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Acct 3321

Work shop 2

B2 Relevant facts
- Animals were not bought. They inhibit the land that was bought
- Aficania law states that wild animals are property of the owner of the land they occupy
- Property is not fenced.

Conceptual Framework Guidance
- Resource controlled by the entity X Legally owned but animal free to roam
- Result of a past event (correct) Purchased land with wild animal
- Generates future economic benefit (correct) Ecotourism

Conclusion
- No, wild animals are not assets
- Animals are free to roam , when they leave they are no longer legally owned by Open Safari
- Animals are legally owned while on Freelands, they are not controlled

B3 Relevant facts
- staff are trained by open safari
-open safari incurred significant cost
-some staff posses specialised skills

Conceptual Framework Guidance
- Paragraph 4.4
- Resources controlled by entity x Staff can choose to quit/resign
- Result of a past event (correct) Investment in training
- Generates future economic benefit (correct) Ecotourism

Control over staff performance does not control over decisions to resign

Conclusion
- No, staff are not assets as they are not controlled by open safari
- Staff could chose to leave ( fails control condition)
- E.g of staff that are considered assets sports players who have signed a contract with a team

B6. Determining the extent to which borrowing cost must be recognised as part of the cost the PPE
infrastructure
- Determining the cost of the thatch grass used for roofing
- Determining the extent to which ( if at all) the cost of a particular item for PPE (e.g fittings) should
include the expected dismantling and recycling costs that are expected to occur at the end of the
items life
- Determining the potential impact of foreign currency transactions and hedge accounting ( if
applied) on the cost of the PPE
- The consideration of the capitalisation of transport and installation cost to the cost of PPE.

C2 Assets can be tangible or intangible
Relevant facts and conclusion behind
- Under IAS 38 advertising must be expensed
Conceptual Framework Guidance
- Resources controlled entity ( can choose method of advertisement, amount of $ to put in, etc)
[Intangible asset being the open safari brand]
- Generate future economic benefits ( ecotourism cash inflows)
-Results of a past event ( investment in advertising)

C3 Resources controlled by entity (correct) Open safari control resources and when to them
- results of past event (correct) Investment in resources
- Generate future economic benefit (correct) Govt. Grant, ecotourism cash inflows

Items can be resold to others
- They are assets

C4- It is a present obligation
- Legally enforceable contract
have to pay it back if dont satisfy condition
-Duty or responsibility of an entity to perform or act in a certain why

C8 IAS 38
- IAS 16
- IAS 2 (inventory, Includes raw material, WIP)
Unit of account not equivalent to currency

1.1 a) Performance of an investment results from:
- Income earned on investments
- Changes in fair value of its investments while they are held
- Fair values of the securities that investment companies holds and how they change during the year
- How fair values changes of investments managed by the investment company compared to
changes in similar investments it makes as a whole
- Turnover of portfolio , related to transaction cost (eg. Commissions)
- Interest and dividends earned
- Information about risk in portfolio
- Income taxed
Original answer written: liquidity, share prices ( fair value and historical value) , dividends, cash flow

b) How are you going to recognised revenue?
Recognition criteria
- An increase in future economic benefit
- Related to the increase in an asset or decrease of a liability
- Results in increase in equity
- Can be measured reliably
Same thing for dividends, criteria all met

C2 Relevant facts
- Extensive advertising campaign
- Trade fair expense
- Direct mailing
- Visitors come to open safari

Conceptual Framework Guidance
- para 4.4 (a)
- all criteria for definition of an asset met

Conclusion
- Yes it is an INTANGIBLE asset
- The advertising expenditure in incurred with the expectation of generating future economic inflows
- Creation of an intangible resource controlled by open safari ( Open safari brand)


Work shop 3
1. Risk aversion
- Manager prefer less risk than shareholders
- Their human capital is tied to the firm
- Shareholders have a greater diversification of risk
- They are likely to have investments across a variety of project/ property/ shares
-Managers less likely to invest in risky projects. If project go bad, managers will be more affected by
the downside (co. goes bust, get retrenched. Etc) Shareholders can diversify risks, which is why they
are not as easily affected by loss

Reducing risk aversion
- Include incentives in remuneration contracts
- Link a bonus partly to profits
- Limiting share based on compensation

2. Horizion problem
- Differing time horizon for managers and shareholders
- Shareholders prefer long-term profitability, managers prefer cash flow potential for period of
employment
- Most shareholders do not trade shares straightaway

Problem can be reduce through:
- Equity ( ie shares and options)
- Encourages managers to improve long-term performance and take a longer term focus
- Link managerial pay to share price movements ( use ratios such as total shareholder return)
- Likely to encourage managers to maximise long-term performance

3. Non- salary components
- cash bonus
- shares
- options
- other equity scheme

Purpose:
- Align managerial interest with those of shareholders
- Incentives managers to maximise firm value as they benefit in growth in value
- shares and option help ensure managers perform over the longer- term
- a cash bonus ensures managers perform over the longer- term too
4. Short-term cash vs. long-term bonus
- less risk for a manager in receiving short- term cash payments
- managers prefer not to have funds tied up for the long term
-managers have flexibility to invest their cash whatever what they choose ( property, other shares or
shares in their own firm. Etc)
- managers tend to have a short-term rather than long-term focus
- shareholder interests
- prefer long-term decision making
- prefer positive investments for the future

5. cash bonuses imply a short-term focus, rather than a long-term focus
- reduced cash flow in the business which might leave less available or future expansion
- cash bonuses are contrary to the shareholders understanding of the goals of the firm ( ie long-term
growth)

Application 5.2

A) 33% for short-term and long term incentive and fixed remuneration (1/3 for each of them)

B) Non- performance (33%) That is the fixed remuneration

C) Board approved KPIs are based on balanced scorecard
- Financial safety
-Health and environment
- Customer
-People and organisational capability
- Strategic
- Regulation and external

D) NPAT can be increased by accounting policy choice
- increase or bring forward revenue recognition
- reduce of defer expense recognition
Note 2 (pp.81-82) details critical accounting judgement and estimates relating to
- Impairment ( goodwill, other assets, inactive sites)
- Defined benefit pension plan obligation
- Income tax provisions
- Fair value measurement, when there is not active market
- Useful life leased port assets
- Provision for losses or damages

E) Remuneration contracts and accounting information can be used to monitor managers and
bond managers and owners interests
- Page 26 states: the objective of the executive remuneration strategy is to attract and retain
executive talent, motivate and reward outstanding performance and align executive and
shareholder interest.
- Horizon problem
- Longer incentives
- Dividend retention
- Short-term incentives
- Money available for distribution is achieved
- Risk aversion
- Short-term incentives
- Fixed remuneration

Application 5.6

Shareholders
- Major financial supporters of the company
- Have an interst in future operations
- Expected to be kept informed on any issues
- Are likely to be supportive if
- There is no negative publicity
- Permit is approved
- Might see the negative publicity as a potential to impact negatively on firm status
- May look to sell shares

Lenders
- The company needs to manage its relationship with lenders to ensure financial support of the
project
-cost of exploration and development need to managed through the provision of financial resources
-borrowing and their cost are likely to be affected by the probability of success so it is important that
lenders are kept informed of developments
- successful application for exploration permits
- environmental impacts

Indigenous land owners
- possible land rights issue
- possible impact of exploration on indigenous sacred sites
-the company needs to communicate with local elders to manage these issue to ensure the success
of project

Employees/ potential employees
- Successful exploration could increase employment prospects within the area and the company
- its is important that company communicate with employees about benefits and cost of working in
a remote location

Government
- Important to communicate with range of government departments
- Issue permits in terms of location, indigenous ownership issues and environmental impacts
potential for national income

Workshop 4

Exercise 4.1

1. Determine the asset or liability that is subject
of measurement.

AASB 13
- location
- condition
- any restrictions on sale or use
- stand-alone asset or group asset
Can be viewed as
- Two possible assets
- land
- factory

- land and factory as a single asset
2. Determine the valuation premise consistent
with the highest and best use.

AASB 13
- highest and best use of an asset
- in- combination premise
- stand-alone premise
- stand- alone
-land sold for residential purpose less costs to
demolish
- $1m - $100,000 = $ 900,000
- In- combination ( used as factory)
- Cost for new factory = $780,000
- Depreciated to half original cost is $780,000 x
0.5 = $390,000
3. Determine the most advantageous market for
the assets

AASB 13
- principal market
- The market with the greatest volume and
level of activity
- most advantageous market
- The market that would maximise the amount
received / paid after deducting transaction
and transport costs
- Principal market
- sale as a factory is unlikely
- Most advantageous market
- using the property for residential purpose
4. Determine the valuation technique

AASB 13
- 3 possbile valuation techniques
- makes more sense to use market approach
- there are observable market inputs in relation
to the selling prices of similar properties
- market approach
- cost approach
- income approach
-These techniques requires certain assumption
or inputs
- observable input
- unobservable inputs
5. Conclusion - The land has fair value based on market prices
for similar properties of $900,000
- The factory has a zero fair value as a separate
asset

Exercise 4.7
Paragraph 62 of AASB 13 proposes 3 possible valuation techniques
- market approach
- cost approach
- income approach

These techniques requires certain assumptions or inputs ie
- observable inputs
- unobservable inputs
- Need to return to then quote and examine if it is relevant to the current accounting standards
- Managers will not reveal too much or competitors will take advantage of info
- Investor wont get complex transparency
- The reliability of the fair value numbers
- The cost of generating such numbers
- The relevance and understand ability of these numbers
- Past experience ( ie Enron: case on manipulation of fair values accounting )
- The impact of disclosing the assumptions underlying the fair value disclosed

Exercise 15.17
Identify what you are looking for
- Is it an intangible asset?
- Can it be separated from entity?
- Possible future economic benefits?

The outlays must be analysed using paragraph 57 of AASB 138
- Technical feasibility
- Intention to complete and sell
- Ability to use or sell
- Existence of a market
- Availability of resources
- Ability to measure costs reliability
Very few companies capitalise costs because it is very hard to meet all 6 criteria

Ability to use or sell
At 30 June 2014
- The project was not commercially feasible
- All costs to date must be expensed
Research cost $245,000
Cost $245,000
(Expensing researching costs)

Ability to use or sell
At 31 August 2014
-Cost must be expensed
- The company is not yet convinced it has a product that it can sell

Research cost $120,000
Cash $120,000
(Expensing research costs)

Ability to measure cost reliably
At 31 October 2014
- The company now has an intention to complete and sell
- Adjustment required by the engineering firms
- The company in not yet able to measure the costs of the engine reliably
- Expenses during this period must be expensed
Research costs $65,000
Cash $ 65,000
(Expensing research costs)

All paragraph 57 criteria met
1 November 2014
- All subsequent outlays should be capitalised
Patent $35,000
Cash $35,000
(recognition of internally generated cost)

developmental stage
31 December 2014
Patent $ 87,000
Cash $87,000
(capitalisation of development costs)