Lion Nathan Pub Sale & Accounting Impact

This assignment examines the accounting consequences for Lion Nathan when it sells its pub assets and then leases them back. It delves into how this transaction affects the company's cash flow, balance sheet, income statement, and depreciation calculations. The analysis considers relevant accounting standards and principles, providing a comprehensive understanding of the financial implications involved.

Running head: ADVANCED ACCOUNTING
Advanced Accounting
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Question 1:.................................................................................................................................2
a) Mentioning goodwill impairment charge that could be reported or disclosed in QBE’s
financial statements:...................................................................................................................2
b) Stating can QBE’s use chairperson as an intangible asset, and disclose it in their financial
statement:...................................................................................................................................3
Question 2:.................................................................................................................................4
a) Mentioning the reimbursement that might be enjoyed by Lion Nathan with leaseback
transactions and sale of pub:......................................................................................................4
b) Mentioning the use of finance or operating lease for Lion Nathan:......................................4
c) Depicting whether Lion Nathan account for any profit or loss on the sale of the pubs:........5
d) Mentioning the change in depreciation if pubs are sold and then leased back by Lion
Nathan:.......................................................................................................................................5
Reference and Bibliography:......................................................................................................7

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Question 1:
a) Mentioning goodwill impairment charge that could be reported or disclosed in QBE’s
financial statements:
In the annual books of QBE, different measures could be used for depicting the
impairment charge, which could directly help in depicting the actual financial position of the
organisation. Goodwill impairment charges are relevantly imposed on the carrying value if it
exceeds the fair value. Furthermore, the impairment charge could directly be deducted from
the income statement and balance sheet statement. In this context, Baskerville et al. (2017)
mentioned that use of impairment charge could directly allow the organisation to reduce the
value of intangible assets as per their fair value. The impairment expenses needs to be
recorded in both statement of financial account, which could directly help in depicting the
actual firm value. Therefore, the overall one time impairment charge of $150 million will be
reflected in the income statement of QBE. However, the overall in payment charge of $600
million will mainly be charged in balance sheet of the organisation. Relevant decline in
Goodwill From the annual report of the organisation could be witness in the balance sheet,
where deduction of $600 million will be reported. The relevant imposition of one time in
payment charge could directly reduce the profit level of the organisation. Chaney (2017)
argued that companies use the impairment expenses to reduce the profit, which could directly
help in improving the retained income and provide exemption from the tax. Hence, QBE
could list the impairment charge and reduce the overall total assets of the organisation.

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b) Stating can QBE’s use chairperson as an intangible asset, and disclose it in their
financial statement:
From the evaluation it could be identified that QBE wants to enlist the chairperson's
reputation as intangible assets in the overall financial statement. However, according to IFRS
3 and IE16-IE44 individual persons cannot be listed intangible assets of an organisation, even
if their absence could decline the share price for the organisation. According to the relevant
rules it is identified that the work of the individual can be listed as intangible assets but the
individual itself cannot be evaluated in annual books of the organisation. Initial Accounting
for Internally Generated Intangible Assets, directly states that the programs, works, and other
measures used by the chairperson could be enlisted as intangible assets of the organisation.
For the more, in paragraph 33A it is directly stated that artistic related works such as please,
television programs, and literary work can be considered as intangible assets. Nevertheless,
the actual artist that created the work cannot be considered, as intangible assets of the
organisation (Jermias 2017).
Therefore, there is adequate proof that the chairperson of QBE cannot be listed as
intangible assets in their financial statement. O’Connell et al. (2016) stated that persons
cannot be evaluated on monetary terms, which is why financial statement does not include
reputation and other honorary work of an individual. Furthermore, the organisation could
directly use customer related, marketing related, contract based, and technological based
criteria for enlisting in their intangible assets. Hence, QBE could not accommodate the
reputation of its chairperson as the intangible assets in its annual report.

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Question 2:
a) Mentioning the reimbursement that might be enjoyed by Lion Nathan with leaseback
transactions and sale of pub:
The evaluation of the case directly indicates that Lion Nathan could effectively
improve its financial capability if it uses the leaseback transaction after selling the pub. There
are two types of benefits that could be obtained from the sale of the pub. Firstly, an increment
in the cash reserves of the organisation could be seen, which could directly increase the
chance for supporting future projects. Secondly, the organisation could use the leaseback
strategy for reducing the overall tax expenses, as relevant exceptions are provided by the
authority for leaseback assets. Therefore, relevant benefits could be identified from the use of
leaseback transaction made by Lion Nathan for its pub. Rossing, Johansen and Pearson
(2016) mentioned that relevant reductions could be identified if the organisation uses the
lease option, which could be helpful in improving its retained income. Therefore, it could be
assumed that Lion Nathan could directly improve the overall profit generation capacity by
using leaseback method, which might help in increasing cash reserves and reducing tax pay
of the organisation.
b) Mentioning the use of finance or operating lease for Lion Nathan:
Finance lease option is one of the best measures, which could be used by Lion
Nathan, as it helps in reducing the Taxable income by deducting both interest and
depreciation of the Asset. Moreover, the finance lease also allows the organisation to enlist
the leased asset in their balance sheet for increasing total assets of the organisation. Hence,
the use of Finance lease could directly allow Lion Nathan to improve its financial position
and operational feasibility. However, the use of operating lease option could only allow Lion
Nathan to reduce the income statement with interest expense. Operating lease does not

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provide any kind of benefits as finance lease, where no incremental in capital assets can be
seen and no deduction of depreciation can be identified in the annual report. Thus, the use of
operating lease could not allow Lion Nathan to generate the relevant benefits which would be
provided from finance lease option. Shawver and Miller (2017) mentioned that companies
with the help of finance lease are able to maximize their retained income and capital assets as
the leased asset is enlisted in its annual report.
c) Depicting whether Lion Nathan account for any profit or loss on the sale of the pubs:
From the evaluation it would be identified that Lion Nathan needs to reflect the sale
of pub in its annual report on all the three accounts the balance sheet, income statement and
cash flow statement. Lion Nathan could have two aspects from the sale of pub, where it could
attain loss of profit from the same. Any of the circumstances will directly reflect on all the
three accounts of the annual report. The balance sheet the organisation will directly reflect the
reduction in capital assets, where relevant total assets will directly decline. Moreover, any
kind of profit or loss that is incurred from the sale of land will reflect on income statement,
where it will be added or deducted from the overall revenue generated from operations.
Lastly, in the cash flow statement the overall benefit or loss that is obtained from the sale of
pub could directly reflect as incremental cash or deficit. Smith (2017) mentioned that assets
of an organisation could only be sold after thorough evaluation, where selling of the asset
could provides relevant benefits to the company.
d) Mentioning the change in depreciation if pubs are sold and then leased back by Lion
Nathan:
The relevant depreciation value needs to be changed for the asset, as Lion Nathan will
directly sell the asset and procure it on lease agreement. This relevant measure needs to use
the actual value of the Asset on which it is sold, as depreciation is always calculated on the

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purchase value or in this case lease value. Lion Nathan is also using Finance leasing method,
which could allow the organisation to enlist the Asset in its balance sheet and charge
depreciation and its income statement. Therefore, the depreciation will mainly reflect the
actual amount in which the asset is purchased or the lease amount. Hence, the depreciation
value will eventually change for the pub and will be enlisted in the annual report. Wen (2016)
stated that the use of adequate depreciation method eventually allow the organisation to
reduce the tax liability and increased retained income.

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Reference and Bibliography:
Baskerville, R., Carrera, N., Gomes, D., Lai, A. and Parker, L., 2017. Accounting historians
engaging with scholars inside and outside accounting: Issues, opportunities and
obstacles. Accounting History, p.1032373217732349.
Chaney, P.K., 2017. Discussion of “Accounting quality and loan pricing: The effect of cross-
country differences in legal enforcement”. The International Journal of Accounting.
Freeman, R.E., Greenwood, M., Christensen, A.L., Cote, J. and Latham, C.K., 2016.
Numerous researchers have investigated accounting students’ levels of moral reasoning,
ethical choice and judgment employing the Defining Issues Test (DIT) and using its P score
as an indicator of moral reasoning. Not surprisingly, a number of DIT studies report
conflicting results. Moreover, despite widespread use of the DIT, there is concern that it may
not adequately measure all facets of ethical... Journal of Business Ethics, 133(1), pp.141-163.
Jermias, J., 2017. Development of management accounting practices in Indonesia. The
Routledge Handbook of Accounting in Asia, p.104.
O’Connell, B., De Lange, P., Freeman, M., Hancock, P., Abraham, A., Howieson, B. and
Watty, K., 2016. Does calibration reduce variability in the assessment of accounting learning
outcomes?. Assessment & Evaluation in Higher Education, 41(3), pp.331-349.
Rossing, C.P., Johansen, T.R. and Pearson, T.C., 2016. Tax Anti-avoidance Through Transfer
Pricing: The Case of Starbucks UK. In 28th Asian-Pacific Conference on International
Accounting Issues. Asian-Pacific Conference.
Shawver, T.J. and Miller, W.F., 2017. Moral intensity revisited: Measuring the benefit of
accounting ethics interventions. Journal of Business Ethics, 141(3), pp.587-603.

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Smith, M., 2017. Research methods in accounting. Sage.
Wen, L., 2016. Integrate Video-Based Lectures into Online Intermediate Accounting II
Course Learning. Business Education Innovation Journal, 8(2).
Zeff, S.A. ed., 2016. Memorial Articles for 20th Century American Accounting Leaders (Vol.
49). Routledge.