Question 1 (10 marks)
Lease Erika Ltd runs a successful chain of sushi restaurants, but has been experiencing significant cash flow problems. The directors are examining a proposal made by an accounting consultant that all the shop premises currently owned by the company be sold and either leased back or the businesses moved to alternative leased shops. The directors are keen on the plan but are puzzled by the consultant’s insistence that all lease agreements for the shops be ‘operating’ rather than ‘finance’ leases.
1) Explain the difference between a finance lease and an operating lease (refer to AASB). (2 marks)
2) Explain, by reference to the requirements of AASB 117, why the consultant prefers operating to finance leases. (4 marks)
3) Describe THREE disadvantages to the company of entering into finance lease agreements. (4 marks) The overall word limit for Question 1 is 500 words. Words in excess of this limit will not be marked.
Question 2 (10 marks)
(Consolidations) Paul Lee is the accountant for Beeves Ltd. This entity has an 80% holding in the entity Lambs Ltd. Paul is concerned that the consolidated financial statements prepared under AASB 10 may be misleading. He believes that the main users of the consolidated financial statements are the shareholders of Beeves Ltd. The key performance indicators are then the profit numbers relating to the interests of those shareholders. He therefore wants to prepare the consolidated financial statements showing the non-controlling interest in Lambs Ltd in a category other than equity in the statement of financial performance, and for the statement of changes in equity to show the profit numbers relating to the parent shareholders only. Required Discuss the differences that would arise in the consolidated financial statements if the noncontrolling interests were classified as debt rather than equity, and the reasons the standard setters have chosen the equity classification in AASB 10.
1) Who are the prime users of the Consolidated Financial Statements? Discuss (3 marks)
2) The differences that would arise in the consolidated financial statements if the noncontrolling interests were classified as debt rather than equity (Debt vs Equity), and (3 marks)
3) The reasons the standard setters have chosen the equity classification in AASB 10. (4 marks) The overall word limit for Question 2 is 500 words. Words in excess of this limit will not be marked.
Question 3: (10 marks)
Identify using the Annual Report from selected one selected Australian listed company (see below) with balance dates ending on 30th June 2014. Identify Australian listed companies e.g. Qantas Airways Ltd GICS industry: Transportation
1.GICS (Global Industry Classification Standard) industry (1 mark) Board composition (3.5 marks):
- Number of directors (& Gender of directors) (1)
- Number of board meetings (0.5)
- Type of Qualification (Summary) (1)
- Type of Experience of Directors (Summary) (e.g. Whether they are on other boards) (1)
- Number of Australian and foreign subsidiaries (1) 7. Number of Australian and foreign associates (1)
- Borrowing costs and estimated interest for company (2 ) Please note that you are required to calculate to get your answers.
- Number of employees (0.5)
- Method of reporting comprehensive income (1)
Select 1 company from the list of 3 companies [URL for each annual report],
GICS Industry code from: http://www.asx.com.au/products/gics.htm
- Rio Tinto: http://www.riotinto.com/documents/RT_Annual_report_2014.pdf
- Harvey Norman Limited: http://www.harveynormanholdings.com.au/annualreports.htm
- Wesfarmers Limited: http://www.wesfarmers.com.au/annualreport2014/
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