MAS4057 Corporate Accounting :TLSs Assessment

Threshold Learning Standards(TLS): 

TLSs are the minimum accounting discipline national standards graduates are expected to meet or exceed upon graduation. This assessment item provides students with the opportunity to develop and evidence the following TLSs that are aligned to the Deakin graduate learning outcomes (DGLO) and more importantly the Unit learning outcomes (ULO): 

QUESTION 

Big Yellow Taxi Ltd (“BYT”) was floated as a public company on 1 July 2009 by its founder and first CEO Mr. Bryan Driver. The company owns and operates Australia’s largest  combined taxi fleet from its base in Melbourne, Victoria with branches throughout Australia  and until recently has been quite profitable. Mr. Driver has retained a substantial ownership in the company but retired as the CEO at the end of the last financial year (30 June 2016). 

The new CEO, Mr. Simon Vallay, was appointed effective as of 1st July 2016 and has established a new management and financial team. Mr. Vallay has thoroughly investigated the operations and state of affairs of the company and is in the process of reviewing the draft financial statements of Big Yellow Taxi Ltd that have been forthe year ended 30 June2017. It should be noted that Mr. Vallay is quite conservative and has an  inherent preference not to carry intangible assets in the financial statements. 

The following issuesrequire particular attention: 

1. Since the company went public, it has acquired many of its smaller competitors so as  to gain an increased presence in the taxi market. In so doing, apart from the vehicles  and other physical assets, the company has purchased several trade names, taxi  licences and goodwill, details of which are as follows:- 

• Over the past eight years expenditure on trade names has amounted to $1 million. These trade names have been revalued periodically to their current carrying amount of $1.5 million which represents the fair value as assessed by an independent valuation. The new CEO believes these identifiable intangible assets  should be amortised over 5 years, commencing in the current financial year. 
• As part of the acquisition of the abovementioned trade names, the company has  acquired many taxi licences. The purchase price of these licences has totaled $6  million and is shown in the financial statements at its cost price. These licences  have a fair value of $7.2 million which is based on the current market value for taxi  licences in Australia. The new CEO believes that the taxi licences should be amortised over 5 years, commencing this year. 
• In addition to the above, the company has purchased goodwill of $3 million which is  shown in the financial statements at its cost price. Again, the new CEO believes that  the goodwill asset should be amortised over 10 years, commencing this year. The  recoverable amount of this goodwill has been independently assessed at a value of  $1.5 million. 

2. Due to significant increased competition in the ride-sharing market, the company is currently working on a project that will revolutionise the way the company will interact with its customers via technology. The “research and development” expenditures directly related to the project expect to total $5 million, of which $1.5 million had been incurred up to 30 June 2016 and has been expensed in previous financial years. Despite some setbacks on the project, the new CEO is now “extremely confident” that  the project will be brought to a successful conclusion and is debating whether the entire  costs (including those incurred in the previous year) should be capitalised.  

As at 30 June 2017, the technology had proven to be technically feasible and the  company was determined that the product would be sufficiently tested and the  appropriate resources would be in place such that it would be in place for release to its  customers by 1st January 2018 and it will provide a significant and immediate  competitive advantage over all of its competitors. 

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