ACCG 926 Wen Ltd is an Australian Securities Exchange (ASX) listed company that has investments in

ACCG926 – Corporate AccountingConceptual issues in corporate accountingWen Ltd is an Australian Securities Exchange (ASX) listed company that has investments ina number of other entities. The ownership structure of the Wen Group as at 30 June 2015 isdisplayed as follows:Wen Ltd45%Kos Ltd50%MertMon PtyLtd70%50%Ramsey Ltd55%80%Caz LtdDebuchyLtd45%Alexis Ltd90%Art Ltd40%Ozil Ltd40%Ox LtdBackground information:Mon Pty Ltd:This company is classified as a small proprietary company. The non-controlling shareholdersof Mon Pty Ltd have indicated that they do not object to the company not preparingconsolidated financial statements.Caz Ltd:This company is classified as a subsidiary within the Wen Group. On 1 January 2015 CazLtd sold an item of inventory to Wen Ltd at a profit. Wen Ltd has classified the item asmachinery and has determined its useful life as five years.1Mert:Mert is a joint operation formed by Wen Ltd and Gabriel Ltd. Wen Ltd is responsible for theday to day management of the daily activities of the joint operation. For these services theycharge an annual management fee to the joint operation. The amount of the managementfee is based on the cost of providing the service plus a mark-up. The joint operation hascapitalised the management services fee into the cost of production.Ox Ltd:This company is classified as an associate of the Wen Group. On 1 July 2014, the openinginventory of Ox Ltd included an item purchased from Wen Ltd during the 2013-2014 period.The item was sold at a profit. Ox Ltd sold the inventory to an external party during the yearended 30 June 2015.Kos Ltd:Wen Ltd has a 45% interest in Kos Ltd. Another major shareholder also holds a 45% interestin Kos Ltd. The remaining 10% interest is held by a large number of shareholders eachholding small parcels of shares with no individual shareholder owning more than 1%.Wen Ltd has negotiated as part of the purchase agreement a right to purchase options inKos Ltd which would increase its shareholding by a further 10%. The options have not beenexercised to date but Kos Ltd’s results continue to exceed expectations and the share pricecontinues to remain well above the option exercise price.Whilst Wen Ltd is responsible for the day to day running of Kos Ltd, the management of WenLtd believe that some of its decision making capacity has been limited by conditions imposedby Westbank due to a bank loan taken out by Kos Ltd.Ramsey Ltd:Kos Ltd and Wilshere Ltd set up an entity Ramsay Ltd to manufacture a new product. Eachparty owns 50% of the shares of Ramsay Ltd and has two representatives on the board ofdirectors. The agreement signed by both parties state that they share the assets andliabilities of Ramsay Ltd and that any products manufactured by the entity are distributedequally to them by the end of financial year. In addition, Kos Ltd and Wilshere Ltd eachprovide an interest free loan to Wilshere Ltd for initial production.2Debuchy Ltd:In addition to the 30% of voting shares, Wen Ltd also owns share options that areconvertible into 25% of the voting shares of Debuchy Ltd. As at 30 June 2014, the shareoptions were deeply out of the money, therefore Wen Ltd recognised Debuchy Ltd as itsassociate in the 30 June 2014 financial statements. During the 2014-2015 financial year, theshare price of Debuchy Ltd improved and on 1 June 2015 Wen Ltd exercised the options topurchase 25% of the voting shares in Debuchy Ltd.Alexis Ltd:Debuchy Ltd has a 45% interest in Alexis Ltd. Two other individual shareholders, Walcottand Welbeck, each hold a 25% interest. The remaining 5% is owned by shareholders eachowning small parcels of shares, with no individual shareholder owning more than 1%.Walcott and Welbeck are business partners and are well known investors in a number ofsuccessful investments. Debuchy Ltd is responsible for the day to day operations of AlexisLtd.The seats on the board of directors are distributed as follows:Debuchy Ltd 2Walcott1Welbeck1Art Ltd:This company is a subsidiary of Wen Ltd. It is based in Japan and it imports and distributes arange of products manufactured by Wen Ltd for the Japanese market. All the products aremanufactured in Australia using Australian labour and materials. Selling prices aredenominated in Japanese Yen but Wen Ltd determines the price of its products based on amark-up on cost. Art Ltd retains 20% of profits for further expansion and the remaining 80%of profits are distributed to Wen Ltd as dividends.Ozil Ltd:At 30 June 2014 Art Ltd owned 70% of the voting shares in Ozil Ltd. As a result, Ozil Ltd wasclassified as a subsidiary in the 30 June 2014 consolidated financial statements. On1 December 2014, Art Ltd sold 30% of the voting shares in Ozil Ltd to other investors. Duringthe 2014-2015 financial year, Art Ltd held 2 out of 5 board seats and continued to providestrategic advice to Ozil Ltd.3You will be assigned into a group during the class and you will be required to discuss withyour group members one of the following conceptual issues (as determined by yourlecturer). At the end of the discussion a representative of your group will be required topresent a summary of your group’s discussion to the class.Required:Wen Ltd is currently preparing consolidated financial statements for the year ended30 June 2015.i.Explain whether or not Mon Pty Ltd is required to prepare consolidated financialstatements in accordance with AASB 10.ii.Advise Wen Ltd on the implications (without using any journal entries) of the identifiedtransaction between Wen Ltd and Caz Ltd on the consolidated financial statements ofWen Ltd. (No calculations are required).iii.Advise Wen Ltd on the implications (without using any journal entries) of the identifiedtransaction between Wen Ltd and Mert on the consolidated financial statements of WenLtd. (No calculations are required).iv.Advise Wen Ltd on the implications (without using any journal entries) of the identifiedtransaction between Wen Ltd and Ox Ltd on the consolidated financial statements ofWen Ltd. (No calculations are required).v.Advise Wen Ltd whether Kos Ltd is required to be consolidated in accordance with AASB10. If not, what should be the appropriate accounting treatment?vi.Determine the appropriate accounting treatment for the investment in Ramsey Ltd in theconsolidated financial statements of Kos Ltd. Provide reasons for your conclusion.vii.Advise Wen Ltd of the appropriate accounting treatment for the investment in DebuchyLtd. Discuss the implications of the change of ownership in Debuchy Ltd on the 30 June2015 financial statements of Wen Ltd (No calculations are required).viii.Advise Wen Ltd whether Alexis Ltd is required to be consolidated in accordance withAASB 10. If not, what should be the appropriate accounting treatment?ix.Determine the functional currency of Art Ltd, with reference to all the indicative factorscontained within AASB 121 and justify your determination. The currency used in Japanand Australia is the Japanese Yen (JPY) and Australian Dollar (AUD) respectively.x.Advise Wen Ltd of the appropriate accounting treatment for the investment in Ozil Ltd.Discuss the implications of the change of ownership in Ozil Ltd on the 30 June 2015financial statements of Wen Ltd (No calculations are required).Notes:The purpose of this exercise is to help you to understand various conceptual issues incorporate accounting, not to encourage you to memorise standard answers. There areno “marking guides” and please do not ask your lecturer for such a document.Sample exam questions in relation to conceptual issues will be posted on iLearn beforethe final exam.4