Additional information: Note: Unless otherwise indicated the events and transactions outlined below have already been accounted for in the balances above if required.
(a) Included in the amount of ‘Expenses’ in the trial balance provided above are: ï‚· Cost of sales $21,490,000
ACCT2005 SP2 2017 Annual Report Assignment Case Study Page 2 of 4
ï‚· $9,430,000 for employee expenses. This includes annual leave expense of $783,000. The balance of the provision for annual leave at 30 June 2016 was $1,230,000. ï‚· General operating expenses of $4,560,000. ï‚· Extraordinary expense of $2,400,000 for strategic review. In July 2016 the directors decided that it would be useful to have external parties undertake a review of company operations, procedures and policies and to provide some suggestions to improve profitability. Under this strategic review: ï‚· $1,150,000 was paid to the company auditors to conduct an analysis of various aspects of the company. ï‚· $850,000 was paid to FutureInc Ltd to prepare a report on future trends in the company’s markets. ï‚· $400,000 was paid to LookForTomorrow Ltd to make suggestions on improvements to the company’s store fronts and store layouts to attract more customers and sales. ï‚· Interest paid of $267,000. ï‚· $1,500 gift to an employee of the company who competed in the Olympic Games in Rio in 2016 to help with their travel expenses. ï‚· Depreciation expense for shop furniture and fittings $747,000. ï‚· Depreciation expense for equipment $487,000. ï‚· Depreciation expense for buildings of $340,000. ï‚· Warranty expense of $1,290,000. The balance of the provision for warranty at 30 June 2016 was $690,000. Of the balance of this provision at 30 June 2017 65% is expected to be used by 30 June 2018. ï‚· Doubtful debts expense for the period of $1,492,000. ï‚· $815,000 payment to auditors for audit of company accounts. ï‚· The carrying amount of the shop furniture and fittings sold in March 2017 of $740,000. (This is comprised of cost of $2,250,000 less accumulated depreciation to date of sale of $1,510,000).
(Note: This does not detail all expenses included in the total of ‘Expenses’ in the trial balance above. You should classify any remaining expenses as ‘other’ or ‘miscellaneous’)
(b) The company borrowed $4,000,000 from WBank on 1 January 2017. In taking out this loan fees of $2,500 were paid (these are included in the expenses amount in the trial balance). The principal amount of the loan of $4,000,000 is to be repaid at the end of 2 years. Interest payments are due every 3 months (on 1 April, 1 July, 1 October, 1 January). On 1 April 2017, the company paid $267,000 for interest. A further payment of $267,000 for interest is to be paid on 1 July 2017.
(c) Other revenues and income is comprised of: ï‚· Interest earned during the period of $1,250 from cash held at bank. Interest is accrued and paid to the company on 31 December and 30 June each year. ï‚· Rent revenue of $83,400 from building space rented out to other companies. The balance of prepaid rent in the trial balance relates to this.
ACCT2005 SP2 2017 Annual Report Assignment Case Study Page 3 of 4
ï‚· Proceeds from the sale of non-current assets. On 1 March 2017 the company received $865,000 from the sale of shop furniture and fittings that were replaced as part of the upgrade recommended by LookForTomorrow Ltd.
(d) In July 2016 the Directors asked their auditors to undertake an analysis of a number of the aspects of the company as part of their strategic review. From this review the auditors noted that the sales returns had been increasing gradually over the last 5 years. As part of its strategy to gain initial market penetration the company had a policy of allowing customers to return a range of its products within 2 months of initial sale date, if the customer was not completely satisfied and with no questions asked (i.e. could return for any reason for a refund). The review noted that most sales returns related to products where this policy applied. It was decided that this policy would be revoked and, in relation to these products, from 1 September 2016 the following applied: ï‚· Customers could return within 1 week of purchase for a refund without any reason – providing the returned product was in ‘new’ condition. ï‚· The warranty period for these products would be extended from 1 year to 2 years. This has resulted in a 500% reduction in sales returns but an increase of more than 20% in warranty expenses due to the extension of warranty period. (e) The balance of the legal provision in the trial balance relates to a case that originated in 2013 in relation to a product liability claim. The company had anticipated that it would be required to pay $250,000. However the company’s lawyers were able to settle this matter but for more than expected (i.e. $285,000) in November 2016. The amount of $285,000 has been paid.
(f) Directors had recommended a dividend of $412,500 from retained earnings on 30 June 2016. This required approval at the Annual General Meeting. This approval was given and this dividend was paid on 30 August 2016. (g) At 1 July 2017 the share capital comprised: ï‚· 2,500,000 fully paid ordinary shares at an issue price of $1.10 issued on 1 September 2009. Share issue costs paid in relation to this issue were $23,000. ï‚· 1,500,000 fully paid ordinary shares at an issue price of $1.60 issued on 1 January 2016. The terms of the issue required $1.00 to be paid on application, with the remaining $0.60 due when called. A first and final call was made on 10 September 2016. All call monies were received by 1 October. Share issue costs paid in relation to this issue were $16,000.
Unless otherwise indicated the following events/transactions are not reflected in the trial balance above. You will need to make appropriate adjustments if required.
(h) A review by the chief accountant on 1 July 2017 revealed the following: ï‚· No balance date adjustment had been made in relation to interest accrued on the loan