Assessment4Information

YourTask

You are required to prepare a business letter to address key accounting issues in regards to an acquisition analysis of a wholly owned subsidiary and various intragroup transactions.Also, provide advice on accounting for a foreign currency transaction.

Thisisanindividualassessment.

AssessmentDescription

Assume that you are a graduate accountant working for Wolfram Hart, a public accounting firm situated at 388 Ann Street, Brisbane, QLD 4000. The Manager of your firm, Ms. Lily Morgan,has asked you to prepare a statement of advice in response to an email received from a client, Maddie Shannon, the Managing Director of Tottoys Ltd, raising several accounting issues. Please refer to the email on the next page.

Themaximumlengthforthe bodyoftheletteris2,000words.Youshouldaddressallthe technical issues and discussion in your advice, followed by a Reference List.

• Part A: Technical component 25% - This mark covers the technical content of your adviceandtheexplanationofeach oftheissues,thecalculationsand journalentries (where applicable).
• PartB:CommunicationSkills15%-Thismarkcoversthegenericskillsofwriting; layout,clearmeaning,structureandorganisation,appropriatetoneandgrammar, spelling, and punctuation throughout the whole assignment.It also includes

CaseStudyBackground

Tottoys Ltd is a dynamic toy company that specialises in creating engaging and educationaltoys for preschool-aged children.With origins as a family owned business in 1924, thecompany focuses on producing high-quality products that promote learning, creativity, and imaginative play. Its product line includes a variety of toys, from soft plush figures, interactive learning games, to jungle gyms and eco-friendly wooden puzzles, all designed to support early childhood development.Listed on the ASX, with shares trading at $1.60, Tottoys Ltd has steadily established itself as the leading Australian provider of innovative, safe, and enjoyable toys that enrich the lives of pre-schoolers.

Thecompanysincrementalborrowingrateis6%,anditscorporatetaxrateis30%.

CaseStudy

Draftabusinessletterinreplyandmakesureyoureferenceanyrelevantsourcesrelatingto your advice, for example, AASBs, Corporations Act, and relevant sources.See the email below.

Re:Accounting Issues for year ended 30 June 2024 From:MaddieShannon(MShannon@TottoysLtd.com.au) Sent:10 August 2024

To:LilyMorgan(LMorgan@WolframHart.com.au)

DearLily,

I am contacting you for help as our Chief Accountant is currently on long service leave, and we only have a new Trainee Accountant handling the journal entries.I need guidance on the accounting implications of our recent acquisition of Byte Ltd, as Ill be presenting the consolidated financial statements to the Board of Directors.Also, I need to be prepared to answeranyquestionstheymighthaveregarding theaccountsfortheyearended30June2024. Since I dont have an accounting background, I would greatly appreciate it if you could explain the relevant principles and concepts in simple, easy to understand terms.

As you know, we have held a strategic investment in Byte Ltd since its inception in 2010, acquiring a10% stakefor $15,000 at the time.Over the years, ourinvestmenthas appreciated significantly, with the fair value of our stake rising to $22,500as ofJuly 1,2023. This investment has been instrumental in expanding our distribution network for our products, allowing us to reach broader markets through Byte's established channels.

On July 1, 2023, we completed the acquisition of the remaining 90% of Byte Ltd.'s issuedshares througha schemeofarrangement, structuredon anex-dividendbasis.Undertheterms of the acquisition agreement, shareholders of Byte Ltd. received $2.20 in cash per share and one TottoysLtd. sharefor every threeordinary shares theyheld inByte. The cash paymentwas designed to be paid in two equal instalments:half of the amount was paid at the acquisition date, with the balance on July 1, 2024.

To ensure a sound and mutually beneficial acquisition, we engaged independent experts to conduct due diligence and provide valuations of Byte Ltd.'s assets and liabilities. These expert services came at a cost of $23,000, reflecting our commitment to a thorough and viable business combination that aligns with our strategic growth objectives. This careful approach not only supports our long-term interests but also reinforces our confidence in Byte's potential to enhance our operational scope and market presence.

ThedraftstatementsoffinancialpositionofByteLtdatthedateofacquisitionwasasfollows:

According to the independent experts, all the assets of Byte Ltd were recorded at fair value except for inventories with a fair value of $38,000.There was also some equipment with a fair value of $34,000, which was recorded at its carrying amount of $27,000.This equipment which originally cost $45,000 was being depreciated on a straight line basis over a 10 year period.Due to rapid changes in 3D printing technology, it was estimated that the useful life of the equipment was only a further two years.Additionally, it was found that the company had disclosed by way of note a 20 year patent for itsQuantumBlox which consists of modular, magnetic building blocks that light up and change colour based on how they are connected, teaching basics about circuits and energy.Tottoys Ltd placed a fair value of $20,000 on the patent.

Byte Ltd also disclosed as a note in their accounts for the year ended 30 June 2023, that a number of salaried team members had not been paid in full compliance with the entitys obligations under the General Retail Industry Award (GRIA).On 10thJune 2023, The Fair Work Ombudsman commenced legal proceedings against Byte Ltd seeking orders in relation to alleged contraventions of the Fair Work Act and for further compensation of affected salaried team members.The trial is intended to determine issues of liability.The outcome and total costs associated with the proceedings are uncertain.The independent experts estimate that a provision of $25,000 to settle any remaining obligations would be required.The case has yet to be settled.

Our Trainee Accountant prepared an acquisition analysis and determined goodwill of $37,000 (calculated as $198,000 cash paid minus the subsidiarys equity acquired of $235,000) to be reported in the consolidated financial statements.Can you confirm that this calculation of goodwill is accurate and provide me with any necessary journal entries to prepare consolidated financial statements as at 30 June 2024?The directors are pleased with the recognition of our established reputation and customer loyalty through the recognition of goodwill.Our loyal customers purchased 80% all existing inventories of Byte Ltd within the first week following the acquisition generating huge profits.The remaining slow moving inventory was donated to a childrenshospitalinOctober2023generatingfurthergoodwillwithinthecommunity.

However, some of the members of the Board of Directors feel that this goodwill should not be recognised as it cannot be sold, transferred, and has no real value.How should I respond to these comments?

Prior to going on long service leave, The Chief Accountant identified two inter-company transactions for further consideration when preparing the consolidated accounts.Please help me with any necessary adjusting journal entries required for the preparation of consolidated financialstatementsandexplanationsforthem.Specificdetailsofthesetransactionsareshown below:

1. On the 15th of June, 2024, we sold some of our fantasy hero figures with a cost of

$27,000 to Byte Ltd on credit for $39,000, generating a profit of $12,000.By the end of the year, Byte Ltd had sold 70% of these goods to external parties using their distribution networks with a 25% markup.The $12,000 profit has already been recognised in our financial statements, improving our results.Is there anything else we need to do?What journal entries, if any, should be recorded?

2. On1stofJanuary2024,TottoysLtdsoldjunglegymequipmenttoByteLtdfor

$11,000 in cash.The equipment originally cost Tottoys Ltd $7,000 and was classified as inventory.Byte Ltd installed the equipment outdoors at one of its childcare centres, incurring an additional installation cost of $1,500.Byte Ltd depreciates such equipment at a rate of 10% per annum based on cost.Please explain what I need to do with this transaction and show any journal entries necessary.

The final issue that weseek your assistancewith relates to a foreign currency transaction.As part of our recent expansion, we recognised the need for an offshore manufacturing plant to supportour operations. This plant will feature custom-designed rotational molding machines, specifically designed to enhance the production of large plastic toys such as playhouses, slides, and playground equipment.To finance the project, we secured a loan of USD 200,000 from Bank of America on 20 July 2023 at an interest rate of 6% per annum. These funds were all used toacquire the necessary components for constructing the manufacturing plant.On the same date, we entered intoabindingagreementwithanAmerican constructioncompanytohelpconstruct this plant using these components according to our specifications.As part of the agreement, we retained the right to inspect and approve the plant throughout its construction to ensure it adheres to our precise requirements.The plant was completed on 20 May 2024, with an additional USD 50,000 spentto finalise its construction.This plant will enableustomeet customerneeds overthe next decade.

Wehavenotyetrecordedanyjournalentriesforthesetransactionsandseekyourguidanceonthe appropriate accounting procedures. Could you please explain the steps required to accurately record these transactions and provide detailed explanations for each journal entry?

Pleaserespondbyletter(notemail)asIwouldliketopresentthistotheBoard.Ilookforwardto hearing from you shortly.

Regards,MaddieShannon

ManagingDirector,TottoysLtd

246RubiksRoad

Melbourne 3000

AssessmentInstructions

• The assignment will need to be submitted electronically through MyKBS use the link under Assessments.
• Please refer to the Assessment Marking Guide to assist you in completing all the assessment criteria.

Referencing

• Any sources that you use need to be acknowledged in order to avoid plagiarism. Information on referencing can be found at the Kaplan website s Academic Success Centre using the following address: (https://elearning.kbs.edu.au/mod/page/view.php?id=245257).

In?TextReferencingandtheReferenceList

• Sources of information must be cited both in the body of the text (in?text referencing) and the end of the assignment (reference list). Failure to do so will result in penalties. Remember that when referencing an Annual Report, it is a corporate document that does not have a particular author but it will still require referencing any time you use informationfrom it. Any other documents or books or other references you use will also require referencing.

Pleasenote

• Any work which has been copied or shared between students will result in a Fail grade for all students concerned. Therefore, please make sure that the answer to this assignment is your work and not copied or bought from any source. In completing this assignment make sure you follow the guidelines for assignments especially those relating to the presentation of written work, late assignment policy and academic

ImportantStudyInformation

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AssessmentMarkingGuide