{br} STUCK with your assignment? {br} When is it due? {br} Get FREE assistance. Page Title: {title}{br} Page URL: {url}
UK: +44 748 007-0908, USA: +1 917 810-5386 [email protected]

    Assignment 2: New Zealand Limited (NZL)

    This email provides you with the information and instructions for Assignment 2. This assignment comprises two parts, Part A on consolidation and Part B on fair value.

    Part A
    You are on an internship with the Accounting Team at New Zealand Limited (NZL). As you have studied consolidations in your advanced financial accounting paper at Massey University, the Accounting Team has requested your assistance in preparing the consolidated financial statements of NZL and its subsidiaries for the year ended 31 March 2016.

    New Zealand Limited (NZL) is a major trading company. It embarked on an ambitious expansion programme in 2015 including the acquisition of two other companies, North Island Limited (NIL) and South Island Limited (SIL). All three companies have financial years 1 April to 31 March

    NZL partly acquiring NIL
    New Zealand Limited (NZL) acquired a 55 per cent interest in North Island Limited (NIL) on 1 April 2015 for $2 million. All assets and liabilities are fairly valued in the books of NIL limited. The equity section on the balance sheet of NIL at the date of acquisition appears below:

    Share Capital
    Retained Earnings

    NZL partly acquiring SIL

    NZL Limited acquires a 60 per cent interest in South Island Limited (SIL) on 1 April 2015 for $1.6 million. All assets and liabilities are fairly valued in the books of SIL limited. The equity section on the balance sheet of SIL on 31 March 2015:

    Share Capital
    Retained Earnings


    End of year financials
    The trial balances of the three entities as at 31 March 2016 can be downloaded in a spreadsheet by clicking here.

    Additional information:
    Plant and equipment
    1. On 1 April 2015, NZL Ltd sold plant to NIL for $15,000. The plant cost NZL $10,000 on 1 April $2013. Both companies apply a 10% p.a. straight-line method of depreciation in relation to these assets.

    2. During the current year, NZL sold inventory to NIL Ltd for $18,000 recording a profit of $3000. NIL has not resold any of these items.

    3. During the current financial year, SIL Ltd sold inventory to NZL Ltd for $23,000 recording a profit of $4000. NZL has since resold half of these items.

    4. During the current year NIL sold inventory to SIL Ltd for $15,000 recording a profit of $2000. SIL has resold all of these items.

    5. During the current financial year, NIL paid $2000 to NZL Ltd for services rendered.

    6. Goodwill from investment in SIL has not been impaired while the goodwill from the investment in NIL had an impairment loss of 10 per cent during the current financial year.

    Non-controlling interests
    7. The group has adopted the policy of measuring non-controlling interest at he fair value of total acquisition and recognising full goodwill.

    Tax Implications
    8. You may ignore tax implications for the purposes of this assignment.

    Prepare the consolidated financial statements for NZL and its controlled entities as at 31 March 2016. You have been provided with an Excel template for entering the $ amounts for the items in the consolidated financial statements. To download this Excel template click here.

    Complete the Excel template and submit after renaming it as follows:

    Part B

    You have recently been seconded to the technical department of LMNOP, a large accounting firm and asked to contribute to a newsletter for clients. The aim of ‘News Brief’, the newsletter, is to provide updates and advice on accounting standards and their application.

    The partner in charge of the technical department has asked you to focus on NZ IFRS 13, which defines fair value, sets a single framework for measuring fair value, and requires disclosures about fair value measurements.

    Prepare a short article for inclusion in News Brief which:
    1. Discusses the differences between the various levels in the fair value hierarchy and whether values produced under all levels should be described as ‘fair values’; and
    (30 marks)
    2. Reviews The Warehouse Group 2015 Annual Report to illustrate the application of fair value accounting. You should identify at least five different items for which fair value has been applied and discuss the valuation approach and the input levels used for each item.
    (20 marks)
    Further Guidance
    a) Your answer to (1) above should include at least two references other than the prescribed text and IFRS 13. Five marks are allocated for relevance, quality and correctness of your citations and reference list (News Brief uses APA-6 conventions);
    b) Three marks are allocated for professional appearance, style, grammar and spelling;
    c) As per the “Required” above, this is to be a short article. Part B of this assignment has a word limit of 600 words. Answers which exceed this limit may be penalised up to 20% of the marks available;
    d) The marking rubric provides further guidance as to how your newsletter article will be assessed. To download the marking rubric click here.

    e) Download and use the template (Word file) provided. Click here to download the template.

    Please submit the completed template (Word file) after renaming it as follows:

    The digital files for Assignment 2
    You can access all the digital files for this assignment by clicking here.


Subject Business Pages 6 Style APA


  1. Differences between the various levels in the fair value hierarchy and whether values produced under all levels should be described as ‘fair values’;

            Fair value is a method of measuring a company’s assets based on data and information obtained from the market.  To arrive at the fair value of an asset, accountants review market transactions involving similar assets or liabilities.   There are cases where a company cannot obtain market transactions and market information for similar assets or liabilities. In this case, the company will seek information on observable inputs while eliminating inputs that cannot be identified. In this case accountants rely on similar assumptions including risk that the market uses to determine the price to exchange similar assets or liabilities. The three levels of fair value hierarchy are important to increase consistency and comparability of fair value measurements and disclosures that are related to it (Wagner & Garner, 2010).

            Level 1 inputs are quoted prices which have been unadjusted obtained from markets that are active for the assets and liabilities being measured. The quoted prices must be obtainable on the date of the measurement. This method is the most accurate as it provides the most reliable evidence of fair value as it is used without adjustment of prices. However, it is not easy to get identical assets or liabilities in the market. It is also possible to find two identical machines whose fair values differ because of the depreciation method used on each and also the rate of wear and tear. The concept of time value of money may make comparability impractical (https://xrb.govt.nz/Site/Accounting_Standards/Archived_Standards/old_framework/Standards_For-Profit_Entities.aspx)

            Level 2 inputs are inputs observable for the asset or liability being measured, either directly or indirectly other than quoted prices included within Level 1 inputs.  Level 2 inputs include quoted unadjusted prices from an active market and also in inactive markets. In level 2 inputs other than quoted prices that are observable for the asset or liability being measured may include market-corroborated inputs, credit spreads, implied volatilities and interest rates and yield curves observed at intervals that they are quoted commonly.        In this case the accountant uses similar assumptions as the market including risk profile to arrive at the fair value. The accountant also uses observable inputs in determining the fair value price while eliminating unobservable inputs. This method may not get the fair value price due to the impact of time value of money. Secondly, eliminating unobservable inputs may leave a large cost component of an asset (Christensen & Nikolaev, 2013).

            Level 3 inputs involve using unobservable inputs for an asset or liability to measure its fair value. This is done to the extend relevant observable inputs are unavailable. There is little if any market activity involving the asset or liability being measured at the date of measurement. Measurement in this case involves taking into account assumptions that will be used by market participants including assumptions about risk that will be used to price the assets or liabilities being measured. This level is relatively less accurate than the other two levels (http://www.aasb.gov.au/admin/file/content105/c9/AASB13_09-11.pdf).

  1. A Review of The Warehouse Group 2015 Annual Report to illustrate the application of fair value accounting

            The Warehouse Group 2015 Annual Report has used fair value accounting in many areas.  The first fair value measurement is calculating the revenues recorded at end of the year. The second entry which uses fair value is trade and finance receivables. These are recorded at fair value and then amortized thereafter. Net change in cash flow hedges are also measured using fair value accounting. The company also used fair value accounting in valuation of financial assets, liabilities and derivative instruments. The company uses fair value accounting in measuring its accounts payables.  Lastly measuring good will and other intangible assets is measured according to level 3 hierarchy (The Warehouse Annual Report , 2015).

These assets and liabilities rely on fair value accounting because they involve interaction with the market at some point. Level I inputs are used to measure revenue generated from product prices paid by customers. Customers only buy goods at fair value after taking into consideration prevailing conditions. Derivatives are used to hedge risks and their prices must be current otherwise they will be useless. This is level 2 inputs.  The company also used fair value accounting in valuing its intangible assets. This is level 3 inputs as unobservable prices are used.  The most common intangible asset is goodwill which is the difference between the market price and book value of assets (The Warehouse Annual Report, 2015).

           Since it involves interacting with the market then it can only be indicated in fair value basis. Financial assets and liabilities are recorded in level 2 inputs fair value accounting because they are usually incurred using current market rates. For example, financiers price their loans based on current market conditions. This implies that loans are valued at fair value. Financial assets usually involve purchase of an equity stake in another company during an acquisition or merger. Companies sell their stake at fair value since it enables them to maximise returns. Accounts receivable are also recorded using fair value accounting as goods delivered must be sold at a profit. The price must therefore take into consideration the concept of time value of money (The Warehouse Annual Report, 2015).



Christensen, H. B., & Nikolaev, V. V. (2013). Does fair value accounting for non-financial assets

pass the market test? Review of Accounting Studies, 18(3), 734-775. doi:http://dx.doi.org/10.1007/s11142-013-9232-0



Wagner, A., & Garner, D. (2010). Fair value accounting – fact or fancy? Journal of Business &

Economics Research, 8(11), 35-38. Retrieved from http://search.proquest.com/docview/815766546?accountid=45049

Related Samples

WeCreativez WhatsApp Support
Our customer support team is here to answer your questions. Ask us anything!
👋 Hi, how can I help?