AS91404 Demonstrate understanding of accounting concepts for a New Zealand reporting entity (2022)

Alice is a high school student with a part-time job. She has opened an account with an online investment company and, after researching a number of New Zealand companies, has started investing $20 a month in Port of Tauranga Limited shares. She is trying to build up the number of shares she has in Port of Tauranga Limited.

POT may be used to refer to Port of Tauranga Limited.

Question 1

Question 1.a

New Zealand reporting entities are required to prepare annual financial statements that comply with New Zealand generally accepted accounting practice (NZGAAP).

Explain in detail how the requirement to comply with NZGAAP was beneficial to Alice when she researched a number of New Zealand companies before deciding to purchase shares in Port of Tauranga Limited.

In your answer, refer to NZGAAP and the enhancing qualitative characteristics of:

comparability
understandability.

Question 1.b

As a shareholder in Port of Tauranga Limited, Alice enjoys limited liability. Explain in detail limited liability and how it protects Alice as a shareholder.

Question 2

The following note to the financial statements in the Port of Tauranga Limited Annual Report for 2021 caught Alice’s attention.

Port of Tauranga Limited and its subsidiaries

Notes to the Consolidated Financial Statements (extract)

For the year ended 30 June 2021

Subsequent events

A final dividend of 7.5 cents per share to a total of $51 019 990 has been approved subsequent to reporting date. The final dividend was not approved until after year end, therefore it has not been accrued in the current year financial statements.
On Tuesday 17 August 2021 at 11.59 p.m., New Zealand moved to Alert Level 4 following the detection of a positive case of COVID-19 in the community. This alert level escalation has had no material impact on the performance of the Group.

Question 2.a

Justify how each of the two subsequent events stated in the Port of Tauranga Limited 2021 Annual Report will assist Alice in her decision-making as an investor in Port of Tauranga Limited.

Question 2.b

Before Port of Tauranga Limited can pay dividends to shareholders, the directors must sign a document confirming that the company meets the solvency test.

Question 2.b.i

Explain in detail the two parts of the solvency test.

Question 2.b.ii

Explain how the directors would be confident Port of Tauranga Limited has met the solvency test.

Question 3

Alice has always wondered what goodwill represents. Port of Tauranga Limited's Annual Report for 2021 notes to the financial statements include the following information relating to goodwill.

Port of Tauranga Limited and its subsidiaries

Notes to the Consolidated Financial Statements (extract)

For the year ended 30 June 2021


Intangible assets (extract)	$ 000
Goodwill
Balance at 1 July 2020	15 490
Intangible assets acquired on acquisition of Timaru Container Terminal Limited	2 930
Balance at 30 June 2021	18 420

Justify the classification of goodwill as an intangible asset for Port of Tauranga Limited.

In your answer, explain:

how the acquisition of Timaru Container Terminal Limited (TCT) resulted in Port of Tauranga Limited acquiring additional goodwill
why this goodwill is an intangible asset
why goodwill is an asset, in terms of the definition and recognition criteria for an asset.