Advance Financial Accounting: Investment Accounting and Reporting

This report addresses the accounting requirements for a proposed investment by Wakefield Ltd in Hobson Ltd, as requested by the CEO, Angela Kirk. The memorandum explains the accounting treatment for the investment, focusing on the purchase of shares and the application of accounting standards, particularly AASB 9, which deals with financial instruments. The report examines the impact on financial statements, including the balance sheet, and the recognition of profit. It concludes that the accounting requirements are essential for accurate financial reporting. The report also covers AASB 110, events after the reporting period, and provides references to relevant academic documents. The assignment provides a detailed analysis of investment accounting principles, financial reporting, and the application of accounting standards within a business context, offering insights into the practical aspects of accounting for investments and the importance of adhering to accounting standards. The report provides a comprehensive understanding of the accounting implications of such investments, including the recognition of profits, and the overall financial impact on the investing company. The report also analyzes the application of AASB 110, events after the reporting period, highlighting its importance in financial reporting and providing relevant academic references.

Running head: ADVANCE FINANCIAL ACCOUNTING
Advance Financial Accounting
Name of the Student
Name of the University
Author’s Note

2ADVANCE FINANCIAL ACCOUNTING
Answer to question 1
Memorandum
Date: 6 September 2019
To: Angela Kirk, Chief Executive Officer of Wakefield limited
From: Ross May, Chief Accountant
Subject: Accounting requirement for the proposed investment
Introduction
The main purpose of this particular memorandum is to explain as well as the accounting
requirement for the investment that has been proposed for purchasing the investment
from the company that is Hobson limited.
Accounting requirement of investment
Accounting for the investment is important for an organisation as it includes the overall
accounting treatment that is to be sourced or followed during the time of selling and
purchasing certain kind of investment from a different organisation. In the case that has
been provided in this particular study points out the process of purchasing a certain
amount of investment form another company along with mentioning their accounting
treatment (Lara, Osma & Penalva, 2016). Angela Kirk has been appointed in the post of
Chief Executive Officer of Wakefield limited that would consider the recent consideration
of the company in their normal course of business. Angela Kirk has the planning to buy
the shares of Hobson limited for which the company is required to examine their
available financial statement that has already been prepared by the company. The
inclusion of debt instrument that has been classified under AASB 9 that deals with
financial instruments along with equity instruments (Magnan, Menini & Parbonetti,
2015). The investment of the company that are associated with the business would be
more profitable and for this particular reason, Angela kirk has chosen Hobson limited for
acquiring certain amount of investment.

3ADVANCE FINANCIAL ACCOUNTING
Angela Kirk has proposed the investment process that would generally involve the
purchase of certain amount of shares that would be effectively profitable for the
company. Shares that are issued by the company would involve the process of
accounting that would reflect in their books of accounts (Tayeh, Al-Jarrah & Tarhini,
2015). The total amount of shares that would be purchased by Wakefield limited from
Hobson limited varies from 5 % to 70 % of holding shares of the subsidiary company.
Angela Kirk is interested in this type of investment that would be performed in the
business perspective of Hobson limited as each particular shares is equivalent to one
single vote for the general meeting. This particular one vote would be beneficial during
the time of annual general meeting for selecting the directors of the company ( Yu &
Wahid, 2014). The treatment of accounting for the process of investment includes
paying more than $ 1000000 for acquiring the debt instrument that would assist in the
process of allocation of fund. Moreover, it also includes the operating leases which
points out different types of investment that would be accounting for the overall process
of investment in the company and business courses.
Accounting for investment
The treatment for accounting in the process of acquiring of investment is reflected in the
financial statement of the company and is required to be disclosed with certain
standard. The total amount of interest that is to be recognised by the company is to be
covered by the accounting standard 9 that helps in measuring the total amount of
revenue which has been earned by the business (Ruch & Taylor, 2015). As per the
case study, the acquiring of investment form the company that is subsidiary in nature
would be reflected in the statement of financial position also known as the balance
sheet that is mainly prepared by the management of the company. The investment from
Hobson limited would be acquired by the Wakefield limited for the proposed investment
along with allocation of resources that are effective in nature (Butler & Ghosh, 2015). It
also helps the company in gaining certain amount of interest from the investment that
has been made in the business.
Recognition of profit

4ADVANCE FINANCIAL ACCOUNTING
The profit that has been recognised by the company that is Hobson limited would be
associated with the financial statement of Wakefield limited. The preparation of financial
statement by the Wakefield limited after a certain time period mainly highlights the total
amount of profit which has already been earned by the company (Christensen, Nikolaev
& Wittenberg‐Moerman, 2016). As the company that is Wakefield limited is acquiring the
shares of Hobson limited would also enjoy the overall benefits that is to be earned by
Hobson limited. Thus, the amount of profit that has been earned by the company which
is Hobson limited would also be enjoyed by Wakefield limited they have acquired the
share investment of the subsidiary company.
Conclusion
From the above study, it can be concluded that requirement for the process of
accounting is to be proposed for adjustment in the financial statement of the company.
Hobson limited consist of certain investments that would be required to acquire the
investment of the business. It also includes the cost of investment that has also been
incurred by the company in their normal course of business. The inclusion of operation
of finance lease points out the investment for providing certain advantages to the plan
and other funds that are directly associated with the business.
Answer to question 2
A
The current accounting standard on the website of AASB highlights the certain standard
for accounting which is AASB 110 that mainly deals with events after the reporting
period. It is important for having the concept of this particular accounting standard as it
would help during playing the role of an accountant. These are the records of the events
after the preparation of financial statement by the company.
B
The two documents that are used for understanding the accounting standard are
mentioned as follows.
1 Name of the document - Managerial Auditing Journal

5ADVANCE FINANCIAL ACCOUNTING
Author name - O’Donnell, K., Hicks, B., Streeter, J., & Shantapriyan, P.
Date – 2015
Link: https://www.emeraldinsight.com/doi/abs/10.1108/MAJ-08-2014-1077
2 Name of the document - Australian Accounting Review
Author name - Nobes, C. W., & Zeff, S. A.
Date – 2016
Link:http://www.ruf.rice.edu/~sazeff/Nobes-Zeff%20AAR%20Have%20Canada,
%20Australia.pdf
C
The documents that has been mentioned above mainly focuses on the AASB 110 which
points out the events that takes place after the reporting period (Benson et al., 2015).
The importance of this particular standard is useful in the process of gaining knowledge
along with effective understanding the overall concept and the benefits.

6ADVANCE FINANCIAL ACCOUNTING
References
Benson, K., Clarkson, P. M., Smith, T., & Tutticci, I. (2015). A review of accounting
research in the Asia Pacific region. Australian Journal of Management, 40(1), 36-
88.
Butler, S. A., & Ghosh, D. (2015). Individual differences in managerial accounting
judgments and decision making. The British Accounting Review, 47(1), 33-45.
Christensen, H. B., Nikolaev, V. V., & Wittenberg‐Moerman, R. (2016). Accounting
information in financial contracting: The incomplete contract theory
perspective. Journal of Accounting Research, 54(2), 397-435.
Lara, J. M. G., Osma, B. G., & Penalva, F. (2016). Accounting conservatism and firm
investment efficiency. Journal of Accounting and Economics, 61(1), 221-238.
Magnan, M., Menini, A., & Parbonetti, A. (2015). Fair value accounting: information or
confusion for financial markets?. Review of Accounting Studies, 20(1), 559-591.
Ruch, G. W., & Taylor, G. (2015). Accounting conservatism: A review of the
literature. Journal of Accounting Literature, 34, 17-38.
Tayeh, M., Al-Jarrah, I. M., & Tarhini, A. (2015). Accounting vs. market-based measures
of firm performance related to information technology investments. International
Review of Social Sciences and Humanities, 9(1), 129-145
Yu, G., & Wahid, A. S. (2014). Accounting standards and international portfolio
holdings. The Accounting Review, 89(5), 1895-1930