ChallengeMe Pty Ltd is a manufacturer of tennis equipment and fashion wear...

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ChallengeMe Pty Ltd is a manufacturer of tennis equipment and fashion wear.  The statement

    

of  financial  position  as  at  30  June  2020  and  details  of  expenses  and  revenues  for the  year ending 30 June 2020 are as follows:

Page | 4

         

Statement of financial position as at 30 June 2020

 

     

 

2020

2019

     

 

$000

$000

     

Current assets

 

 

     

Cash

135

274

     

Inventory

2,774

2,486

     

Prepayments

115

-

     

Accounts receivable

2,897

2,654

     

Allowance of doublful debts

(150)

(120)

     

Total current assets

5,771

5,294

 

    

Non-current assets

       

Investment - associated company

1,050

-

     

Investments

1,216

948

     

Land

1,500

1,750

     

Buildings

800

800

     

Accumulated depreciation - buildings

(200)

(160)

     

Plant and equipment

1,025

768

     

Accumulated depreciation - plant and equipment

(100)

(548)

     

Deferred tax asset

312

302

     

Total non-current assets

5,603

3,860

     

Total assets

11,374

9,154

     

Current liabilities

       

Accounts payable

1,637

1,483

     

Accruals

1,575

1,110

     

Lease liability

5

-

     

Income tax payable

243

83

     

Provision for employee entitlements

205

298

     

Provision for deferred payments (relating to

       

investment in Squash Pty Ltd)

50

-

     

Provision for warranty

314

           -       

     

Total current liabilities

4,029

2,974

     

Non-current liabilities

       

Lease liability

15

-

     

Deferred tax liability

240

75

     

Borrowings

  

3,500

3,800

     

Total non-current liabilities

3,755

3,875

     

Total liabilities

7,784

6,849

     

Net assets

3,590

2,305

     

Statement of financial position as at 30 June 2020 (cont.)

 

 

     

 

2020

2019

     

 

$000

$000

     

Shareholders' equity

 

 

     

Share capital

2,750

2,000

     

Retained earnings

280

130

     

Revaluation surplus

560

175

     

Total shareholders' equity

3,590

2,305

     
           

 

Statement of profit or loss and other comprehensive income for the year ending 30 June 2020

 

 

2020

2019

$000

$000

Income

 

 

Sales

31,394

27,346

Dividends income

51

47

Expenses

  

Bad debts

(90)

(85)

Cost of sales

(28,205)

(24,611)

Doubtful debts

(35)

(40)

Inventory write-off

(50)

0

Warranty expenses (taken to provision for warranty)

(314)

0

Depreciation

  

- Building

(40)

(40)

- Plant and equipment

(100)

(60)

Interest

(315)

(418)

Rent

(600)

(600)

Salaries and wages

(1,324)

(1,231)

Finance charges

(7)

(90)

Profit before tax

365

218

Income tax

(215)

           -       

Profit after tax

150

218

Other comprehensive income

  

Reduction in revaluation surplus as a result of reduction

  

in value of land

(175)

-

Increase in revaluation surplus as a result of increase

  

in value of plant and equipment

560

           -       

Total comprehensive income

535

218

    

 

 

 

 

 

 

Statement of changes in equity for the year ending 30 June 2020

        

 

Share capital

Retained earnings

Revaluation
surplus

Total

    

$000

$000

$000

$000

    

Opening balance 1 July 2019

2,000

130

175

2,305

    

Statement of profit and loss and other

        

comprehensive income

-

150

385

535

    

Issue of shares as part consideration for

        

acquisition of associated company

750

            -       

                -       

750

    

Balance 30 June 2020

2,750

280

560

3,590

    

                              

          

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Additional information

         
  • An  additional  investment  of  $80  000  is  acquired  for consideration  of  tennis  equipment
    

costing $80 000.

          
  • Land is devalued against a previous increment in the revaluation reserve.   The previous increment is fully reversed.
  • Plant and equipment with a cost of $700 000 and accumulated depreciation of $500 000 are revalued to $1 000 000 during the year
  • Plant and equipment with a fair value of $25 000 are acquired under a finance lease.  The residual is guaranteed by the lessee.
  • Plant and equipment are sold for $20 000 cash.   Cost is $68 000 and no profit or loss is made on the sale.
  • During the year, one line of wooden tennis racquets is scrapped at a loss of $50 000, as there is a little demand for the range.
  • During  the  year,  an  investment  is  made  in  an  associated  company,  Squash  Pty  Ltd. Consideration is $1 000 000, funded by cash of $250 000 and the balance by the issue of 500 000 shares at $1.50 per share.  The purchase agreement includes a clause stating that if profits exceed $110 000 in the first financial year after purchase, additional amounts are payable.  Using the formula, an extra $50 000 is provided.
  • Provision for warranty is based on 1 per cent of sales
  • Rent expense of $600 000 is accrued within ‘Accruals’.
  • Interest expense is paid during the year and dividends are received.
  • Salaries and wages expense includes the expense for employee entitlements.
  • Tax rate is 30 per cent.
  
 
  
    
  
  
         
         
       
      
          

Required

           

Prepare the statement of cash flows in accordance with AASB 107 for ChallengeMe Pty Ltd

    

for the year ending 30 June 2020.  Comparatives are not required.  Show necessary workings.

    

 

 

 

Question 1: 

MyNextProblem Ltd has acquired a new building called Next in Line Building for $2,000,000. It has incurred incidental costs of $30 000 in the acquisition process for legal fees, real estate agent’s fees and stamp duties. At the quarterly Board meeting, the management believes that these costs should be expensed because they have not increased the value of the building and, if the building was immediately resold, these amounts would not be recouped. In other words, the fair value of the building is considered to still be $2,000,000.

 

Required: Discuss how these costs should be accounted for in the books of MyNextProblem Ltd. Maximum 200 words.

 

 

Question 2:

A recent annual report of the City of Darwin Council did not include library books on the statement of financial position, notwithstanding the existence of a substantial library collection. The City of Darwin Council’s accounting policy for library books is to expense them at the time of acquisition. A note in the annual report reveals that in applying this policy the council considered the following factors: 

·         As soon as the book is purchased its fair value is minimal compared with its cost.

·         The acquisition costs of individual books are below the council’s capitalization policy.

·         The useful life of a book is variable and indeterminable, making depreciation difficult.

Required

 

Critically evaluate the council’s accounting policy for its library collection. Suggest an alternative accounting policy or supplemental information that could be reported, if appropriate. Maximum 400 words

 

 

  • 7 years ago
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