110.309 Advanced Financial Accounting Assignment 2: New Zealand Limited (NZL)Paper Details

110.309 Advanced Financial Accounting
Assignment 2: New Zealand Limited (NZL)

This email provides you with the information and instructions for Assignment 2. This assignment comprises two parts, Part A on consolidation and Part B on fair value.

Part A
You are on an internship with the Accounting Team at New Zealand Limited (NZL). As you have studied consolidations in your advanced financial accounting paper at Massey University, the Accounting Team has requested your assistance in preparing the consolidated financial statements of NZL and its subsidiaries for the year ended 31 March 2016.

New Zealand Limited (NZL) is a major trading company. It embarked on an ambitious expansion programme in 2015 including the acquisition of two other companies, North Island Limited (NIL) and South Island Limited (SIL). All three companies have financial years 1 April to 31 March

NZL partly acquiring NIL
New Zealand Limited (NZL) acquired a 55 per cent interest in North Island Limited (NIL) on 1 April 2015 for $2 million. All assets and liabilities are fairly valued in the books of NIL limited. The equity section on the balance sheet of NIL at the date of acquisition appears below:
$
Share Capital
2,000,000
Retained Earnings
600,000

2,600,000
NZL partly acquiring SIL

NZL Limited acquires a 60 per cent interest in South Island Limited (SIL) on 1 April 2015 for $1.6 million. All assets and liabilities are fairly valued in the books of SIL limited. The equity section on the balance sheet of SIL on 31 March 2015:
$
Share Capital
1,600,000
Retained Earnings
800,000

2,400,000

End of year financials
The trial balances of the three entities as at 31 March 2016 can be downloaded in a spreadsheet by clicking here.

Additional information:
Plant and equipment
1. On 1 April 2015, NZL Ltd sold plant to NIL for $15,000. The plant cost NZL $10,000 on 1 April $2013. Both companies apply a 10% p.a. straight-line method of depreciation in relation to these assets.

Inventory
2. During the current year, NZL sold inventory to NIL Ltd for $18,000 recording a profit of $3000. NIL has not resold any of these items.

3. During the current financial year, SIL Ltd sold inventory to NZL Ltd for $23,000 recording a profit of $4000. NZL has since resold half of these items.

4. During the current year NIL sold inventory to SIL Ltd for $15,000 recording a profit of $2000. SIL has resold all of these items.

Services
5. During the current financial year, NIL paid $2000 to NZL Ltd for services rendered.

Goodwill
6. Goodwill from investment in SIL has not been impaired while the goodwill from the investment in NIL had an impairment loss of 10 per cent during the current financial year.

Non-controlling interests
7. The group has adopted the policy of measuring non-controlling interest at he fair value of total acquisition and recognising full goodwill.
Tax Implications
8. You may ignore tax implications for the purposes of this assignment.
Instructions:
Prepare the consolidated financial statements for NZL and its controlled entities as at 31 March 2016. You have been provided with an Excel template for entering the $ amounts for the items in the consolidated financial statements. To download this Excel template click here.

Submission
Complete the Excel template and submit after renaming it as follows:
D12207085_110309Ass2_Wei_Liu.xlsx
Part B

You have recently been seconded to the technical department of LMNOP, a large accounting firm and asked to contribute to a newsletter for clients. The aim of ‘News Brief’, the newsletter, is to provide updates and advice on accounting standards and their application.

The partner in charge of the technical department has asked you to focus on NZ IFRS 13, which defines fair value, sets a single framework for measuring fair value, and requires disclosures about fair value measurements.

Required:
Prepare a short article for inclusion in News Brief which:
1. Discusses the differences between the various levels in the fair value hierarchy and whether values produced under all levels should be described as ‘fair values’; and
(30 marks)
2. Reviews The Warehouse Group 2015 Annual Report to illustrate the application of fair value accounting. You should identify at least five different items for which fair value has been applied and discuss the valuation approach and the input levels used for each item.
(20 marks)
Further Guidance
a) Your answer to (1) above should include at least two references other than the prescribed text and IFRS 13. Five marks are allocated for relevance, quality and correctness of your citations and reference list (News Brief uses APA-6 conventions);
b) Three marks are allocated for professional appearance, style, grammar and spelling;
c) As per the “Required” above, this is to be a short article. Part B of this assignment has a word limit of 600 words. Answers which exceed this limit may be penalised up to 20% of the marks available;
d) The marking rubric provides further guidance as to how your newsletter article will be assessed. To download the marking rubric click here.

e) Download and use the template (Word file) provided. Click here to download the template.
Submission
Please submit the completed template (Word file) after renaming it as follows:
D12207085_110309Ass2_Wei_Liu.xlsx

The digital files for Assignment 2
You can access all the digital files for this assignment by clicking here
The trial balances as at 31 March 2016
NZL NIL SIL
Dr Cr Dr Cr Dr Cr
Sales revenue 1,400,000 520,000 450,000
Other income 136,000 80,000 50,000
Cost of Sales 300,000 200,000 200,000
Operating expenses 200,000 240,000 100,000
Income tax expense 540,000 50,000 80,000
Dividends declared 400,000
Share Capital 8,000,000 2,000,000 1,600,000
Retained earnings (31 March 2015) 2,000,000 600,000 800,000
Loans 2,400,000 500,000
Accounts payable 340,000 80,000
Dividends payable 400,000
Land 4,800,000 400,000
Property Plant and Equipment 3,600,000 2,730,000 920,000
Accumulated depreciation – PPE 600,000 500,000 200,000
Investment in NIL 2,000,000
Investment in SIL 1,600,000
Cash 590,000 110,000 200,000
Accounts receivable 246,000 350,000 400,000
Inventory 1,000,000 600,000 800,000

15,276,000 15,276,000 4,280,000 4,280,000 3,100,000 3,100,000

The trial balances as at 31 March 2016
NZL NIL SIL
Dr Cr Dr Cr Dr Cr
Sales revenue 1,400,000 520,000 450,000
Other income 136,000 80,000 50,000
Cost of Sales 300,000 200,000 200,000
Operating expenses 200,000 240,000 100,000
Income tax expense 540,000 50,000 80,000
Dividends declared 400,000
Share Capital 8,000,000 2,000,000 1,600,000
Retained earnings (31 March 2015) 2,000,000 600,000 800,000
Loans 2,400,000 500,000
Accounts payable 340,000 80,000
Dividends payable 400,000
Land 4,800,000 400,000
Property Plant and Equipment 3,600,000 2,730,000 920,000
Accumulated depreciation – PPE 600,000 500,000 200,000
Investment in NIL 2,000,000
Investment in SIL 1,600,000
Cash 590,000 110,000 200,000
Accounts receivable 246,000 350,000 400,000
Inventory 1,000,000 600,000 800,000

15,276,000 15,276,000 4,280,000 4,280,000 3,100,000 3,100,000