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ACC20013 Company Accounting: Financial Accounting Statements

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ACC20013 Company Accounting

Questions:

SECTION A (25 marks)

Snap Ltd is a seafood business with headquarters inApollo Bay. Snap Ltd products include many varieties of seafood but one item lacking in its product range is Tasmanian Atlantic Salmon. The board of Snap Ltd decided to investigate a takeover of a Tasmanian company, SouthernPty Ltd, whose major product is the packaging of Tasmanian Atlantic Salmon. Strategically, Southern Pty Ltd would be a good fit withSnap Ltd as Snap ownstwo processing factories in Devonport, one of which is under-utilised. If Southern were acquired, then Snap would liquidate the company and transfer all the processing work to one of the Devonport factories.

The financial statements of SouthernPty Ltd at 1 September 2019 showed the following information:

Plant                                                    $133 600
Accumulated depreciation – plant     (32 000)
Land                                                    20 800
Cash                                                    16 000
Accounts receivable                            44 800
Inventory                                            23 200
Total assets                                         206 400
Accounts payable                               24 800
Loans                                                  41 200
Total liabilities                                    66 000
Share capital – 60 000 A ordinary shares    48 000
Share capital – 40 000 B ordinary shares    32 000
Retained earnings                             60 400
Total equity                                      140 400
    
All the assets and liabilities of SouthernPty Ltd were recorded at amounts equal to fair value except for:

Fair Value
Plant           112 000
Land            35 800
Inventory    28 000

SouthernPty Ltd also had a brand ’41 South’ that was not recorded by the company because it had been internally generated. It was valued at $10 000. SouthernPty Ltd had not recorded both the interest accrued on the loans amounting to $22 800 and annual leave entitlements of $13 000.

Snap Ltd decided to acquire all the assets of SouthernPty Ltd except for the cash. In exchange for these assets, SnapPty Ltd agreed to provide:

Two shares in Snap Ltd for every three A ordinary shares held in SouthernPty Ltd. The fair value of each Snap Ltd share was agreed to be $2.16.

Artworks to the owners of the B ordinary shares held in SouthernPty Ltd. (These artworks were held in the records of Snap Ltd at $40 000 and valued at $58 000.)

Sufficient additional cash to enable SouthernPty Ltd to pay off its liabilities.

The business combination occurred on 1 September 2019. Legal and accounting costs incurred by Snap Ltd in undertaking this business combination amounted to $1300. Costs to issue the shares to the A ordinary shareholders of Southern Ltd were $700.

Required

Prepare the journal entries in the records of Snap Ltd at 1 September 2019 to record the business combination (dates and narrations are required).

SECTION B (60 marks)

Telstra sells Ooyala after $500 million black eye

Financial Review
Telstra has quietly exited its first move into Silicon Valley, selling video streaming outfit Ooyala, which it bought for more than $500 million and wrote down to a value of zero earlier this year.

Telstra bought Ooyala in two stages in 2012 and 2014, under former boss David Thodey, spending more than $500 million on the US-based technology company. By 2016, it wrote the value of Ooyala down to $246 million and in February 2018 it hit reset, wiping the value of the business down to zero.

“Also as section of our focus on portfolio management we have already announced the restructure of Telstra Ventures and last week we completed the exit of our US-based intelligent video business Ooyala,” Telstra chief executive Andy Penn told shareholders at the company’s annual general meeting on Tuesday.

…Telstra sold Ooyala via a management buyout but did not disclose the terms of the deal.

Assessment tasks:
Assume that you are a summer vacation intern at the Melbourne office of an international accounting firm and that along with some fellow interns you have been assigned to a team to work together to produce a reportto the shareholders of Telstra Ltd that:
i.    Explains:
•    the financial statement reporting by Telstra ofits step acquisition of Ooyala back in August 2014 (see Telstra annual report year ended 30 June 2014)
•    the financial statement reporting by Telstra of its investment in Ooyala, Videoplaza, and Nativ including the treatment of goodwill on acquisition (see Telstra annual report year ended 30 June 2015) and thereafterin subsequent financial reporting periods (when referred to as the Ooyala Holding Team) 
•    the financial statement reporting by Telstra of its sale of the Ooyala Holding Team (see Telstra annual report year ended 30 June 2019).  

ii.    Evaluates the usefulness to users of the above financial statement information. 
The report to the shareholders of Telstrashould includesome background material about Telstra, Ooyala, Videoplaza, Nativ (and thereafter, the Ooyala Holding Team), refer to relevant accounting standards including paragraph numbers as necessary.

Additional guidance

The report will reflect the personal view of the team based on research evidence, theory and original consideration.The report is expected to draw on:
•    Australian Accounting Standards 
•    DatAnalysis. DatAnalysis is a comprehensive data set on all companies listed on the Australian Securities Exchange (ASX). Includes annual reports, corporate history and listing details, cross directorships and committee composition, shareholders’ trading history, takeover details, industry comparisons, price history and graphs, financial data, key events corporate calendar and ASX announcements
•    Newspaper and other media reports
•    Scholarly articles from academic journals.

The report should include an executive summary.The entire Section B report should not exceed 2500 words (+/-10%) (excluding title page, table of contents, reference list and the executive summary, but including footnotes, endnotes and appendices).  A reference list is a MUST.Please provide a word count on the cover sheet re the Section B report.

To avoid plagiarism, you are required to provide a reference whenever you include information from other sources in your work. Further details regarding plagiarism are available in Part C of the unit outline. 

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