Springfield Ltd is a company involved in a diverse range of activities involving power generation, machinery retailing and agriculture.
The accounting policy note attached to the 2015 financial statements included the following under the heading ‘Leases’:
During the year the company entered into a refinancing arrangement which involved the sale of the Lily Mountain power station under a sale and leaseback arrangement. The difference between the carrying amount of the power station and its original cost has been included in profit and disclosed as a gain on sale of a non-current asset. Sales proceeds in excess of the original cost have been treated as deferred income in the statement of financial position. The amount of deferred income will be systematically amortised over the term of the lease.
The power station is a unique asset in that the licence to generate power from that station is held by Springfield Ltd and cannot be transferred. The leaseback period is for the remaining 20 years economic life of the power station and Springfield Ltd has guaranteed its expected residual value at that time of $55 000.
(1) Does the Springfield Ltd sale and leaseback arrangement involve a finance lease or an operating lease? Justify your choice.
(2) Critically evaluate the accounting treatment adopted by Springfield Ltd with respect to the sale and leaseback agreement. Refer, where necessary, to relevant sections of AASB 117.
(3) Compare the resulting deferred income account with the Conceptual Framework/Framework’s definitions of and recognition criteria for the elements of financial statements.
ACC5215 Assignment S1 2015 Page 5
Question 2 (20 marks)
Chapter 27 introduces accounting for equity interests in other entities, providing basic knowledge on the consolidation process, the history of the governing Australian accounting standards and an understanding of control.
The Qantas Group's main business is the transportation of customers using two complementary airline brands, Qantas and Jetstar. They also operate subsidiary businesses including other airlines and businesses in specialist markets such as Q Catering.
The airline brands operate regional, domestic and international services. The Group's broad portfolio of subsidiary businesses ranges from Qantas Freight Enterprises to Qantas Frequent Flyer.
Extract from Qantas 2012 Statement of financial position as at 30 June 2012
Equity attributable to the members of Qantas