Corporate Accounting Case Study Assignment on Small Business Guide and Financial Reporting Regulation in Australia

This case study assignment covers topics such as small business guide, rules for internal management of a company, company structure, financial reporting regulation in Australia, and more.

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Corporate Accounting
Semester 2
Case Study Assignment
I. Assuming that you are the director of a small proprietary company, find the ‘small
business guide’ on the Corporations Act 2001 and learn of your rights and obligations
under the Act for managing your business. Prepare a brief report for 3 topics from the
following lists.
1. The meaning of registration, including shareholders’ and directors’ liabilities
2. Rules for internal management of a company
3. Company structure and setting up a new company
4. Continuing obligations once the company is set up
5. Company directors and secretaries
6. Annual financial reports and audit
7. Disagreements within the company
8. Companies in financial trouble
1. The meaning of registration, including shareholders’ and directors’ liabilities
Registration shall mean the following:-
(a) A separate legal entity with its own power;
(b) Liability of shareholders is limited; (Anon., n.d.)
(c) Liability of director for dues shall be limited to breach of duties;
(d) Continuous existence as going concern;
(e) Liability of director as guarantor/ security over assets which are personal.
2. Rules for internal management of a company
There are certain rules which are mandatory and certain are provisional/ replaceable
depends on enterprise. Further, there are special rules for one director companies.
A company shall not be required to have separate internal rules of its own. The
company may harbor the benefits of the standard prescribed under the Corporations
Act. Thus, if the company shall be required to have its own constitution if the company
wants to do addition or deletion to the standard prescribed under the corporation act...
3. Company structure and to set up a new entity
The drivers of small companies shall have two options:
(a) Buy Shelf Companies;
(b) Set up a new company.
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In case, the operators wish to acquire a company instead of not going for turmoil and
hardships of setting up a company. They can go for option 1.
In case the operators propose to set up a company, the following steps are involved:
(a) Application to ASIC for registration shall be made;
(b) At least one shareholder requirement;
(c) The company shall come into existence once ASIC registers a completely filled
form.
II. Case study B
Select 3 organisations from the following lists and prepare a brief report of their roles
in the regulation of financial reporting in Australia.
(a) the Financial Reporting Council (FRC)
The responsibility of FRC is to oversee the effectiveness of the reporting in financial
statements in terms of the financial reporting framework established.
The main points shall be the following:
(a) Overseeing the setting process of accounting and auditing standards applicable for
public and private sectors;
(b) Giving overall review about the quality of Audit conducted by the auditors so that
the overall review helps to create a general framework. .
(c) Financial Reporting framework shall also monitor international accounting and
auditing standards development, and uniformity and unison way of accounting and
auditing standards for worldwide use and shall further advance these standards
adoption.
(d) FRC, a statutory body, under Part 12 of the Australian Securities and Investments
Commission Act 2001 (the ASIC Act).
(b) the Australian Accounting Standards Board (AASB)
III. Case Study D Research on AASB 3
AASB 3 does not apply to all business combinations. Prepare a report of those business
combinations excluded from the scope of AASB 3.
Answer:
Australian Accounting Standard adjudges AASB 3 shall apply to a transaction or
transactions or other event which falls within the purview of a business
combination. The above AASB 3 shall not be relevant to:
(a) Accounting treatment in the books of accounts in case of a joint venturer
arrangement set up.
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(b) Acquiring or purchasing of a class of assets which in legal front does not constitute
a business as a whole or individually. Under such cases, the person who has
acquired shall do the identification and recognition of each class of assets
purchased which will include all such class of assets that will meet the criteria
of Auditing and accounting standard board 138 Intangible Assets) and liabilities
assumed.
Further, the all expenses identifiable shall be distributed to each class of assets on
the basis of their valuation as on that date and such distribution to each class of
assets will not crop goodwill.
(c) When there is a merge of corporate or companies which are within the control i.e.
common (paragraphs B1–B4 provide related application guidance).
Aus2.1:Further, a restructuring of arrangements which are administrative in nature, as
defined under Appendix A of AASB 1004 Contributions, is out of the scope of the
Standard AASB 1004 which lays down the conditions/specifications for restructuring
of administrative arrangements.
Besides, the want of this AASB shall not enroute or covert the acquisition by any
company which is of investment nature, as defined inAASB10Consolidated
Statements of the company, of an investment in the company which is subsidiary in
nature that is required to be analyzed at fair value basis and routed through profit or
loss.
IV. Case Study E Research on AASB 10
Required
In the following independent situations, determine whether a parent–subsidiary
Relationship exists, and which entity, if any, is a parent required to prepare
consolidated
Financial statements under AASB 10.
Road Ltd is a company that was hurt by a recent global financial crisis. As a result, it
Experienced major trading difficulties. It previously obtained a significant loan from
Wile E. Bank, and when Road Ltd was unable to make its loan repayments, the bank
made an agreement with Road Ltd to become involved in the management of that
company. Under the agreement between the two entities, the bank had authority for
spending within Road Ltd. Road Ltd’s managers had to obtain authority from the bank
for acquisitions over $10 000, and was required to have bank approval for its budgets.
Answer:
The objective of this standard is applicable when a control is established by another
entity; in this case the preparation of books of accounts of the entity will be according
to the rules of the accounting standard.
It does not deal with business combination. An entity is a parent entity as it is
establishing its management relationship within the company and Road ltd is fully hurt
with the financial crisis and cannot pay off its liability and the management of the
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company is taken over by the bank so the bank is required to prepare a consolidated
financial statement.
Consolidated financial statements shall be prepared by the parent. It applies to all entities,
except as follows:
(a) If the parent company meets all the following criteria than the consolidated financial
statement shall not be prepared by them:
(i) All its other owner are a fully owned subsidiary or is a not fully-owned subsidiary
of any other company and all its other owners.
(ii) In public market instruments are not traded whether it’s a local or foreign market
or world or international market. (Anon., 2015)
(iii) Financial statements with a securities commission it did not file or any other
organization which are regulatory for distributing any financial instruments; and
(iv) Its last one or any intermediately parent shows financials of the company that are
available for all person use and comply with IFRSs, in which all parent holding and all
consolidation is done or are ascertained at fair market value basis through profit and loss in
follow up with these Standard.
V. Case Study G CH19 Case study 5 Bargain purchase
The accountant for A Ltd, Ms Springfield is seeking your advice on an accounting
issue that has been confusing her. When preparing the acquisition analysis relating to A Ltd’s
acquisition of B Ltd, she calculated that there was a gain on bargain purchase of $20,000.
Being unsure of how to account for this, she was informed by accounting associates that this
should be recognised as income. However, she reasoned that this would have an effect on the
consolidated profit in the first year after acquisition date. For example, if Lyra Ltd reported a
profit of $100,000, then consolidated profit would be $120,000. She is unsure of whether this
profit is all post-acquisition profit or a mixture of pre-acquisition profit and post-acquisition
profit.
Required
Compile a detailed report on the nature of an excess, how it should be accounted for, and the
effects of its recognition on subsequent consolidated financial statements.
Answer
In terms of AASB 3 , profit on bargain purchase shall be treated immediately in Profit and
loss account. The relevant extract has been detailed here-in-below
“ if the acquirer is able to clearly analyze the cost of acquiring the business and can estimate
each class value of assets or liabilities and after analyzing if the acquired cost exceed the fair
market valuation of each class of assets than the excess amount will get transfer to profit and
loss account .; (Anon., n.d.)
No treatment for future consolidation.
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Bibliography
Anon., 2015. Consolidated Financial Statements. [Online]
Available at: https://jade.io/j/?a=outline&id=503698
[Accessed 27 August 2018].
Anon., n.d. Business Combinations. [Online]
Available at: https://www.legislation.gov.au/Details/F2005B01399
[Accessed 27 August 2018].
Anon., n.d. Federal Register of Legislation. [Online]
Available at: https://www.legislation.gov.au/Details/C2008C00031
[Accessed 27 August 2018].
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