,000

In addition, Nigeria Pty Ltd has unrecorded contingent liabilities estimated at $65,000

The terms of the acquisition are as follows:

– Cash consideration of $120,000 to be paid to Nigeria Pty Ltd on 30 June 2016. This amount is to be raised by a bank loan (Federation

Ltd’s incremental borrowing rate is 8%)
– The shares in Wesfarmers held by Federation Ltd which have a fair market value of $90,000 at 1 July 2015 are to be transferred to

Nigeria Ltd.
– Federation Ltd is to issue 50,000 shares to Nigeria Pty Ltd. At 1 July 2015 Federation Ltd’s shares are trading at $4 per share.
– Federation Ltd incurred legal expenses of $10,000 and share issue costs of $4,000 in connection with the acquisition
– Under the terms of the acquisition Federation Ltd is required to issue further shares to Nigeria Pty Ltd if the value of Federation

Ltd’s shares fall below $4 per share by 30 June 2016. It is estimated that there is a 20% likelihood that the share price will fall to $3.50

Prepare the journal entries in the books of Federation Ltd to record the acquisition of Nigeria Pty Ltd and a statement of financial position

for Federation Ltd immediately after the acquisition.