BUSINESS AND LAW
Assignment Details
You are an accounting consultant who works for a large chartered accounting firm in Sydney,
and have been given the following brief regarding your new client.
Your client, a publicly listed service provider Digby Constructions Ltd, is a construction
company providing services in the Sydney and Newcastle/Hunter regions. Digby Constructions
Ltd is considering two new initiatives for which they need specialist consulting advice.
Page 2 of 6
Lease Agreement
The first initiative being adopted by Digby Constructions Ltd is to lease new equipment that
will improve the quality of construction services they provide to their clients. The accounting
team at Digby Constructions Ltd have reviewed the lease agreement and cannot agree on the
correct classification of the lease and the impact it will have on the financial statements.
The lease agreement Digby Constructions Ltd is considering is as follows:
? The lease agreement is for a five year lease
? The lease commences on 1 November 2013 and the first lease payment is due on 31
October 2014.
? The annual lease payments are $125,000 per year, the residual value at the end of the
term of the lease is $80,000 and the residual value guaranteed by Digby Constructions
Ltd is $50,000.
? Included in the annual lease payment is an amount for $5,000 which covers
maintenance and insurance costs incurred by the lessor.
? The equipment has a fair value of $500,000 and the lessor is expected to incur costs of
$4,568 to negotiate and execute the lease.
? The expected useful life of the equipment is six years, whereby Digby Constructions
Ltd expects to return the equipment to the lessor who will then sell it.
? Other conditions of the lease include that the lease is cancellable with the permission of
the lessor.
Digby Constructions Ltd has a $300,000 loan from BPC Bank which includes a debt covenant.
The debt covenant requires Digby Constructions Ltd to have a maximum debt ratio of 70% and
a minimum current ratio of 1.4:1. The loan agreement states that if the debt covenant is
breached the $300,000 loan becomes immediately due to the bank. The financial controller is
concerned that entering the lease agreement may result in a breach of this debt covenant.
An abstract from the forecast balance sheet of Digby Constructions Ltd on 1 November 2013 is
(this forecast balance sheet does not include the effects of proceeding with the lease
agreement):
Digby Constructions Ltd
Statement of Financial Position
as at 1 November 2013
Current Assets 415,000
Non Current Assets 828,000
Total Assets 12,243,000
Current Liabilities 292,000
Non Current Liabilities 530,000
Total Liabilities 822,000
Net Assets 421,000
Equity 421,000
The accounting team at Digby Constructions Ltd are unable to determine how to classify the
lease and the impact the lease will have on both the company and its financial statements, and
require your assistance.
Page 3 of 6
E-Trade Network and the E-Dollar
The second initiative involves joining the E-Trade Network and the introduction of the use of a
virtual currency in digital form called the “E-Dollar”. Digby Constructions Ltd works with a
large network of suppliers and clients for which they want to use the E-Trade Network.
Each time a company within the E-Trade Network provides a service they record the value of
the service in E-Dollars on their balance sheet. One E-Dollar dollar is equal to one Australian
dollar. The E-Dollars cannot be exchanged for cash, nor can they be actively traded as there is
no market for E-Dollars, they can only be exchanged for services provided by companies
within the E-Trade Network.
For example if Digby Constructions Ltd provides a service for a company within the network
for 5,000 E-Dollars, then they would record a balance of 5,000 E-Dollars. When a service is
provided to Digby Constructions Ltd from a company within the E-Trade Network then Digby
Constructions Ltd can then use their E-Dollars as payment for the service provided. The
advantage of this is it is cashless within the group of companies that are a part of the E-Trade
Network.
The issue that has arisen for Digby Constructions Ltd is that their accounting team has argued
about the accounting treatment of the E-Dollar.
? One accountant at Digby Constructions Ltd, Mike, has argued that according to AASB
132 Financial Instruments the E-Dollar should be recorded as a financial asset on the
Balance Sheet as E-Dollars are being used for exchange of goods or services.
? Another accountant, Sandy, has argued that this is not the correct treatment as using EDollars
for exchange does not make it cash and according to AASB138 Intangible
Assets, the E-Dollars should be recorded as an intangible asset.
The Financial Controller is unsure himself and is somewhat confused by the concept given the
disagreement within Digby Constructions Ltd.
You have been asked to provide detailed comment and a recommendation about the correct
accounting treatment of the E-Dollar.
Required:
Write a report (maximum 2,000 words) for the financial controller of Digby Constructions Ltd
that addresses the accounting treatment of the lease and its effect on the balance sheet as well
as the new initiative of the E-Dollar as part of the E-Trade Network.
Page 4 of 6
In your report you are required to address the following criteria:
The Lease
– With reference to AASB117 Leases classify the lease for Digby Constructions Ltd,
justify your classification and include a lease schedule for the lessee in the appendix
to your report
– Restate the balance sheet after the lease has been classified. Show the balance sheet
before taking into consideration the lease agreement and after taking into
consideration the lease agreement. (i.e. prepare one balance sheet with two
columns, before and after)
– Calculate the debt ratio and current ratio before the effects of the lease agreement
and after the effects of the lease agreement. Will signing the lease agreement breach
the debt covenant?
– Discuss the overall impacts of proceeding with the lease agreement on the financial
position of Digby Constructions Ltd
– Discuss an alternative form of leasing and discuss the impact it would have on both
the balance sheet and the income statement relative to the original classification of
the lease.
– Overall provide a recommendation to Digby Constructions Ltd about whether to
proceed with entering this lease agreement.
The E-Trade Network and the E-Dollar
– With reference to the Framework justify why the E-Dollar meets the definition of
an asset
– With reference to the requirements of AASB132 Financial Instruments:
Presentation and AASB138 Intangible Assets discuss and critically analyse the way
each accountant argued for a different treatment of the E-Dollar. In your critical
analysis provide a final recommendation as to the correct accounting treatment of
the E-Dollar.
(You are required to justify your recommendation with reference to the correct
accounting standard given the nature and characteristics of the E-Dollar)
– Upon initial classification describe to the Financial Controller the subsequent
accounting treatment with respect to the initial classification.
Note: workings and supporting calculations should be included in an Appendix to your
report and are not included in the word limit.
Where you refer to the Accounting Standards, textbook, website or other resource you
will need to include appropriate referencing. You should also include a reference list at
the end of your assignment.
For information regarding referencing and how to write a report you can refer to the
NBS Student Manual and the Gold Guide to Academic Quality (see page 10 of the Course
Outline for details of how to access these resources).
You may also make an appointment with Katerina Stratilas (Learning Advisor Sydney
Campus) to discuss difficulties with report writing or referencing.
Page 5 of 6
Marking Criteria:
Criteria Marks
Excellent Satisfactory Poor
100%-75% 74%-50% 49%-0%
The Lease
Classification of
the lease
2 The lease has been correctly
classified and thoroughly
justified with reference to
AASB117.
The lease has been correctly
classified and limited
justification has been
provided.
The lease has been
incorrectly classified and/or
no justification was provided
for the classification of the
lease.
Restatement of
the balance sheet
and calculation
of debt ratios and
current ratios
3 The balance sheet has been
re-stated, all figures are
correct and the “before” and
“after” columns are clearly
shown.
The debt ratios and current
ratios are correctly calculated
before and after entering the
lease agreement.
The balance sheet has been restated,
most figures are correct
and the “before” and “after”
columns are clearly shown.
The debt ratios and current
ratios are calculated with
minor errors before and after
entering the lease agreement.
The balance sheet has not
been re-stated, or the figures
are incorrect. “Before” and
“after” columns are not
shown.
The debt ratios and current
ratios are not calculated or
were calculated with major
errors.
Discussion
regarding the
debt covenant
and the overall
impact of
proceeding with
the lease
2 Thorough discussion as to
whether entering the lease
breaches the loan covenant.
The overall impact of entering
the lease agreement is
discussed in a way that is
accurate and comprehensive.
Limited discussion as to
whether entering the lease
breaches the loan covenant.
The overall impact of entering
the lease agreement is
discussed in a way that is
mostly accurate.
No discussion as to whether
entering the lease agreement
breaches the loan covenant.
The overall impact of
entering the lease agreement
is not discussed or is not
discussed accurately.
Recommendatio
n made in
relation to
proceeding with
the lease and
alternative forms
of leasing are
considered
3
Alternative forms of leasing
and impact on financial
statement comprehensively
discussed.
A justified recommendation is
provided regarding whether to
proceed with the lease.
Alternative forms of leasing
and impact on financial
statement discussed to a
limited extent.
A recommendation is
provided regarding whether to
proceed with the lease but
lacks justification.
Alternative forms of leasing
and impact on financial
statements are not discussed.
No recommendation is
provided regarding whether
to proceed with the lease.
The E-Dollar
Justification why
the E-Dollar
meets the
definition of an
asset with
reference to the
Framework
2 Comprehensive justification
as to why the E-Dollar meets
the definition of an asset is
provided with reference to the
Framework.
Limited justification as to why
the E-Dollar meets the
definition of an asset is
provided with reference to the
Framework.
No justification or incorrect
justification as to why the EDollar
meets the definition
of an asset is provided with
reference to the Framework.
Page 6 of 6
Discussion and
analysis of the
different
treatments of the
E-Dollar
3 Thorough discussion provided
as to the different accounting
treatments of the E-Dollar
with reference to AASB132
and AASB138.
Limited discussion provided
as to the different accounting
treatments of the E-Dollar
with reference to AASB132
and AASB138.
None or incorrect discussion
provided as to the different
accounting treatments of the
E-Dollar with reference to
AASB132 and AASB138.
Recommendatio
n and subsequent
accounting
treatment
4 The correct recommendation
is made in relation to the
accounting treatment of the EDollar.
Subsequent accounting
treatment is thoroughly
discussed.
A recommendation is made in
relation to the accounting
treatment of the E-Dollar.
Subsequent accounting
treatment is discussed to a
limited extent.
No recommendation is made
in relation to the accounting
treatment of the E-Dollar.
Subsequent accounting
treatment is not discussed.
The Report
Presentation of
the report
2 The report is well presented
with consistent use of
formatting, headings, subheadings
and supporting
tables/graphics.
Detailed calculations are
shown in an Appendix.
The formatting and layout of
the report is inconsistently
presented.
Inconsistent use of formatting,
headings and supporting
tables/graphics
The formatting and layout is
poor indicating a lack of
professionalism.
Either appropriate headings
are not used and/or there is a
lack of formatting and/or
there is a lack of supporting
tables/graphics
Referencing 2 Referencing appropriate with
no errors or omissions.
An adequate attempt at
referencing was made with
minor errors or omissions in
the style of referencing.
Lack of proper referencing.
Either references are missing
or the referencing style has
not been applied accurately
Quality of writing 2 Professional language is used
which communicates meaning
with clarity and fluency.
No errors in spelling,
grammar and punctuation, or
sentence structure.
Adequate language which
conveys meaning with some
clarity, however there the
report is inconsistent in its
flow from one idea to the next
and there are errors in
expression.
Errors in spelling, grammar,
punctuation, sentence
structure, and/or organisation
Poor language impedes
meaning because of errors in
usage and disorganisation of
information.
Consistent errors in spelling,
grammar, punctuation,
sentence structure and/or
organisation.
Total Marks 25
Week 7
INSTRUCTIONS
Read “Mending Wall” by Robert Frost and answer the questions below.
Please put quotation marks (” “) around the poem title when mentioning it in your
answers (“Mending Wall”), and be sure to use “the speaker” and “the poet” in the
correct manner.
After you have read the poem a couple of times, answer the questions below.
All questions must be answered for you to receive a grade of “B” or greater.
DO NOT combine answers. Your answers will follow the numbering format set forth in
the assignment.
DO NOT include the questions, just the answers.
****
INSTRUCTOR’S OVERVIEW OF THE POEM: This is the first of two poems written by
Robert Frost that you will be reading for the Poetry segment of this course. The one
aspect of Frost’s poems that you should be made aware of is that he likes to explore
“sides”…inside versus outside, one side versus another, etc. In the case of “Mending
Wall” Frost explores the two sides of a stone barrier that separates the Speaker’s
property from his neighbor’s, and by default, the opinions of the Speaker and the
Neighbor as they work to repair this barrier after the first snow melt during Springtime. It
is important to note several critical aspects of this poem before reading: First, the
Speaker in the poem is young and his Neighbor is a generation older. Second, at issue
here is the reason why this stone barrier is needed; the Speaker doesn’t see much of a
need for this barrier because its original purpose of keeping cows penned into the
neighbor’s property is no longer relevant (the cows have long since been sold and only
trees now grow on both properties); the Neighbor, however, continues to insist that even
though the stone barrier has outlived its original intended use, it continues to serve an
important purpose (“Good fences make good neighbors”). Third, and most importantly,
on a Figurative level, this stone barrier is a symbol for Tradition and this poem explores
why older generations tend to cling to traditions and why younger generations tend to
reject them. Since the Speaker sees this stone barrier as a “wall,” he sees all traditions
as walls; and since the Neighbor sees this stone barrier as a “fence,” he sees all
traditions as inviting and important. Fourth, “ignorance” is a key motif and theme in this
poem, as both the Speaker and the Neighbor think the other is ignorant.
STUDY QUESTIONS For “Mending Wall”
QUESTION 1: (75 words minimum) What did you think of the poem? DO NOT
summarize the poem in your answer.
QUESTION 2: (75 words minimum) The poem looks at the specific attitudes of these
two men. The Speaker sees the stone barrier as a wall, and the Neighbor sees it as a
fence. Before we begin to explore this poem, we need to be able to tell the difference
between the two. So, what are the LITERAL differences between fences and walls, both
in their physical appearance and function? How can one (fence) be considered useful
and the other (wall) not?
QUESTION 3: (150 words minimum) Now, let’s examine why, in a FIGURATIVE/
METAPHORICAL sense, the Speaker considers the barrier a “wall.” As discussed in the
overview to this poem, the Speaker is speaking from the perspective of youth, and
younger generations tend to view the traditions of older generations as no longer useful.
In fact, some young people have great disdain for the traditions of thier parents’
generation. Why would a young person view the traditions of older generations as “walllike?”
What are traditions barriers to from the perspective of youth?
QUESTION 4: (150 words minimum) As a companion to question 3, let’s look at
traditions from the perspective of older generations. Why do older generations view
traditions as important? What functions do traditions have? Think of the traditions we
have at the family level, at the community level, and at the national level when framing
your response to this question (because traditions ARE important at these levels…but
why?).
QUESTION 5: (150 words minimum): The Speaker makes a specific reference in the
poem to two distinct types of trees: apple trees and pine trees. He says: “He (the
Neighbor) is all pine and I (the Speaker) am apple orchard.” This is a poofy, poetic way
of saying “Pine trees grow on his property and apple trees on mine.” But the Speaker is
saying something else here in a figurative sense. He’s using pine trees as a symbol for
COMMUNITY and apple trees as symbols for INDIVIDUALITY. Pine trees grow in
forests, and that means that the trees grow close together and support themselves, like
members of a community do. Apple trees grow in specific individual spots and march
along in regemented rows, which we call “orchards.” In a sense, the Speaker is saying
that the Neighbor is community-minded and he himself is more of an individual. Since
the Speaker is young, and clearly all about being an individual, what is he saying here
about the importance of community from a young person’s perspective?
QUESTION 6: (150 words minimum): As stated earlier in the overview, “ignorance” is an
important motif and theme in this poem. The Speaker says the Neighbor “moves in
darkness.” In Literature, both in stories and poems, “darkness” can represent several
things: evil, blindness, moral corruption, and ignorance. In this case, the Speaker is
saying that his Neighbor is ignorant of the fact that the stone barrier no longer serves a
useful purpose. He reinforces this belief by calling the Neighbor an “Old Stone savage,”
which, when interpreted Figuratively, means that the Speaker is calling the Neighbor a
cave man…a dumb, unenlightened, and outdated form of human being that should have
been extinct a looooong time ago. But here is the ironic part: the Neighbor isn’t the
ignorant one. The Speaker is. The Speaker doesn’t understand why the Neighbor keeps
saying “Good fences make good neighbors.” So here is the question: The Neighbor
clearly sees that the stone barrier they are fixing continues to have a specific function in
a way that the Speaker doesn’t. In other words, even though the stone barrier no longer
helps to keep cows penned in, it has a new and different function that the Speaker is
overlooking. What is that function and what is the Neighbor doing to get the Speaker to
see the importance of that function?
QUESTION 7: (75 words minimum): What is YOUR view of tradition? Do you think
traditions are important or outdated? Are you community-minded or more individuallyminded?
Explain.
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