Wayward Whisky Warehouse (WWW) Ltd is a publicly listed company located in Wyena, Tasmania. The company, founded in 2010, has undertaken a growth and expansion phase in recent years, particularly with its multi-brand business strategy and acquisition of boutique wines and distilleries. As a specialist whisky distributor, WWW Ltd identified a niche opportunity to capitalise on Tasmania’s growing tourism industry, particularly given their close proximity to the famous Bridestowe Lavendar Estate at Nabowla. This initiative would enable them to not only expand their marketing and distribution of unique wines and spirit products but also conduct tours of their premises at Wyena as well as Winnaleah Wines, with a view to offering tourists travelling south discounts to visit their latest acquisition at Deep Bay.
Wayward Whisky Warehouse Ltd has three entities that it has acquired in recent years:
• Winnaleah Wines Pty Ltd (Winnaleah, Tasmania) (70% of the share capital owned).
• Nes Whisky Ltd (Loch Ness, Scotland) (100% of the share capital owned).
• Deep Bay Distillery Pty Ltd (Deep Bay, Tasmania) (Acquired all assets and liabilities).
You have been appointed as group accountant for Wayward Whisky Warehouse Ltd and are required to prepare consolidated financial statements for the Parent and its subsidiaries for the year ended 30 June 2020. You have also been asked to finalise the journal entries to account for the take-over of operations of Deep Bay Distillery, which WWW took control of on 30 June 2020. In addition, the board have requested that you provide a brief report on the consolidation policies employed and for you to critically evaluate the impact of International Financial Reporting Standards relating to the WWW Ltd Group. Your report should include recommendations of any changes required to improve sustainability and future performance or disclosure as well as any identified risks. This is a “whisky business” please read and follow these instructions very carefully.
• Questions about the content of this assignment MUST be posted on MyLO.
General Information about Wayward Whisky Warehouse (WWW) Ltd:
o The presentation currency for the group is AUD.
o WWW Ltd treats Nes Whisky (SCT) Ltd as a foreign entity according to AASB121 and uses the current rate method to translate financial information.
o The functional currency for Nes Whisky Ltd is Pound Sterling (GBP). You will first need to translate the Scottish operations into the presentation currency of the group before applying consolidation principles.
o The management of WWW Ltd values any non-controlling interest at the proportionate share of Winnaleah Wines Ltd’s identifiable net assets, using the partial goodwill method (AASB3).
o WWW Ltd recognises a receivable for dividends when they are declared by a subsidiary. o All entities within the group use the perpetual inventory method.
o The group uses the direct method to present cash flows from operating activities. o Round to the nearest dollar for ALL journal entries and calculations (NOT ‘000s or $m).
o Round depreciation calculations to the nearest month.
o Expenses need to be classified by FUNCTION in the consolidated financial statements. o For all financial statements, you may use either $ OR $’000 (NOT $m) but all must be the same. o If the company turnover is greater than $50 million, the Australian company income tax rate is 30%. For turnovers less than $50m it is 27.5%. Scotland’s corporate income tax rate is 19%.
Additional Information relating to Winnaleah Wines Pty Ltd:
a. On 1 July 2016, WWW Ltd acquired 70 per cent of the share capital of Winnaleah Wines Pty Ltd for $900 000 cash. An extract of Winnaleah Wines Ltd’s balance sheet immediately before the acquisition is shown below:
Winnaleah Wines Pty Ltd
Shareholders’ equity $
Share capital 860,000
Retained profits 27,000
b. At 1 July 2016, all the identifiable assets and liabilities of Winnaleah Wines Ltd were recorded at fair value, except for the grape harvesting machinery which cost $260 000 and had a carrying amount of $156 000. The fair value of the machinery was assessed at $184 800. It was expected to have a further useful life of 6 years and the benefits were expected to be consumed evenly over this period. The machinery had not been revalued in the books of Winnaleah Wines prior to consolidation. The internally generated trademark for Winnaleah Wines is estimated to be worth $11 000.
c. On 10 April 2019, Winnaleah Wines Pty Ltd sold equipment to WWW Ltd for $50 000. At the time of the sale, the equipment had a carrying amount of $46 875 in the books of Winnaleah Wines Pty Ltd. Winnaleah Wines had purchased the equipment on 30 June 2015 for $75 000 and depreciated it at 10% straight-line on cost with no residual value. WWW Ltd uses the same method of depreciation.
d. On 16 June 2019 Winnaleah Wines Pty Ltd purchased inventory from Wayward Whisky Warehouse Ltd for $35 000. This inventory had previously cost Wayward Whisky $25 000. Winnaleah Wines Pty Ltd had not paid Wayward Whisky Ltd for these goods as at 30 June 2019, and had already sold 18% to external parties. Winnaleah Wines Pty Ltd paid the account payable on 9 July 2019 and sold the remainder of the goods to external parties by 30 June 2020 for a total profit of $15 000.
e. With the declaration of a pandemic and the subsequent shortage of hand sanitizer, WWW Ltd was quickly able to convert the ethanol inventory on hand for distilling gin, to manufacture high quality hand sanitizer. On 30 April 2020, WWW Ltd sold a quantity of hand sanitizer to Winnaleah Wines for $18 000. The original cost of the raw materials to Wayward Whisky Warehouse (WWW) was $15 600. At the end of the financial year, Winnaleah Wines had sold 76% of the hand sanitizer to their loyal online customers during lockdown.
f. On 1 May 2020, WWW Ltd made an advance of $40 000 to Winnaleah Wines to assist with outstanding expenses during the time they were forced to close. The advance, which is repayable on 30 June 2021, included an agreement to pay 3% interest per annum, payable in full when the loan is repaid at the end of the next financial year.
g. Winnaleah Wines Pty Ltd transferred $86 000 from the general reserve to retained profits in order to pay interim and final dividends. It was considered an important strategic approach to maintain investor confidence in the current economy.
Additional Information relating to Nes Whisky (SCT) Ltd:
h. On 1 July 2017, WWW Ltd acquired all the issued shares of Nes Whisky (SCT) Ltd, a Scottish whisky distillery for AUD $740 000 cash.
i. An extract of Nes Whisky Ltd’s balance sheet immediately before the acquisition is shown below (GBP):
NOTE: you will need to translate this information before completing the acquisition analysis. Use the functional currency amounts to apply tax effect accounting.
Nes Whisky (SCT) Ltd
Shareholders’ equity GBP
Share capital 160,000
General reserve 58,000
Retained profits 132,000
j. Relevant exchange rates are as follows:
1 July 2016 1 GBP = AUD$1.80
1 July 2017 1 GBP = AUD$1.69
1 July 2018 1 GBP = AUD$1.78
1 July 2019 1 GBP = AUD $1.81
31 December 2019 1 GBP = AUD$1.89
30 June 2020 1 GBP = AUD$1.80
Average rate for the year 2020 1 GBP = AUD$1.90
Ending inventory acquired 1 GBP = AUD$1.88
k. A comparison of the carrying amounts and fair values of Nes Whisky Ltd’s identifiable assets at acquisition indicated no differences except for a patent and a brand name (both internally generated intangible assets). Both intangible assets related to the company’s unique blend of Scottish whisky which by law can only be made in Scotland. The patent is amortised on a straightline basis and has an expected further useful life of 20 years. The brand name had an indefinite life. Fair Value
Brand name GBP 30 000
Patent GBP 9 600
l. On 1 July 2018 and 1 July 2019, the brand name was impaired by GBP 5 000 each year.
m. Sales and other expenses were incurred evenly throughout the period ended 30 June 2020.
n. Dividends were paid and declared on 31 December 2019 and 30 June 2020 respectively.
o. Ignore foreign income tax offsets for the double taxation implications from worldwide income.
Additional Information relating to Deep Bay Distillery Pty Ltd:
Following the success of their hand sanitizer venture in early 2020, WWW Ltd decided to diversify their own operations permanently. They would change the use of the small gin distillery at Wyena to hand santizer and seek to expand their share of the gin market by negotiating to acquire the operations of another boutique distillery. Deep Bay Distillery Pty Ltd was a relatively new company that specialised in creating modern Tasmanian gins with uniquely Tasmanian flavours and although it was rapidly developing a niche market in the boutique industry, COVID 19 had significantly disrupted cash flow from operations. Following lengthy negotiations, the owners of Deep Bay Distillery agreed to the following take-over bid from WWW Ltd:
• WWW Ltd is to acquire all the assets (other than cash) and all liabilities (other than trade and other payables) of Deep Bay Distillery Pty Ltd for the following purchase consideration:
o Shareholders in Deep Bay Distillery Pty Ltd are to receive two fully paid shares in Wayward Whisky Warehouse (WWW) Ltd, in exchange for every three shares held. All shares of Deep Bay Distillery were issued at a value of $1 each at inception.
o The shares in WWW Ltd are to be issued at their fair value of $2.30 per share. WWW Ltd incurred professional fees of $5,000 for the acquisition. The share issue cost $2 500.
o WWW Ltd will also provide sufficient cash which, when added to the cash already held by Deep Bay Distillery, will enable Deep Bay Distillery to pay their legal fees of $3 200 as well as the company’s obligations to creditors listed as trade and other payables. All liabilities are considered to be held at fair value.
o WWW Ltd will continue to operate the business at Deep Bay to further their plans to o WWW Ltd will continue to operate the business at Deep Bay after acquisition.
• The assets of Deep Bay Distillery Pty Ltd are all recorded at fair value except:
Non-current Inventory $ 550 000
Property, Plant & equipment $ 400 000
Internally generated intangible asset (brand name) $ 60 000
The working income statements and balance sheets of WWW Ltd, Winnaleah Wines Pty Ltd, Nes Whisky (SCT) Ltd, and Deep Bay Distillery Pty Ltd for the year ended 30 June 2020 are provided to you, as group accountant, by the financial accountants of the respective entities. They are shown in the accompanying excel spreadsheet document (in the worksheet tab).
Wayward Whisky Warehouse (WWW) Ltd has asked you to prepare a full set of Consolidated Financial Statements for the group for the year ended 30 June 2020 in accordance with applicable accounting standards. You have also been asked to finalise the journal entries to account for the take-over of operations of Deep Bay Distillery, which WWW took control of on 30 June 2020. In addition, you have been asked to provide all calculations, journal entries and a brief report on the consolidation policies employed. The purpose is to critically evaluate IFRS with regard to the policies, decisions and outcomes (financial statements) of Wayward Whisky Warehouse Ltd Group to support the board in their deliberations. Include recommendations of any changes required to improve sustainability and future performance or disclosure and any identified risks relevant to the current COVID climate. Discussions MUST focus on Combined/Consolidated entities.
STRUCTURE YOUR REPORT AS FOLLOWS:
In a WORD document prepare a professionally presented report that sets out the following in this ORDER:
1. TITLE PAGE: your name & ID, unit, assignment name, date. DO NOT use the TSBE assignment coversheet.
2. An executive summary (150 words) explaining the content of your report and your key findings. This should be presented on the next page by itself. You may include a separate content page on the following page if you wish but this is not required.
3. BRIEF REPORT: In your own words write a brief report (250 words) that critically evaluates IFRS in relation to the policies, decisions and outcomes of WWW Ltd Group as noted under “Required”.
4. Translation of foreign subsidiary’s accounts: Translate the accounts of the foreign subsidiary, Nes Whisky (SCT) Ltd, into Australian dollars before applying consolidation principles. Show GBP, relevant exchange rate, AUD for each account and Verify the translation difference.
5. An acquisition analysis for each of the acquired entities of Wayward Whisky Warehouse Ltd.
6. Journal Entries
Present ALL required journal entries for the year ending 30 June 2020 together:
Presented in the following order:
a. Consolidation Journal entries relating to Winnaleah Wines Pty Ltd
b. Consolidation Journal entries relating to Nes Whisky (SCT) Ltd
c. Required journal entries relating to Deep Bay Distillery Pty Ltd
d. NCI Calculations
e. NCI Journal entries
7. When presenting your journal entries please write out account names in FULL at ALL times – NO
ABREVIATIONS. USE narratives & calculations for each journal entry (Present calculations immediately under the relevant journal entry). Include an explanation if you need to exclude or omit anything.
8. Professionally presented financial statements. This includes a consolidated Statement of Comprehensive Income; consolidated Statement of Changes in Equity; a consolidated Statement of Financial Position; consolidated Statement of Cash Flows and applicable notes to the Financial statements for Wayward Whisky Warehouse Ltd and its controlled entities for the year ended 30 June 2020.
These financial statements are required to be set out in accordance with AASB 101 Presentation of Financial Statements. Please refer to the illustrative examples for Australian public companies provided on MyLO for guidance on how to professional present your financial statements.
9. SUBMIT A SEPARATE EXCEL FILE showing ONLY your completed consolidation worksheet incorporating the adjustments, eliminating and non-controlling entries. This mean ONLY ONE worksheet. Do not include all other data used. All adjusting items in the worksheet must have a reference to the corresponding journal entry presented in your main report.
NOTE: It is recommended that you use an excel spreadsheet to set out all above requirements (59) then copy these to each page into your word document.
• Use ONLY a WORD format for your report. Use EXCEL to help prepare professional looking tables and statement but these MUST be copied as tables (not images) into the final WORD document.
• DO NOT use PDF, JPEG, or any type of image file (other than one ASX200 sample statement). Do not paste anything else as a “picture U”.
For completion of the financial statements, please note the following:
• The financial statements will be an abridged version from three perspectives:
1. Comparison figures will be provided at a later date for the Statement of Financial Position, but for other statements you will need to use xxx’s where data are not available.
2. Note 1: You do not need to list all accounting policies as part of Note 1 – just reference those applicable to the consolidation process and this assignment.
3. ‘Earnings per share’ – has not been covered in this unit. Therefore, you do not need to include the ‘Earnings per share’ information at the end of SPLOCI.
? Do not include a ‘Director’s report’ this is part a financial “report” NOT the full set of financial statements.
? Do not include references to specific accounting standards on the face of the statements. Where relevant this information should only be in the notes.
• To assist with completion of the Statement of Changes in Equity, assume there were no other movements in Share capital during the financial year other than what is provided in additional information above.
• Use ONLY the Australian content guidelines as per KPMG illustrative disclosures.
• Markers will be instructed to give ZERO where there has been little/no attempt to apply professional standards to the construction of statements eg. Cutting and pasting the worksheet list of accounts as presented in the worksheet will attract a default mark of zero.
The assignment is due on Monday 5 October 2020 at 5.00pm and is worth 20% of your overall grade. Week 10 has been set aside as an independent study week to allow you time to dedicate to this assignment, however we will conduct the tutorials in week 10 to assist you with the completion of the foreign currency requirements of this assignment. There will be NO TUTORIALS in week 11.
This is an individual assignment. Under no circumstances should you share your workings or any part of your assignment with other students. This constitutes a breach of academic integrity and action will be taken. All similarity reports on Turnitin will be thoroughly checked for matching with other assignments.
• WORD LIMIT: NO word limit EXCEPT: Executive Summary (150 words); Brief report (250words)
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