ACCT7104 CORPORATE ACCOUNTING - Case Study Assessment (Individual Business Report 1,500 words)
The assessment will be marked out of 20 marks, which will represent 20% of the total marks for the subject grade. The allocation of marks is as follows:
Individual Business Report (Maximum 1,500 words)
Appendices – Consolidated Financial Statements and Consolidation Worksheet and associated journals
Total: 20 marks
Case Study Information
Superior Homes Pty Ltd has a long history of operating in the residential building sector within the
Queensland region. The company has undertaken significant expansion during the year to broaden its
offerings and enable “one-stop-shop” arrangements for customers seeking to build new residential
homes. The Directors of Superior Homes Pty Ltd (a large proprietary company and reporting entity)
have come to your accounting firm to seek advice on how to account for the investments made in the
current year in the three (3) entities-- Sustainable Energy Pty Ltd, Complete Pools Pty Ltd, and Fencing
and Walls Pty Ltd. All shares issued by each of the entities are ordinary shares with normal voting rights.
All key facts as known to the company are provided below:
Complete Pools Pty Ltd
Superior Homes Pty Ltd acquired 90% of the issued capital on 1 July 2020.
Management and some employees own the remaining 10% of the issued capital as part of an
employee share plan.
Superior Homes Pty Ltd have four appointees on the board of directors whilst an independent director
sits on the five-member Board representing the interests of the management and employees under the
terms of the employee share plan.
Sustainable Energy Pty Ltd
Superior Homes Pty Ltd owns 20% of the issued capital, acquired on 1 July 2020.
Complete Pools Pty Ltd owns 25% of the issued capital, acquired on 1 July 2020.
Three original investors or founders of the business equally hold 50% of the issued capital. These
shareholders regularly attend meetings and vote.
The remaining 5% of the issued capital are owned by family members associated with the original
investors who each hold a small parcel of shares, many of whom are unlikely to attend meetings.
Fencing and Walls Pty Ltd
Superior Homes Pty Ltd owns 50% of the issued capital, acquired on 1 July 2020.
Gao Holdings Pty Ltd owns the remaining 50% of issued capital.
Superior Homes Pty Ltd and Gao Holdings Pty Ltd have rights to the net assets of Fencing and
Walls Pty Ltd.
The shareholders of Fencing and Walls Pty Ltd have a contractual agreement whereby Superior Homes
Pty Ltd or Gao Holdings Pty Ltd cannot make any operating, investing, or financing decisions without
the expressed consent of the other party.
Date of Acquisition Information
The consideration paid for the investments made in the 3 companies are outlined in Appendix A – Date
of Acquisition Details. The shareholders’ equity section and details related to the fair value of the
identifiable assets and liabilities of the companies at the date of acquisition are also provided.
Trial balance Information 30 June 2021
The simplified trial balances for the year ended 30 June 2021, drawn from the accounting system for
the entities specified, have been presented in Appendix B – Trial Balances as at 30 June 2021. Details
of transactions which may impact the presentation of any consolidated financial statements required to
be prepared by the company in accordance with AASB 10 – Consolidated Financial Statements is
outlined in the next section entitled Additional Information.
Additional Information
Complete Pools Pty Ltd
Trading in the company has deteriorated in the second half of the financial year because of key
management personnel leaving the business to establish a new company in competition to the business
conducted by Complete Pools Pty Ltd. Several employees and sub-contractors have been lured to work
with the newly established business. Sales performance has been significantly reduced on recent prior
years.
The company has required a loan to cover regular obligations and working capital requirements.
Superior Homes Pty Ltd advanced a loan on 1 January 2021 in the amount of $1,500,000 with interest
to be paid 6 monthly on 30 June and 31 December each year for the five-year term of the loan. Interest
applied at the rate of 8% per annum on the loan in view of it being an unsecured loan.
As a result of the change in trading conditions the directors of Complete Pools Pty Ltd believe the value
of goodwill arising on consolidation should be impaired by $3,500,000.
A dividend had been paid in September 2020 in the amount of the $500,000 prior to the change in
management personnel.
Sustainable Energy Pty Ltd
Sustainable Energy Solutions Pty Ltd, in contrast, have had a stellar year of profitability on the back of
investment being made by homeowners in sustainable energy solutions and large residential housing
projects being undertaken. The company paid a dividend of $150,000 on 28 February 2021 and have
declared a further dividend of $200,000 on 20 June 2021 which is payable on 01 September 2021.
The entity undertook a revaluation of its land purchased and buildings constructed in an industrial estate
as they had been purchased and constructed some 10 years ago. The revaluation increment, net of tax,
was $700,000.
Fencing and Walls Pty Ltd
Fencing and Walls Pty Ltd, have also experienced improved profitability on the back of investment
being made by homeowners. The company paid a dividend of $250,000 on 29 January 2021 and have
declared a further dividend of $400,000 on 15 June 2021 which is payable on 01 September 2021.
Accounting policies
Superior Homes Pty Ltd uses the perpetual method of inventory. As the fair value of the non-controlling
interest in Complete Pools Pty Ltd was the same as the non-controlling interest proportionate share of
its unidentifiable net assets at acquisition date, the proportionate interest goodwill method has been
elected to measure non-controlling interest in Complete Pools Pty Ltd.
The applicable company tax rate to each of the entities within the group is 30%.
ACCT7104 CORPORATE ACCOUNTING - CASE STUDY
Page 4 of 8
ACCT7104 Case Study for S2 2021
Details Sought by the Directors
As a consultant, you are required to prepare a business-oriented memorandum (maximum 1,500
words) for the directors of Superior Homes Pty Ltd to explain the way in which Superior Homes Pty
Ltd would account for its investment in the three entities. Specifically, you report should address the
three issues as follows:
First, given the information above, the directors of Superior Homes Pty Ltd would particularly like to
know (estimate 1,200 words):
the type of investment for each entity (i.e., you need to clearly identify the investor-investee
relationship) including a summary of the identifying criteria and an application of this
criterion;
the accounting method to be adopted for this type of investment1;
which entities, if any, would form part of the Superior Homes Pty Ltd Group.
You must justify your conclusions with suitable referencing to the relevant Australian Accounting
Standards. Your memorandum should include any assumptions made and is to clearly identify what, if
any, additional information Superior Homes Pty Ltd would need to make a final determination if there
is any uncertainty.
Second, the directors have specifically asked for you to identify disadvantages of preparing
consolidated financial statements, as it may apply to Superior Homes Pty Ltd. Your identification of
disadvantages must be supported by at least three peer-reviewed journal articles in reputable academic
accounting related journals (estimate 300 words).
Finally, based on the information provided in the appendices to the Case Study, you have been requested
to prepare:
a draft consolidated Statement of Financial Performance and Statement of Financial
Position for the year ended 30 June 2021 (to be attached as an Appendix to your report). You
can ignore any allocation of profit and elements of shareholders’ equity between parent and
any non-controlling interests, and
the supporting consolidation worksheet from which you extracted your financial statements
and all supporting consolidation adjusting journals entries, including narrations, posted to
the worksheet (to be attached as a separate and additional appendix to your report).
Requirements:
Prepare and submit a memorandum to the Board of Directors of Superior Homes Pty Ltd that
summarises your responses to the queries raised by the Board in the case study. This should be a formal
professional report and your memorandum should clearly recommend a reporting method for each of
the entities within the corporate group and reflect the method chosen, if applicable, in a Consolidated
Statement of Financial Performance and a Consolidated Statement of Financial Position for the year
ended 30 June 2021.
Format: The assignment is to be prepared as a pdf document using Times New Roman 12-point type
with single line spacing. The report does not require an Executive Summary and Table of Contents
given the brevity of the required information.
Overall word limit is 1,500 words excluding appendices (at least two of which are required as
outlined above). Additional words placed in appendices will be ignored for marking purposes.
a. 1. Any Consolidated Financial Statements that you have prepared.
b. 2. The Consolidation Worksheet that you have created version with appropriate reference
column and showing the consolidation adjusting journal entries, appropriately referenced,
that have been prepared to arrive at the Consolidated Financial Statements you may have
prepared.
All calculations should be rounded to the nearest whole percentage amount in terms of voting rights
and whole dollars, ($’000), in relation to the Consolidated Financial Statements and Consolidation
Worksheet and related journals.
You must cite the specific provisions including paragraph from the relevant AASB using one of the
following two examples for in-text referencing: AASB 102:11 or AASB 102 para. 11. You might
find the following links helpful:
http://www.utas.edu.au/accounting-communication-matters/writing-an-essayorreport/
referencing/accounting-standards
Write, cite and submit - Library - University of Queensland (uq.edu.au)
Referencing style: Harvard referencing should be adopted for in-text references and for the
reference list.
Do not reproduce significant parts of the regulations / standards in your report. The focus should be
on interpretation and application of the standard, with a concise, well-structured analysis for your
client with key referencing to critical elements of the appropriate accounting standards.
The use of tables/figures/diagrams is essential. For example, a diagram is to be used to demonstrate
the shareholding relationship between each entity and table/s is/are to be used to summarise voting
rights and interests held. These should be inserted into the body of the report NOT included as an
appendix.
This assessment must be the sole work of the individual student and not done in collaboration with
other students. Students may discuss with one another the general principles of the Accounting
Standards and its application to the various transactions; however, you may not collaborate/discuss
on the specifics of the report or how the Standards are relevant to the report.