Financial Positioning – Wesfarmers

Individual Assignment

Format:
• 12 point font, Times New Roman, paragraphs formatted with 1.5 line spacing,
and with margins of 2.5cm. This assignment must be done in ‘Word’ or other text
format program. Do not use ‘Excel’, pdf or other non-text programs to do this
assignment.
• Answersto Parts A, B and C of this assignment should not exceed 1,500 words
in total including any footnotes, appendices, images and a reference list. The word
count is based on the word count information as presented in Turnitin and this will
be checked. For guidance on words in excess of the word limit, students are advised
to refer to the Business School’s Policies at:
https://business.sydney.edu.au/students/policy Please note the word count in a
Microsoft Word document and a submitted document through Turnitin can be
different. It is each student’s responsibility to ensure the submitted word document
through Turnitin for Parts A, B and C does not exceed 1,500 words in total.

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• As a suggestion, you can use the following procedure to assist you to track the word
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Open your assignment Word document.
Use Ctrl+Shift+G to open the Word Count dialog box and insert a tick in the
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http://libguides.library.usyd.edu.au/c.php?g=508212&p=3476096
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of academic honesty will be referred to the Office of Educational Integrity for further

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investigation and penalised if verified. You can read more information on what
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If necessary, students are advised to refer to the special consideration advice contained
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https://sydney.edu.au/students/special-consideration.html

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Grade Descriptors:
Due to the specific nature of this assignment, students are advised generic submissions
will not score high marks as the assignment requirements will not be met. The following
can at best be considered as a general indication, assuming consistency in quality of
component parts.
High Distinction The attempted solution substantially exceeds minimal requirements,
and is consistent and coherent. It excels in substantive content and demonstrates
professional communication skills. It reflects consideration of your own well developed
perspectives and is framed in your own words.
Distinction The attempted solution substantially exceeds minimal requirements across
most tasks and through effective communication demonstrates a strong understanding
of the accounting issues and relevant accounting requirements. Good development of
your own perspectives.
Credit The attempted solution exceeds minimal requirements across most tasks, but is
less well developed, less framing in your own words (e.g. dull reproduction of slabs of
text from others), some errors or omissions in application.
Pass A minimal standard is reached across various aspects of the task.
Fail The task is not completed. The solution does not reflect an appropriate
understanding of the question/assigned task. Poorly developed responses.
Questions about the Assignment:
Students are required to post all assignment queries to the Assignment Forum on
Canvas. This is the required form of communication as it provides an opportunity
for all students to have access to the same information. Unit of Study teaching staff
will not answer questions during lectures, tutorials or in consultation times.

The contents of this assignment have been designed for educational purposes
only and are strictly hypothetical. It is based on publicly available

information.

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Instructions, references and guidance for Parts A, B and C:
Background to the assignment
Recently you submitted an application for a financial reporting graduate position. To
evaluate your professional judgement, critical thinking, application and written
communication skills, part of the application process requires you to prepare and
submit responses for the following assignment questions. Responses will be
considered on their ability to present relevant information and develop well supported
arguments. Do not submit a series of dot points. T o provide students with feedback,
your assignment will be graded against the assessment criteria included in
Appendix 1 to this assignment. Please note marks will be awarded for communication.

On 2 May 2019 Wesfarmers Ltd (“Wesfarmers” ASX: WES) announced an offer to
acquire an interest in Kidman Resources Ltd (“Kidman” ASX: KDR). This assignment
requires you to use the Kidman acquisition information to critically evaluate the
implications of recognising this investment as an associate or a subsidiary in the
Wesfarmers consolidated financial statements.

For the purpose of this assignment assume:
• Wesfarmers proposal to acquire Kidman is only accepted by 50% of Kidman’s
shareholders on 30 September 2019 for a transaction value of $388 million;
• The ultimate parent entity will directly acquire the 50% interest in Kidman;
• The equity accounting method for investment in associates will be adopted by
Wesfarmers in their consolidated financial statements;
• Kidman’s interest in the Mt Holland mine project, concentrator and Kwinana
refinery (Wesfarmers, 2019, May 2, a, Thompson 2019, May 23, p.2) will be
funded by a $700 million interest free loan from Wesfarmers during the year
ended 30 June 2020. Wesfarmers will use its existing balance sheet cash
balances to finance this transaction;
• During the year ended 30 June 2020 the Wesfarmers group will provide Kidman
significant non cash chemical processing management services; and
• All other Kidman acquisition information and future transactions and events
remain the same.

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Your Part A and Part B response are to be presented in a short answer format.
Part A (4 marks)
Explain how benefits and possible losses from Wesfarmers 50% interest in Kidman
could be reflected in Wesfarmers future years consolidated financial statements and
related notes when it is recognised as:
i) an associate; and in contrast
ii) a subsidiary.
Include valid technical reference(s) to support the explanation.
Part B (8 marks)
In your responses use and cite account names, balances and data from the Wesfarmers
consolidated financial statements to 31 December 2018 and relevant technical
reference(s).
(a) Describe how the Wesfarmers $700 million loan transaction with Kidman to
develop Kidman’s interest in the Mt Holland mine project, concentrator and
Kwinana refinery will affect individual asset accounts and the total assets
amount presented in Wesfarmers consolidated financial statements when the
50% interest in Kidman is recognised as:
i) an associate; and in contrast
ii) a subsidiary.
(b) Discuss the effects of the non cash chemical processing management service
transaction in Wesfarmers consolidated financial statements for the year ended
30 June 2020 when the 50% interest in Kidman is recognised as:
i) an associate; and in contrast
ii) a subsidiary.

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Part C (14 marks)
Your response to Part C is to be presented in an essay format.
“Wesfarmers is not a speculative investor but happy to put its balance sheet to work
when it sees value” (Thompson, 2019, June 13, p 4).
Discuss from a financial reporting perspective whether the 50% investment in Kidman
should be accounted for as an associate or as a subsidiary in Wesfarmers consolidated
financial statements.

In your persuasive response include:
• One (1) for argument point for the preferred accounting treatment that will bring
the most significant value to the Wesfarmers consolidated financial statements;
and
• One (1) alternative argument point that explains why the other accounting
treatment will bring, to a lesser extent, value to the Wesfarmers consolidated
financial statements.

Both argument points are to be accompanied by supporting examples developed* from
your Part A and Part B responses, findings from academic articles and/or other sources.
*Supporting examples developed from a Part A and Part B response must explain in
detail how and why it supports the argument point. It is not advisable to recycle the
same Part A and Part B response.

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References:
The following references are in addition to the references and articles included in the
course pack and referred to in the text book You may wish to research other press
releases and information.

AASB 10 Consolidated Financial Statements
AASB 128 Investments in Associates and Joint Ventures
Van der Lann, S. and Dean, G., 2010, “Corporate Groups in Australia: State of Play”,
Australian Accounting Review No. 53 Vol. 20 Issue 2 2010, pp 121-133
Kidman Resources Limited
Annual Report for the six months ended 31 December 2018 (Kidman, 2018).

Retrieved from: http://kidmanresources.com.au/live/wp-
content/uploads/2019/03/190327-Kidman-Resources-Limited-Annual-Report-
FINAL.pdf

Wesfarmers Limited
Half Year Report to 31 December 2018 (Wesfarmers, 2018). Retrieved from:

https://www.wesfarmers.com.au/docs/default-source/default-document-
library/1-2019-half-year-report-(incorporating-appendix-4d).pdf?sfvrsn=0

Article: Rob Scott flags more investments in the electric vehicles sector
(Thompson, 2019, June 13) Australian Financial Review, June 13 2019.

Retrieved from: https://www.afr.com/business/mining/scott-defends-plunge-
into-battery-minerals-sqm-partnership-20190613-p51x8e

Article: Investors wary of more cost blowouts on Wesfarmers lithium deal
(Thompson, 2019, May 23) Australian Financial Review, May 23 2019.

Retrieved from: https://www.afr.com/business/mining/investors-wary-of-
more-cost-blowouts-on-wesfarmers-lithium-deal-20190523-p51qc3

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Press release: (Wesfarmers, 2019, May 2, a) Proposal to acquire Kidman

Resources. Retrieved from: https://www.wesfarmers.com.au/docs/default-
source/asx-announcements/proposal-to-acquire-kidman-
resources.pdf?sfvrsn=0

Presentation: (Wesfarmers, 2019, May 2, b) Proposal to acquire Kidman

Resources. Retrieved from: https://www.wesfarmers.com.au/docs/default-
source/asx-announcements/proposal-to-acquire-kidman-resources—briefing-
presentation.pdf?sfvrsn=0

Appendix I. Assessment
criteria

Part Assessment guide Mark
Part A Explain benefits and possible losses in Wesfarmers future
years consolidated financial statements from recognising the
50% interest in Kidman as:
i) an associate; in contrast to
ii) a subsidiary
that are supported by valid technical reference(s)

/2
/2

Part B (a) (a) Describe effects of a loan transaction in Wesfarmers
consolidated financial statements when the 50% interest in
Kidman is recognised as:
i) an associate; in contrast to
ii) a subsidiary
(b) (b) Discuss effects of a non cash management service transaction
in Wesfarmers consolidated financial statements when the 50%
interest in Kidman is recognised as:
i) an associate; in contrast to
ii) a subsidiary
that are supported by relevant information from Wesfarmers
consolidated financial statements and technical reference(s)

/2
/2

/2
/2

Part C Valid discussion of required argument points in a persuasive
essay. Discussion demonstrates critical thinking/reasoning and is
supported with examples developed from Part A and Part B
responses and/or other sources

/14

Communication Communication, style, clarity of expression including
spelling, grammar, punctuation and proper referencing
using APA style

/4

Final mark Converted to 10% of the total mark for ACCT3011 /30

 

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