VU BUSINESS SCHOOL
BAO2203 CORPORATE ACCOUNTING
SEMESTER 1, 2019
GROUP ASSIGNMENT
DUE WEEK 8 - 20 marks
Table of Contents
PART I – 15% 2
EZY MANUFACTURING LTD (Ezy) 2
RANGE PTY LTD (Range) 2
SWIFT WORKS LTD (SWL) 3
Additional Information 5
Financial information: Ezy, Range and SWL for the year ended 30 June 2019 is shown below: 7
Required: 10
PART II – 5% 11
Topic: Impairment of Assets 11
Referencing and style 12
Preventing plagiarism 12
Group Documented Minutes 16

PART I – 15%
EZY MANUFACTURING LTD (Ezy)
You are the accountant of Ezy Manufacturing Ltd (Ezy), a listed public company incorporated in Australia. Ezy is a paper and packaging company that is complimented by an extensive merchant distribution system, with primary markets and manufacturing operations in Asia Pacific region. In order to take complete control of its production facilities, Ezy implemented a policy of vertical integration and invested in two of its key suppliers.
The investments of Ezy as at 30 June 2019 are illustrated below:
RANGE PTY LTD (Range)
Range is a producer of uncoated paper, industrial and consumer packaging, and pulp. It has been one of the key suppliers of raw pulp in Australia for the last twenty (20) years. Ezy, Range’s major customer, purchased all ordinary shares of Range on 1 July 2015. Ezy issued 240,000 shares as part of the consideration and paid the balance $2,800 000 in cash. The shares in Ezy were trading on 1 July 2015 for $40 per share but subsequent to the acquisition of Range, fell to $34 per share as the market reacted badly to the purchase price paid by Ezy for its interest in Range.
The identifiable net assets of Range at the date of acquisition were represented by:
Share Capital $
400,000 Ordinary Shares 2,000,000
200,000 8% Preference Shares 1,000,000
General Reserve 1,000,000
Retained Earnings 1,500,000
5,500,000
Ezy holds all preference shares in Range. Preference shares are non-participating, cumulative and redeemable.
All assets of Range were stated at fair value in its accounts on 1 July 2015, except the following:
· An item of inventory recorded at $600,000 is obsolete and has an estimated value of only $100,000.
· Land recorded at $1,000,000 has been independently valued at $2,000,000.
· ‘Property, Plant and Equipment’ included a piece of equipment, which cost Range $750,000 on 1 July 2014 and had a useful life of 10 years. Due to change in technology, the equipment is now worthless.
At the date of acquisition, Range had internally generated patents that were not recognised in its accounting records, having a fair value of $15 000 and a remaining useful life of five years. Range had no intention of recognising these in its accounting records.
Since 1 July 2018, Range has traded extensively with Ezy. All sales made by Range to Ezy have been at cost plus 40%.
SWIFT WORKS LTD (SWL)
SWL provides Ezy with highly automated milling and other machinery, which are required in the manufacture of its paper and packaging products. There are substantial trading activities carried on between SWL and Ezy. All transactions are on normal commercial terms and conditions, which are calculated on the basis of cost plus 30%.
Ezy acquired 100% of the ordinary issued capital of SWL on 1 July 2017 for $3,600,000. The additional incidental costs of acquisition amounted to $100,000. The identifiable net assets at the date of acquisition were represented by:
$
Share capital 2,500,000
General Reserve 280,000
Retained Earnings 1,100,000
3,880,000
All identifiable net assets were considered to be stated at fair value.
A director of Ezy acted as representative of Ezy on the board of SWL. He suggested that in order to improve its efficiency, SWL should modernize its facilities. It should replace its old plant and equipment with new automated machinery. He also put forward Ezy’s proposal to finance the automation. The proposal was accepted by the other two directors of SWL. SWL borrowed $1 000 000 from Ezy on 31 December 2017, at an interest of 10% p.a., paid annually on 31 December. The loan is to be repaid as a lump sum at the end of five years.

Additional Information
· Ezy values all classes of assets on cost basis.
· The inventory turnover period in all group companies is less than one year.
· Ezy Group impairs goodwill at 10% every year.
· Ezy Ltd. supplies paper and packaging product to other group companies for their internal use at cost plus 20%.
· During the year, group companies traded extensively with each other. As at 30 June 2019 the following stocks were, being held by group companies from purchases made from other group companies.
Purchased from Stock on Hand
$ Annual intra-group purchases*
$
Ezy Range 140,000 1,000,000
SWL Ezy 40,000 200,000
·
All other profits arising on intra-group trading have been realised outside this group.
· The taxation rate applicable in Australia is 30%.
· The stocks held by group companies as at 30, June 2018 included the following:
Purchased from Stock on hand
$
Ezy Range 700,000
SWL Ezy -
· ‘Plant and Equipment’ in the books of Ezy include the following machinery purchased from SWL:
In the books of SWL on the date of sale Date of sale Useful life to Ezy
Cost Accumulated Depreciation Selling Price
Machinery 1 1,000,000 250,000 975,000 1 July, 2017 10 years
Machinery 2 1,000,000 200,000 1,040,000 1 July, 2018 8 years
·
· Information on dividends paid and declared is as follows:
? In June 2019, the directors of Range proposed a dividend out of current year’s profits for $100,000. This dividend was duly authorised in August 2019.
? SWL paid an interim dividend of $25,000 and declared a further dividend of $75,000 out of Retained Earnings as at 1 July, 2018.

Financial information: Ezy, Range and SWL for the year ended 30 June 2019 is shown below:
Ezy Ltd Range Ltd Swift Works Ltd
A$ A$ A$
Revenue 44,000,000 2,120,000 3,200,000
Expenses 29,000,000 1,600,000 2,300,000
Profit before tax 15,000,000 520,000 900,000
Income tax expense 9,000,000 160,000 300,000
Profit 6,000,000 360,000 600,000
Retained Earnings (1/7/18) 7,200,000 1,500,000 1,200,000
13,200,000 1,860,000 1,800,000
Interim Dividend paid 400,000 25,000
Final Dividend declared 600,000 75,000
1,000,000 - 100,000
Retained Earnings (30/06/19) 12,200,000 1,860,000 1,700,000
Non-current assets
Depreciable assets 12,300,000 7,410,000 4,600,000
Accumulated depreciation -660,000 -1,200,000 -920,000
Investment in other entities 24,000,000 750,000
Loan to SWL 1,000,000
Deferred tax asset 280,000 480,000 160,000
Patents and Trademarks (net) 680,000
Property 254,000 2,000,000 1,200,000
Current assets
Cash 1,184,000 840,000 650,000
Receivables 1,200,000 2,440,000 470,000
Inventory 1,200,000 600,000 470,000
Total Assets 40,758,000 13,320,000 7,310,000

Non-current liabilities
Debentures 1,460,000 1,220,000 680,000
Other Non-current Liabilities 1,500,000 1,000,000
Bank Loan 1,422,000 1,640,000 700,000
Current liabilities
Payables 120,000 1,360,000 220,000
Current tax liability 116,000 740,000 230,000
Dividend payable 800,000
Total liabilities 3,918,000 6,460,000 2,830,000
Net assets 36,840,000 6,860,000 4,480,000

Equity
Share capital -ordinary shares 21,000,000 2,000,000 2,500,000
Share capital -preference shares 3,000,000 1,000,000
General reserve 640,000 2,000,000 280,000
Retained earnings 12,200,000 1,860,000 1,700,000
Total equity 36,840,000 6,860,000 4,480,000

Required:
(1) Prepare the general journal entries in the accounting records of Ezy Manufacturing Ltd to record the
a) acquisition of investments in,
i) Range Pty Ltd on 1 July, 2015;
ii) Swift Works Ltd on 1 July, 2017;
b) dividend received or receivable during the year ended 30th June, 2019.
(2) Prepare acquisition analyses for Ezy Manufacturing Ltd’s investments in subsidiaries on the respective dates of acquisition.
(3) Prepare the consolidation journal entries* required to prepare the consolidated worksheet of the Ezy Group as at 30 June 2019. Show all workings providing explanations and justifications with reference to appropriate accounting standards, where necessary.
*The consolidation journal entries must address
a) differences between fair value and book value of identifiable net assets acquired by Ezy on the dates of acquisition;
b) elimination of investments in subsidiaries;
c) recognition of ‘Goodwill’ or ‘Gain on Bargain Purchase’;
d) elimination of intercompany transactions and balances, such as,
i) dividends paid or payable by subsidiaries;
ii) intercompany sales of inventory;
iii) unrealised profit in closing inventory;
iv) unrealised profit in opening inventory;
v) intercompany sale of non-current asset;
vi) intercompany receivables and payables
vii) intercompany revenues and expenses
e) tax effect adjustments, where necessary.
(4) Complete the consolidated worksheet of the Ezy Group for the year ended 30 June 2019. An incomplete proforma consolidation worksheet of the Ezy Group is available on VU Collaborate in Excel format.

PART II – 5%
Topic: Impairment of Assets
Get access to a copy of the 2018 Annual Report of Myer Ltd. Then refer to the NOTES to the Consolidated Financial Statements of Myer Holdings Intangible Assets (C2).
Answer the following questions:
1. Why is an impairment test considered necessary?
2. What effect does impairment have on a company’s Balance Sheet and profit and Loss Statement?
3. What is the value of Goodwill for Myer Holdings at 29th July 2017 and 28th July 2018? Provide some possible reasons for this change.
4. Which other Intangible assets have been impaired between 2017 and 2018?
5. Explain what impact does changing (increasing or decreasing) the discount rate have on the calculation of impairment losses?
6. Can we reverse impairment losses for all assets? Explain.
Reference to AASB 136 Impairment of Assets may also assist you in answering some of these questions.
Max: 500 words.
Referencing and style
a) The presentation should be clear, concise and accompanied by expository text accessible to the reader
b) The presentation of the entire assignment should be written in English of an appropriate academic register and a format and standard of presentation acceptable to business study
c) Assignment should be double spaced with left and right margins of 2.5 cm and top and bottom margins of 2.5cm. It must be typed in Microsoft Word using Times New Roman, 12 font size.
d) The assignment is required to use a Harvard referencing style (see VU library for Referencing Style guides https://www.vu.edu.au/library/access-borrowing/search-browse-resources/library-guides)
e) Assignment without proper referencing (in text and end of text) will be subject to substantial deduction of marks. This may result in the assignment being marked zero.
f) Where a group member is not cooperating or contributing to the group and the group has made all efforts to resolve the issue, the group must inform the lecturer and the unit coordinator immediately via email. Where a group does not report this matter immediately, it will not be entertained later on, especially before the due date of the assignment. The defaulting member will be given a warning and should the member continue to default, the group will continue without the defaulting member and the defaulting member will receive zero for the task.
Preventing plagiarism
3.1 Academic Honesty and Preventing Plagiarism Policy
Plagiarism is defined as ‘The practice that involves use of another person’s intellectual output and presenting it (without appropriate acknowledgement) as one’s own’.
Examples of plagiarism:
· Word-for-word copying of sentences/paragraphs in an assignment without acknowledgement or with insufficient or improper acknowledgement;
· Downloading essays or assignments from the web and presenting these for assessment;
· Presenting another student’s work or research data as the student’s work;
· Copying out parts of any text without acknowledging the source(s). This may be written text, structures within texts, diagrams, formulae, sound files, still photographs, audiovisual material (sound and image files), graphics/animations/multimedia objects, other computer-based material, mathematical proofs, art objects, products and others. This can be done as verbatim copying or paraphrasing.
· The use of someone else’s concepts, experimental results, experimental conclusions or conclusions drawn from analysing evidence or arguments without acknowledging the originator of the idea(s) or conclusion(s).
3.2 Students are responsible for:
· Understanding and respecting the University’s policies and procedures regarding plagiarism, collusion, and other forms of academic misconduct, and as such should only submit work for correction or academic credit that is their own or that properly acknowledges the ideas, interpretations, words or creative works of others;
· Avoiding the lending or making accessible original work to others;
· Being clear about the appropriate referencing rules that apply to their field of study;
· Refusing to be a party to another student’s efforts to undermine the academic integrity of the University.
· Seeking assistance with their learning and assessment tasks if they are unsure of appropriate forms of acknowledgement.

ASSIGNMENT FEEDBACK SHEET AND MARKING GUIDE

GROUP ___________________________________________________ MARKER
___________________________________________________________
PART I
Marks COMMENTS
Max
Investments and investment related journal entries in the books of Ezy Ltd. (Q (1)) 6
Acquisition Analysis (Q (2)) 15
Consolidation Journal Entries (Q (3)) 38
Consolidation Worksheet (Q (4)) 33
Workings, calculations including relevant explanations and justifications 28
Total 120
Divide by 8 to give a mark out of 15. 15
PART II
Marks COMMENTS
Max
1. Why is an impairment test considered necessary? 5
2. What effect does impairment have on a company’s Balance Sheet and profit and Loss Statement? 5
3. What is the value of Goodwill for Myer Holdings at 29th July 2017 and 28th July 2018? Provide some possible reasons for this change. 5
4. Which other Intangible assets have been impaired between 2017 and 2018? 5
5. Explain what impact does changing (increasing or decreasing) the discount rate have on the calculation of impairment losses? 5
6. Can we reverse impairment losses for all assets? Explain. 5
Total 30
Divide by 6 to give a mark out of 5. 5
Total PART I and Part II 20
Group Documented Minutes
Date of Meeting:______________________________
Time Meeting began:__________________________
Time Meeting ended:__________________________
Location of meeting: online / VU campus other:____________________________________
Attendees:__________________________________________________________________
__________________________________________________________________
Apologies from any absent members:_____________________________________________
Agenda of Meeting:
Minutes of Meeting:
Agreed Actions:
Time Date and location of next meeting:________________________________________
Signatures of all attendance: _________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________