Question 2: Lease (13 marks)

1A: In 2014, Toowoomba Ltd, which runs a successful chain of sushi restaurants, was experiencing significant cash flow problems. Their accounting consultant advised that all the shop premises owned by the company be sold and either leased back or the businesses moved to alternative leased shops. He then advised that all lease agreements for the shops should be ‘operating’ rather than ‘finance’ leases.

Required

1) Discuss why, at that time, the consultant gave that advice, preferring operating to finance leases. (limit 200 words) (2 marks)

2) Describe THREE disadvantages to the company of entering into finance lease agreements under the standards operating in 2014. (limit 100 words) (1 mark)

1B: In 2016, the standards changed to the new accounting Standard for Leases IFSR 16, which will come into operation in 2019. However, companies can begin using these standards now. Toowoomba Ltd are expanding and want to lease some new shops for 10 years. Their Accountant suggests they begin the new leases under the new Standards, so they do not have to change reporting methods part-way through the leases. (10 marks)

Required

Explain the differences between the new accounting standard for leases, IFSR 16, and the current accounting standard from the point of view of lessees and lessor. What are the implications for the shareholders and banks and other users of the Annual Report of Toowoomba Ltd? (5 marks)

Examine the methods of reporting leases in the Annual Reports of the 3 companies listed under Q.1 above. Choose two companies and explain and compare the way that they are reporting on lease. Describe any changes the companies need to make to meet the new Standard. (3 marks)

Do you think this change in the Standards on Leases is an improvement? Justify your answer by referring to examples from the Annual Reports you have read. (2 marks)

Please note, you are required to do research to answer this question. Check PDF documents uploaded on Module 5 of the Study Desk and also FYI click URL to find useful links. Be sure to reference your sources of information correctly.

(limit 600 words)

Question 3: Consolidations (5 marks)

Emily is the accountant for Springfield Ltd. This entity has an 80% holding in the entity

Lambs Ltd. A trainee working with Emily is concerned that the consolidated financial statements prepared under AASB 10 may be misleading and asks Emily why they are not allowed to prepare the consolidated financial statements showing the non-controlling interest in Springfield 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.

Write an appropriate answer for Emily to give, covering the following issues:

1) How are prime users considered in the preparation of Consolidated Financial Statements? (limit 200 words);

(2 marks)

2 The differences that would arise in the consolidated financial statements of Springfield Ltd if the non- controlling interests were classified as debt rather than equity (Debt vs Equity)

(limit 100 words) (1 mark)

3) The reasons the standard setters have chosen the equity classification in AASB 10.

(limit 200 words) (2 marks)
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Posted on May 13, 2016Author TutorCategories Question, Questions