UNIVERSITY OF BALLARAT BA603 CORPORATE ACCOUNTING ASSIGNMENT TP0 2008 Note: 1.

This assignment is worth 20% of the total assessment 2. The assignment may be completed as a group of two member assignment 3. The presentation of the assignment must comply with the format outlined in the Universitys Presentation of Academic Work booklet Assignment Students are required to research and prepare answers to ANY TWO OF the following cases from Carnegie G Case Studies: Financial Accounting and Disclosure : Case No 43 Coca-Cola Amatil (parts 1 4 only) Case No 48 Qantas Airways Ltd and Singapore Airlines Ltd. Case No 52 Lion Nathan Ltd

CASE 48 QANTAS AIRWAYS LTD AND SINGAPORE AIRLINES LTD

This comparative study of accounting policies adopted by two international airlines for the depreciation of aircraft, spare and spare engine provides on insight into the differences in accounting policy that may emerge, even when accounting in the jurisdictions involved is regulated. -non-current assets -depreciation -depreciation amount -comparability of result -final statement analysis Qantas airwards ltd (Qantas) and Singapore airlines ltd (Singapore) both operate in the international aviation industry. the former is Australian largest airlines, having been formed in 1920 in outback queensland as the queensland and northern territory aerial services ltd ( now Qantas ) . Singapore was formed in 1972 , although its origins date back to 1947, and is based in south east asia, operating from the city state of Singapore at change airport. Both companies operate a diverse airline fleet. Aircraft, spares and spare engine collectively constitute a major assert of such corporation as is demonstrated by refrences to the 2004 statements of financial position of these two companies. In the case of Qantas, this non-current asset, shown as property ,plant and equipment at a stated written-down value of AUS$9753.7 million , represented 55.5 per cent of the total group assets of AUS$17574.2 million as at 30 june 2004 . for Singapore, this fixed asset category dislclosed as aircraft,spares and spare engine at written-down value of $12464.5 millon, constituted 62.4 per cent of total group assets as at 31 march 2004 of $19990 million. Accordingly, the accounting policies adopted in depreciating such assets over their useful lives assume importance in assessing the financial performance and position of airlines operators. In the case of Qantas, the depreciation and amortization policy for aircraft,spares and spare engine was spare engine was disclosed in note 1 (n)of the notes to the financial statement for the year ending 30 june 2004.the revevant portion of this note is reproduces as follows.

Depreciation and amortisation:

Depreciation and amortization are provided on a straight line basis on all items of property, plant and equipment except for freehold and leasehold land.the depreciation and amortization rates of owned asstes are calculated so as to allocate the costs or valuation of an assets ,less any estimated residual value, over the assets estimated useful life for the Qantas group. Assets are depreciated or amortised from the date of acquisition or, in respect of internally constructed assets, from the time an assets is completed and held ready for use. The costs of improvements to assets are amortised over the remaining usefull of the asset or the estimated usefull life of the improvement,whichever is the shorter. Assets under finance lease are amortised over the term of the relevant lease or, where it is likely the Qantas group will obtain ownership of the asset, the life of the asset. The principle asset depreciation and amortization period and estimated residual percentage (for aircraft, spare and spare engines) are :

YEAR Jet aircraft and engines Non jet aircraft and engine Aircraft spare parts 20 10 20 15 - 20

RESIDUAL VALUE% 0-20 0-20 0-20

These rates are in line with those for the prior year , with the exception of the residual value assumption on wide- bodied aircraft (boeing 747 and 767 and airbus A330 aircraft) which was received from 25 per cent to 20 per cent. Depreciation and amortization rates and residual values ar reviewed annually and reassessed having regard to commercial and technological developments and the estimated useful life of assets to the Qantas group. On the other hand,Singapore reported its policy relating to the depreciation of fixed assets at note 2(G),entitled accounting policies. The portion of this note pertaining to aircraft, spare and spare engine is reproduced hereunder. DEPRECIATION OF FIXED ASSETS Fixed assets are depreciated on the straight-line basis which are calculated to write down their cost to their estimated values at the end of their operational lives. Operational lives and residual values are reviewed annually in the light of experience and changing circumstances. Fully depreciated assets are retained in the financial statement until they are no longer in use. No depreciated is charged after assets are depreciated to their residual values. AIRCRAFT FLEET

The group depreciates its new passenger aircraft, spares and spare engine over 15 years to per cent residual values. For used passenger aircraft , the group depreciates them over the remaining life (15 years less age of aircraft) to 10 per cent residual values. The group depreciates its new freighter aircraft, the group depreciation them over the remaining life (15 year less age of aircraft) to 20 per cent residual value. Qantas provided the following more specific information on aircraft, spares and spare engines in note 12 ,property, plant and equipment . To the financial statement for the year endin 30 june 2004 .this information has been extracted from the group accountants.

AT COST AU$ m

accum. depr.

Written-down Value Au$m 6113.9 2750.1 506.1 9369.8 366.1 17.8 383.9 9753.7

Aircraft and engine-owned Aircraft and engine-hire Purchased Aircraft and engine-leased Total aircraft and engine Aircraft spare parts-owned Aircraft spare parts-leased Total aircraft spare parts Total aircraft, spares and Spare engine.

9143.5 3351.9 863.5 13358.9 729.9 20.8 750.7 14109.6

3029.9 601.8 357.4 3989.1 363.8 3.0 366.8 4355.9

for Singapore, note 17 , entitled fixed assets. Stated similar information with respect to aircraft , spare and spare engine as at 31 march 2004 . the releveant information extracted from the group accounts is set out as follows.

AT COST WRITTENS$ VALUE

ACCUM. DEPR. DOWN

Aircraft Aircraft spares used by major Aircraft spare engine Total aircraft, spare and Spare engines

17256.5 1306.1 461.6 19024.2

S$ 5672.2 710.9 176.6 6559.7

11584.3 595.2aircraft 285.0 12464.5

For the year ended 30 june 2004, Qantas reported a group net profit of au$648.8 million. Singapore reported a group profit after tax taxation of S$895.3 million for the year ended 31 march 2004. REQUIRED

1. Compare and contrast the depreciation accounting polices of Qantas and Singapore for the year ended 30 June 2004 and 31 march 2004 respectively and comment on the comparability of the results reported. In your response, acknowledge any key differences in the operations of these two competing airlines. 2. Using the financial information provided, attempt to adjust the financial Result of either Qantas or Singapore in order to portray their respective financial performance under arguably more comparable accounting policies with respect to assessment of the useful lives of aircraft, spares and spare engines. 3. What specific guidance, if any, is provided under relevant accounting pronouncements in estimating the useful lives of long- lived assets, such as aircraft used by major international commercial carries ? 4. What financial ratio is commonly is used in financial statement analysis in comparing the performance of companies in the same industry the adopt varying depreciation policies?

CASE 52

LION NATHAN LTD

Write of assets is explored in the instance of an alcoholic beverage company that some commentators suggest may have paid too much for certain assets in the wine industry asset valuation asset revaluation intangible assets expense recognition

lion Nathan Ltd (lion) is an Australian-based alcoholic beverages company with domestic operations in Australia and international operations in new-zealand and china. Its portfolio of beer bands includes tooheys,xxx, hahn, west end,emu, swan, james squire, lion, sleights, taihushui and steinlager. It brews and distributes around 1 billion litres of beer annually. In 2001, lion began to build its global premium wine business through the acquisition of two Australians premium wine companies- Petaluma and banksia. Its portfolio of premium wines, which includes the Petaluma, croser, bridgewater mill, knappstein , stonier, st hallerts and tatachilla brands, are distributed domestically and exported. It subsequently acquired one of new-zealands leading sauvignon blanc producers Marlborough based wither hills. In additions to its beer and wine businesses, lion operates related business in Australia and new-zealand. These include the distribution of licensed wine and sprits band, the production and distribution of ready to- drink (RTD) beverages, liquor retailing and malt extraction for home brewing and the food industry. On October 2004 , lion announced its annual profits for the year ended September 2004 . the consolidated net profit after tax amounted to $160 million, compared with the companys previous forecast of $200 million. In releasing its full year result, lion revealed that it was sustaining write downs of assets totalling $112 million of which $72 million was related to the acquisition of its Australian wine operation in 2001. the $72 million include goodwill write down of $60 million, inventory write downs of $6 million and a further to a press report, the stock affected is wine selling at $15 a bottle and below. This includes tatachilla, which has been struggling because the bulk of its wine is sold in this fiercely competitive segment (matterson,2004,p.24).

On announcing the full year results, a spokesman for lion was cited as stating the write downs [of $72 million] are a recognition that condition have changed significantly in the industry since we acquired those assets (Evans, 2004, p. 13) . the reporter also stated that lion sliced the carrying value of its wine brand by $105 MILLION IN NOVEMBER 2003 and added yesterday write downs bring the total to $177 million in a business which it paid more than $350 million for in 2001 (Evans, p. 13). Notwithstanding, the lion spokesman by passed questions on whether it had paid too much for its Australian wine operations in 2001 (Evans, p. 13). The second wave of asset write downs in lions Australian wine industry was announced only two weeks after the appointment of a new chief executive officer of the company. Notwithstanding, lion refused to rule out further write downs but said the wine business now reflected reduced valuation across the industry as all players battled tough conditions (Evans, p. 13). REQUIRED 1. comment on the importance of being able to state that the asserts are on the books at the appropriate value now. 2. discuss whether condition in the Australian wine industry were more or less competitive in 2001 compared with conditions in the industry during 2004. 3. do u believe that lion may have paid too much for its Australian wine operation in 2001 ? justify you view. 4. comment on whether lion may in future , restore goodwill relating to its 2001 investment in the Australian wine industry to its previous levels should conditions in the local industry improve.

REFRENCES

Evans, s 2004, wine leaves lion with sour taste. Australian financial review, 19 October, p. 13 Lion Nathan Ltd website (visted on October 2004):http://www.lion-nathan.com. Matterson, H 2004, lion Nathan spills red . The Australian, 19 October, p. 24