Company and Financial Reporting
1) Find a listed company and identify one (1) example of acquisition recorded in the annual report. Identify information regarding the recognition and measurement related to this acquisition. (4 marks)
TheBank of Queensland applied some strategies to gain much of the market segment by acquiring some firms that offer diverse services or they are dealing with different products. The Bank of Queensland in this case acquired Saint Andrews insurance firm. The St Andrews Insurance is one of the Australian producers of the consumer credit insurance products. On improving its operation, the Bank of Queenslandalso acquired the New Zealand and Australian divisions of the CIT group incorporations which is a supplier of the vendor fiancé to the smaller enterprises and the mid-market corporations. By acquiring the St Andrews which deals with the consumer credit insurance products, the firm can improve on its share of markets and technologies hence making their operations efficient. The measures that are put in place in making this acquisition is the improvement of the performance and increase the market share (Horngren et al., 2012).
2) Identify the composition of intangible assets and comments on the recognition criteria
used by the chosen company. (4 marks)
Some of the assets that were classified as the non-tangible assets by the bank of the Queensland include land. In this case, it is recognized as intangible asset that do not depreciate as it has unlimited useful life. In addition, those assets that are under construction or the work in progress are treated as the intangible assets of the bank. These intangible assets are not depreciated or amortized in any case before they attain delivery capacity (Pucheta‐Martínez & García‐Meca, 2014). This is the point when the assets are employed in the production process aimed at improving the revenue of the bank. Before they reach this level they cannot be treated as part of the intangible asset of the company as they are still consuming some of the resources of the institution.
Nevertheless, software of the bank is form part of the intangible assets. They are used by the organization to carry out important functions of the bank that are customized towards the achievements of the objectives. The software is developed by the trusted software developers in the guide of the bank to establish its usefulness to the bank. Bank software can be amortized following the appropriate method hence as it form part of the production unit in terms of realigning the communication and transaction processes of the bank. Bank softwareis enhanced occasionally as per the advancement of the technology security of the information being the main goal. In the event where the bank software fails, the bank may be at high risk as it may be hacked by the fraudsters and the competitors in the industry may get access to the important information.
3) Identify research and development undertaken by the chosen company. Explain and discuss the way to account for research and development. (4 marks)
Bank of Queensland is one of the financial institutions in Australia that undertake research and development on the currentindustry and socio-economic trends affecting the population. The bank has therefore partnered with different stakeholders to help the communities from the diseases and raising the welfare of the people through research and development. The overall benefit that can the bank obtain from partnering with these institutionsincludes the addition of the customer base and the reputation of the international community (Pathan & Faff, 2013). Someof the latest research that has been carried out by the bank includes the impossible ride cycle which is in partnership with the childrensorgau where the participants will take part in cycling over three hundred and fifty kilometers in three days. This event will be held in the entire New South Wales hinterland during October. The event was used to raise funds that would be used to carry out the research on the life-saving cardiac research. The bank, in this case, will be the banker for the funds used for the research and will also contribute to logistics of the project (Golin & Delhaise, 2013). Also, the bank will take part in the research by offering important financial planning to the researchers and helping in the providing the information to the prospect participants. This, therefore, enables them to participate fully in the event.
Nevertheless, some developmentshave been made by the Bank of Queenslandwith an aim to improve on its performance and improve its revenue (Metcalfe, 2013). It also helps in the edging the competitors that have reduced the market share significantly. In doing so, the bank opened some branches in New South Wales and the territory of the Australian capital. In the subsequent year, the bank acquired the debtor finance division of the OrixAustralia. Also, it acquiredPioneer permanent building based in Queensland where it later opened other branches in thewestern part of Australia and the northern territory. The bank also merged with the WesternAustralia-based home building society and the Queensland-based pioneer permanent building society in the year 2007.
Additionally, the Bank of Queensland entered the rediATM and acquired Saint Andrews insurance firm. The St Andrews Insurance is one of the Australian producers of the consumer credit insurance products. On improving its operation, the Bank of Queenslandalso acquired the New Zealand and Australian divisions of the CIT group incorporations which are a supplier of the vendor fiancé to the smaller enterprises and the mid-market corporations. Due to the ending losses, the bank registered a drop in the profits whichwas attributed to the Queensland floods. The Bank of Queensland also bought the virgin money Australia worth forty million dollars where the bank had the rights to the Virgin money name in Australia for over forty years while paying royalties to the Virgin group hence the Virgin group had a seat in the Bank of Queensland board.
In accounting for the research and development undertaken by the bank, there are some parameters that are used to account for them. First the bank can use the profit margin that is as a result of the research or the development to determine the significance of the research. The increased number of the clients in the banks, production efficiency, customer satisfaction and accuracy during the transaction are some of the parameters that can gauge the significance of the research and development (Erkens et al., 2012).
4)Evaluate the measurement, amortization or impairment of intangible assets in the chosen
Company. Explain the factors that impact on measurement, amortization, and impairment (6 marks)
Every physical on current and intangible assetsare assessed for the indicators on anannual basis for the impairment. In the event of the possible impairment, the firm determines the recoverable amount of the assets. Therefore any value by which the carrying amount of the assets exceeds the amount that it can be recovered as the impairment loss. The recoverable amount of propertyis determined as the higher of the fair value of assetsfewer costs to sell and the depreciated cost of replacement (Brunnermeier & Schnabel, 2015). The recognition of the impairment loss is done in the comprehensive income statement unless in the event where the assets are carried at a revalued amount. In this case, where the assetsare measured at the revalued amount, the loss due to the impairment is offset against the revaluation of the assets reserve of the appropriateclass to the available extent.
Nevertheless, where the impairment loss successively reverses, the carrying amount of the assetis raised to the revisited estimates of the amount due for recovery such that the increased book value do not go beyond the carrying amount that could have otherwise be determined if the impairment loss had taken place in the previous years. In this case, impairment loss reversal is treated as income unless the asset is carried at the revalued amount where the impairment loss reversal is considered as the increase in the revaluation (Zeff, 2013).
The amortization, depreciation on the office building and the plant equipment on the leasehold enhancement is determined by the use of the straight-line basis to allocate revaluation amount or net cost uniformly to every asset minus its estimated residual value continuouslyover the estimated useful life of legal aid Queensland. The assets in progress or under the construction are not depreciated in this case until they attain service delivery capacity or level (Beltratti & Stulz, 2012). In the event where the assets have acomponent that is separately identifiable that is subject to regular replacement. The components are assigned to the useful lives different from the asset to which they associate and are accordingly depreciated.
Any cost that raises the initially assessed capacity or the service potential of an asset is capitalized and the current amount that is depreciable is depreciated over the remaining useful life of the asset. Leasehold property improvements are progressively amortized over their estimated useful life unexpired lease time or the legal aid Queensland. In this case, the unexpired lease period entails any option period where there is theprobableoption of exercise. For every asset class, some of the useful life parameters and rates that can be applied in depreciation and amortization calculations include computer equipment and copiers, motor vehicles and software that are used internally including thebuildingof fair value.
5)Discuss the impact of the acquisition (discussed in part 1)) on financial performance for
Currently and future years.(2 marks)
The acquisition is one of the strategies that are employed by the companies to strengthen their market share and reduce the risks associated with the running of the firm. Acquisition help in the accumulation of the wealth, technologies and the human resource that can assist the bank to have a cutting edge in the market regarding the product quality and the customer loyalty (Adams & Mehran, 2012). In this case, the acquisition of the other firms will ensure that the Bank of Queensland improves obtain the necessary resources and technologies that would help in improving its service delivery. This will, therefore,improve its current profitability and in the future. However, during the initial stages of the entity acquisition, they reduce the financial base of the bank. This will affect the operations undertaken by the bank regarding research and development hence will reduce the profit margins in the short run. Over the long term, when the acquired firm will startoperating, and the bank has attained the break-even point, it will increase the financial base of the company hence it will be in aposition to undertake other massive projects.
Adams, R. B., & Mehran, H. (2012). Bank board structure and performance: Evidence for large bank holding companies. Journal of financial Intermediation, 21(2), 243-267.
Beltratti, A., & Stulz, R. M. (2012). The credit crisis around the globe: Why did some banks perform better?. Journal of Financial Economics, 105(1), 1-17.
Brunnermeier, M. K., & Schnabel, I. (2015). Bubbles and central banks: Historical perspectives.
Erkens, D. H., Hung, M., & Matos, P. (2012). Corporate governance in the 2007–2008 financial crisis: Evidence from financial institutions worldwide.Journal of Corporate Finance, 18(2), 389-411.
Golin, J., & Delhaise, P. (2013). The bank credit analysis handbook: a guide for analysts, bankers and investors. John Wiley & Sons.
Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D., & Tan, R. (2012).Financial Accounting. Pearson Higher Education AU.
Metcalfe, B. (2013). The Market Potential of Australia′ s New Foreign Banks.European Journal of Marketing.
Pathan, S., & Faff, R. (2013). Does board structure in banks really affect their performance?. Journal of Banking & Finance, 37(5), 1573-1589.
Pucheta‐Martínez, M. C., & García‐Meca, E. (2014). Institutional investors on boards and audit committees and their effects on financial reporting quality. Corporate Governance: An International Review, 22(4), 347-363.
Zeff, S. A. (2013). The objectives of financial reporting: a historical survey and analysis. Accounting and Business Research, 43(4), 262-327.
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