SCHOOL OF BUSINESS AND MANAGEMENT

BACHELOR OF ACCOUNTING
ACC708: ADVANCED FINANCIAL ACCOUNTING & REPORTING 1

Assignment 1 (Due for submission on 8 July 2022)

Question 1: Business combinations

On July 2019 Brad Ltd acquired all assets and liabilities of Pitt Ltd. In exchange for these assets
and liabilities, Brad Ltd issued 100 000 shares that at date of issue had a fair value of $5.20 per
share. Costs of issuing these shares amounted to $1 000. Legal costs associated with the
acquisition of Pitt Ltd amounted to $1 200.
The assets and liabilities of Pitt Ltd at 1 July 2019 were as follows:

Carrying amount Fair value

Assets $ $
Cash 2 000 2 000
Accounts receivable 10 000 10 000
Inventories 64 000 68 000
Equipment 320 000 232 000
Accumulated depreciation (96 000) -
Patents 240 000 280 000

Liabilities
Accounts payable (16 000) (16 000)
Debentures (64 000) (64 000)

Required
(a) Prepare the acquisition analysis at 1 July 2019 for the acquisition of Pitt Ltd by Brad Ltd.
(b) Prepare the journal entries in the records of Brad Ltd at 1 July 2019.
(c) Prepare the journal entries in the records of Brad Ltd assuming that the shares issued by
Brad Ltd had a fair value of $4.80.
Question 2: Business combinations
White Ltd has been negotiating with Cloud Ltd for several months and agreements have finally
been reached for the two companies to combine. In considering the accounting for the combined
entities, management realizes that in applying AASB3/IFRS3, an acquirer must be identified.
However there is debate among the accounting staff as to which entity is the acquirer.

Required;
(a) What factors/indicators should management consider in determining which entity is the
acquirer?
(b) Why is it necessary to identify an acquirer?

Question 3: Insurance
(a) What are the objectives of investment portfolios ( minimum 5 )
(b) What are the three different insurance contracts? Explain in your own words giving
examples. (For each you should cover at least four hundred words).
(c) What is the declaration page in insurance policy?
(d) What is the difference between participating policy and non-participating policy?
(e) What is group life insurance?

Question 4: Banking
(a) The Banking Act does not require bank assets or liabilities to be classified into current
and non-current components. What is the justification for this departure from
conventional practice?

(b) All investments should be measured at fair value. Discuss this position making reference
to IFRS 3.

(c) What is the difference between non-performing loan and an unused loan? Give reasons
for your answer in the light of issues raised in IFRS 9.

(d) Distinguish between trading and available for sale assets.

(e) Why are banks financial intermediaries?