Dear experts,

This case is a mini-case of the SAFARI CASE published by IFRS. Could you please have a look at it and help me to address its challenging questions?

Thank you.

ACCT2159 Financial accountability and Reporting - Individual assignment 1 ACCT2159 Financial accountability and Reporting Word limit for the all answers: 1000 words 1 ACCT2159 Financial accountability and Reporting - Individual assignment 1 Big Safari: case study Background Makeit PLC is a company listed on the Australian Securities Exchange. The company has operated successfully in the manufacturing sector for more than twenty years and for many years has prepared its financial statements in accordance with the accounting standards released by the Australian Accounting Standards Board (AASB). In 2012 Makeit's board of directors decide to expand Makeit's operations into new types of business and into a geographical location in which it currently does not operateSubSaharan Africa. The company appoints James and Judith Bilkersen to manage its African operations, under the brand name The Big Country Safari Company (Big Safari). The Bilkersens have over fifteen years' experience in the hospitality industry in Africa and they share a passion for conserving wildlife and natural habitats. Makeit intends to operate a safari lodge and other African operations indefinitely. Big Safari will operate in the Republic of Africania but it will prepare financial statements in compliance with accounting standards issued by AASB, since Makeit incorporates Big Safari as a wholly-owned separate legal entity. The financial year for Big Safari ends on 30 June. Events in 2012-2015 On 1 July 2012, Big Safari starts its operations and investment activities. Acquisition of land On 1 July 2012, Big Safari purchases 1,000 hectares of undeveloped natural land called Freelands, an area of land in central Africania, for $10,000,000, with the aim of establishing an ecotourism business. The property is not fenced and adjoins a national park on all its boundaries except the western boundary, where Freelands adjoins privately owned undeveloped land that is currently unused. Plants and animals A wide range of indigenous plants and wild animals (including significant numbers of buffalo, crocodile, giraffe, hippopotamus, leopard, lion, zebra and a wide variety of antelope) inhabit Freelands and the surrounding lands. Law in Africania specifies that wild animals are the property of the owner of the land that they occupy. Neither elephant nor rhinoceros frequent Freelands because both species are no longer present in Africania because of heavy poaching during the civil war that plagued the country approximately a decade ago. 2 ACCT2159 Financial accountability and Reporting - Individual assignment 1 Plans for the facility construction The Bilkersens are inspired by the potential of the property to attract international tourists because visitors would be able to view native animals at close range in their natural habitat. The construction phase is expected to take about 2 years to complete. The managers plan for the buildings to blend in with their setting and to have minimal impact on the environment. They therefore prefer to use local materials and building techniques, including thatch-grass roofing harvested from Freelands, for the lodge and staff accommodation buildings. In August 2012 the plans for the whole safari facility are finalised. They include the construction/acquisition of: 1. 1 main lodge (comprising reception area, restaurant, lounge, swimming pool and an office from which to administer the lodge and safari operations) 2. 1 home for the Bilkersens (managers' house) 3. 20 smaller free-standing homes for the staff (staff houses) 4. 18 movable, luxury aluminium-framed canvas safari tents for guests. When complete in 2014, the main lodge will comprise the building (expected economic life 60 years), fixtures and fittings (15 years), furniture (10 years). The staff houses and managers' house (as buildings) has an expected economic life of 60 years, fixtures and fittings (15 years) and furniture (10 years). Management intend to replace only those items at the end of their economic lives, at which point they will be worthless. The costs of disposal are expected to be insignificant. Each safari tent is considered to have a useful life of 15 years and the furniture 5 years. The main lodge, the managers' house, the staff houses, the safari tents are all estimated to have no residual value. Electricity generator On 1 October 2012, a diesel-powered electricity generator was purchased for $100,000 and installed at the lodge at a further cost of $23,000. The generator is the only source of electricity at the remote lodge site and there are no plans to extend the national electricity grid to the area in the foreseeable future. The generator is expected to have a useful life of 25 years, with no residual value. At the end of the useful life, Big Safari is expected to incur to disposal and dismantling expenses for $ 2,000. Staff and manager's houses The construction of the twenty staff houses and the manager's house starts in October 2012 and finishes in June 2013, when all houses are ready to be used. At the end of the works, Big Safari is billed the following amounts in respect of the construction of all of the houses: (a) construction material: $3,000,000; (b) contractors' fees: $2,800,000; (c) builders salaries: $400,000; (d) furniture: $180,000. The cost incurred to construct the managers' house is double that of a regular staff house. At the end of financial year (June 2013) and Big Safari's first year, some facilities are completed and other are to be constructed or acquired. 3 ACCT2159 Financial accountability and Reporting - Individual assignment 1 Lodge construction The works for the main lodge building start on 01 July 2013 and the construction is concluded on June 2014 by an independent construction firm for $8,500,000 fixed-price contract. The contract indicates that the total amount can be attributed to: (a) building construction expenses $6,000,000; (b) fixture and fittings $1,500,000; (c) furniture $1,000,000. Acquisition of safari tents On 30 June 2014, the eighteen canvas safari tents are purchased from an external supplier for $1,000,000 and transported to the site for erection (transport costs $10,000). The furniture for the tents is purchased for $50.000. First advertisement campaign. In the financial year ending June 2014, Big Safari runs an extensive advertising campaign to promote its safari facility in eco-tourist clubs and travel agencies ($70,000). Website On 01 June 2014, Big Safari's website goes live, with a development cost of $100,000. The website is Big Safari's main link to its customers. The website provides much information about the lodge and its ecotourism activities and allows customers to book safaris directly. Acquisition of helicopter On 01 January 2014, Big Safari purchases a helicopter for $3,000,000 (valued $2,000,000 the airframe and $1,000,000 the engine). The helicopter is to be used equally along its useful life to transfer clients between the nearest airport and Freelands (a distance of nearly 100 kilometres) and for operating aerial safaris on Freelands. Big Safari expects the helicopter engine to last 5 years and the helicopter airframe to last 10 years. The helicopter is expected to have no residual value. At the end of financial year (June 2014), the safari facility is ready to start its activities and first customers start to arrive in July 2014. Acquisition of customer list On 01 July 2014, Big Safari pays $250,000 for a database of names and contacts from an upmarket German-based adventure-tour operator. The Bilkersens expect the customer list will be used equally along five years, when the database will be effective in identifying and further attracting potential customers. After which the database will be too old to be effective (no residual value). By that time they expect that Big Safari will have established itself as a leading brand in the ecotourism industry and direct mailing will no longer be necessary. 4 ACCT2159 Financial accountability and Reporting - Individual assignment 1 Second advertisement campaign Along the financial year ending June 2015, Big Safari runs a second extensive advertising campaign in a range of leading international ecotourism and natural interest publications for $50,000, promoting its exclusive ecotourism operations in Africania. Some benefits from the campaign are supposed to derive also in the future. Helicopter assessment At the end of June 2015, the fair value of the helicopter is estimated as $2,000,000 and its value in use is estimated as $2,100,000. Assessment of Big safari at the end of financial year At the end of financial year ending June 2015, some directors from Makeit PLC, accompanied by some experts in the market evaluation of ecotourism facilities, visited the safari facility. The directors aim to assess Bilkersens' job in Africania, and also to evaluate the whole safari facility. Since Makeit PLC received good feedback about the first months of activity of the safari, the company is thinking about a possible sale of the whole safari facility. At the end of their evaluation (30 June 2015), the experts prepare a report and recognised a goodwill for Big Safari of $1,000,000. Therefore, Makeit PLC is seriously considering a sale of the facility in next years. (Adapted from IFRS Foundation) 5 ACCT2159 Financial accountability and Reporting - Individual assignment 1 Questions 1. Determine whether Freelands and plants and animals respectively can be recognised as assets by Big Safari and how they can be valued by Big Safari. Justify your answer, making reference to the Conceptual Framework and AASB116 Property, plant and equipment. 2. Explain why different useful lives are indicated for the individual items of each safari properties (main lodge; managers' house; staff houses; safari tents). State how you would use this information when accounting for the main lodge in the financial year ending June 2015? 3. With reference to the electricity generator, Big Safari is thinking to expense the installation costs ($23,000) in year ending June 2013 and to consider the disposal costs ($2,000) as part of the acquisition cost of the generator. As Big Safari's accountant, advise the company about this plan, with the support of the specific accounting standards that are relevant in this case. 4. In which assets category do you consider classifying the safari tents? What is their cost of acquisition? 5. Can the website development costs be classified as intangible assets? Justify your answer with the support of the accounting standards that are relevant in this situation. 6. Can the costs for the second advertisement campaign be classified as intangible assets? Support your answer by making reference to the accounting standards that are relevant in this situation. 7. With reference to the helicopter, can you determine the amount of the depreciation for the year ending June 2014 and year ending June 2015? 8. Can the customer list be considered a specific intangible asset or should it be classified as goodwill? State whether the customer list is to be depreciated. Support your answer by making reference to the accounting standards that are relevant in this situation. 9. In consideration of the fair value and the value in use that are determined for the helicopter at the end of June 2015, what does Big Safari have to do according to AASB 136 Impariment of Assets? Provide calculations and justify your answer. 6 ACCT2159 Financial accountability and Reporting - Individual assignment 1 10. Big Safari is going to account for the goodwill that was assessed by the experts as a new intangible asset in the year ending June 2015 Statement of Financial Position, because it aims to account for the company's future economic benefits as a whole. Provide your advice as Big Safari's accountant on how the company should account for that goodwill. Support your statement with the support of the accounting standards that are relevant in this situation. If no reference list is provided: - 1 mark If overall citation are wrong (more than two citations): - 1 mark. 7