Management
Question 1 (10 marks) Lease
Erika Ltd runs a successful chain of sushi restaurants, but has been experiencing significant cash flow problems. The directors are examining a proposal made by an accounting consultant that all the shop premises currently owned by the company be sold and either leased back or the businesses moved to alternative leased shops. The directors are keen on the plan but are puzzled by the consultant’s insistence that all lease agreements for the shops be ‘operating’ rather than ‘finance’ leases.
Required
1) Explain the difference between a finance lease and an operating lease (refer to AASB). vvip
(2 marks)
2) Explain, by reference to the requirements of AASB 117, why the consultant prefers operating to finance leases.
(4 marks)
3) Describe THREE disadvantages to the company of entering into finance lease agreements.
(4 marks)
The overall word limit for Question 1 is 500 words. Words in excess of this limit will not be marked
Question 2 (10 marks) (Consolidations)
Paul Lee is the accountant for Beeves Ltd. This entity has an 80% holding in the entity
Lambs Ltd. Paul is concerned that the consolidated financial statements prepared under
AASB 10 may be misleading. He rests of those shareholders. He therefore wants to prepare the consolidated financial statement believes that the main users of the consolidated financial statements are the shareholders of Beeves Ltd. The key performance indicators are then the profit numbers relating to the interests showing the non-controlling interest in Lambs Ltd in a category other than equity in the statement of financial performance, and for the statement of changes in equity to show the profit numbers relating to the parent shareholders only.
Required
Discuss the differences that would arise in the consolidated financial statements if the non- controlling interests were classified as debt rather than equity, and the reasons the standard setters have chosen the equity classification in AASB 10.
1) How the prime users are considered in the preparation of Consolidated Financial Statements of the consolidated financial statements are prepared;
(3 marks)
2) The differences that would arise in the consolidated financial statements if the non- controlling interests were classified as debt rather than equity (Debt vs Equity), and
(3 marks)
3) The reasons the standard setters have chosen the equity classification in AASB 10.
(4 marks)
The overall word limit for Question 2 is 500 words. Words in excess of this limit will not be marked
