Assessment 3
Assessment Type: Individual assessment - research report.
Purpose: Assess student’s knowledge of relevant accounting standards. Students are required to prepare a research report which evaluates their interpretation of accounting standards. This assessment relates to learning outcomes a, b, c, d and e.
Value: 20% Due Date: Week 10
Topic: Australian accounting standards analysis.
Task Details: Students are required to attempt the following questions.
Question 1: The Scenic City Council contracts out the bus routes in Scenic City to various subcontractors based on a tender arrangement. Some routes, such as the Express to City routes, are profitable, while others, such as those collecting schoolchildren from remote areas, are unprofitable. As a result, the council requires tenderers to take a package of routes, some profitable, some less so.
The Saferide Bus Company has won the contract to operate its buses with a package of five separate routes, one of which operates at a significant loss. Specific buses are allocated by the Saferide Bus Company to each route, and cash flows can be isolated to each route because drivers and takings are specific to each route.
Required
Write a report to the accountant of Saferide Bus Company which includes the following information.
1. Explain the requirements of AASB136 with reference to impairment of assets.
2. An explanation of why impairment testing may require the use of cash generating units, rather than being based on a single asset.
3. An explanation of the factors that should be considered in determining a Cash generating unit for Saferide Bus Company.
4. Your determination as to the identification of Cash generating units for Saferide Bus Company.
Question 2: West Ltd is a leading company in the sale of frozen and canned fish produce. These products are sold under two brand names. Fish caught in southern Australian waters are sold under the brand ‘Artic Fresh’, which is the brand the company developed when it commenced operations and which is still used today. Fish caught in the northern oceans are sold under the brand name ‘Tropical Taste’, the brand developed by Fishy Tales Ltd. West Ltd acquired all the assets and liabilities of Fishy Tales Ltd a number of years ago when it took over that company’s operations.
West Ltd has always marketed itself as operating in an environmentally responsible manner, and is an advocate of sustainable fishing. The public regards it as a dolphin-friendly company as a result of its previous campaigns to ensure dolphins are not affected by tuna fishing. The marketing manager of West Ltd has noted the efforts of the ship, the Steve Irwin, to disrupt and hopefully stop the efforts of whalers in the southern oceans and the publicity that this has received. He has recommended to the board of directors that West Ltd strengthen its environmentally responsible image by guaranteeing to repair any damage caused to the Steve Irwin as a result of attempts to disrupt the whalers. He believes that this action will increase West Ltd’s environmental reputation, adding to the company’s goodwill. He has told the board that such a guarantee will have no effect on West Ltd’s reported profitability. He has explained that, if any damage to the Steve Irwin occurs, West Ltd can capitalise the resulting repair costs to the carrying amounts of its brands, as such costs will have been incurred basically for marketing purposes. Accordingly, as the company’s net asset position will increase, and there will be no effect on the statement of profit or loss and other comprehensive income, this will be a win-win situation for everyone.
Required
a) Explain when development outlays can be capitalised with reference to AASB 138.
b) Prepare a report advising the board on how the proposal should be accounted for under AASB138 and how such a proposal would affect West Ltd’s financial statements.
amounts of its brands, as such costs will have been incurred basically for marketing purposes. Accordingly, as the company’s net asset position will increase, and there will be no effect on the statement of profit or loss and other comprehensive income, this will be a win-win situation for everyone.
Required
a) Explain when development outlays can be capitalised with reference to AASB 138.
b) Prepare a report advising the board on how the proposal should be accounted for under AASB138 and how such a proposal would affect West Ltd’s financial statements.
ACC201 FINANCIAL ACCOUNTING T120 27/02/2020 15:25 PAGE 9 OF 14
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Question 3: One of the board of directors of Seagull Ltd has proposed that the company adopt the revaluation model for fixed assets. Some of these assets are hard to obtain and certain items have increased in value in the current period, however it is difficult to know what their fair value is. The director is arguing that fair value will improve the ‘look’ of the company’s Statement of Financial Position, and may eliminate the need for depreciation.
Required
a) Summaries the accounting for revaluation of property plant and equipment assets in relation to AASB 116.
b) Prepare a report to the board on whether the director’s proposal should be adopted by the board.
Presentation: 1000 words (+/-10%); short report format. Title page, executive summary, table of contents, appropriate headings and sub-headings, recommendations/findings/conclusions, in-text referencing and reference list (Harvard - Anglia style), attachments if relevant. Single spaced, font Times New Roman 12pt, Calibri 11 pt or Arial 10pt. In text referencing and reference list are excluded from the word count.