diff_months: 20

Report on Company and Financial

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Added on: 2022-08-20 00:00:00
Order Code: 440755
Question Task Id: 0
  • Subject Code :

    ACCT6001

The following events/transactions have occurred over the time since the last annual report was prepared and issued. You need to determine how you will treat these transactions as well as provide appropriate disclosures or adjustments to the accounts where required, in MQE Ltd's financial statements for the 2022 financial year and upcoming annual report to shareholders.

Required:

  • Identify the nature of the transaction/event.
  • Provide and discuss the applicable accounting standard the transaction/event relates and why.
  • Is there a requirement for the transaction or event to be disclosed in the annual report? If so, provide a suitable disclosure note to the accounts that the company will use in their upcoming annual report or alternatively where it should appear in the financial statements. (Ensure you include amounts as well as any workings where applicable).
  • Is there a requirement for an adjustment to be made to the financial statements? If so, what would this adjustment amount be to the accounts? Provide sufficient workings (calculations) where required.

Events/Transactions:

PART A:

  1. MQE Ltd has suffered significant fire damage to two of their warehouses on 7 July 2022, resulting in a financial loss of $2 million worth of stock and associated items. The company generally holds around $5m total worth of inventory across all of its warehouses. The insurance claim has not yet been approved, but the company does not see any reason for this to not be the case.
  2. MQE Ltd's accounts receivable balance as at 30 June 2022 was recorded at $3.487 million. In the prior financial year the company wrote off a bad debt totaling $550,000 from an overseas customer whose business suffered significantly due to COVID-19 issues. At the time this payment was not likely to be recoverable and a provision was provided in the accounts for this amount. On the 1 July 2022, the customer has notified MQE Ltd to let them know that they are now in a position to settle their debt and will provide payment in full on the 31 July 2022.
  3. MQE Ltd received approximately $500,000 in job keeper payments from the Australian government from the period of July 2021 to December 2021. These payments were provided by the government to assist the business with keeping their employees in jobs.
    One of the conditions in receiving these payments is that the profits of the business would not fall by greater than 20% prior to COVID-19 conditions. MQE Ltd suffered a fall in profits for the financial year of 17%. The Australian government is concerned that businesses have received job keeper payments without significant falls in profits and are looking at amending legislation and for companies to repay the payments they have received from Job keeper if their profits have not fallen by greater than 20%. As at balance date the legislation had not passed.

  4. Due to the losses suffered by MQE Ltd because of the fire to the warehouses, MQE Ltd have now decided that this is a good time to renegotiate some of their supplier contracts for the upcoming financial year 2022. One of these contracts that is being renegotiated is the use of labour hire services for warehousing staff. MQE Ltd obtained several quotes from labour hire companies for this work over the last month. The most realistic and cost-effective quote has come from the company Here to Help Pty Ltd. One of the directors of MQE Ltd holds a 50% share in Here to Help Pty Ltd. MQE Ltd have decided to accept this quote.

  5. MQE Ltd have designed a new type of golf club with the ability for golfers to change the angle of the club without compromising on the stability or quality in strength of the club overall. In the 2022 financial year MQE has spent $65,000 in research, ensuring that adding this feature to a golf club that has not been done before by any other business will not compromise the player in anyway by using these clubs.
    During this same year MQE Ltd have developed some test golf clubs for a chosen number of professional golfers to try out. The costs of developing these test clubs totaled $25,000. The professional golfers were pleased with how the golf club handled under pressure and found that being able to make adjustments to the angles of the clubs left them with more options if they faced a difficult shot. Based on this feedback, MQE Ltd have decided to apply to patent this new technology. It is anticipated that the patent will be in place for approximately three years and costs associated with putting this patent in place cost $15,000.

    MQE Ltd have started to market the new golf club and have so far spent $30,000 on their advertising campaigns. They have received orders for the new clubs in May and June 2022 that total $250,000. Based on the cash flow projections of the new clubs prepared by the company's auditors, it is estimated that the net present value of this initiative will add $1.5 million in value to MQE Ltd.

  6. MQE Ltd have the following transactions that have occurred during the 2021 financial year and are looking at the impacts these transactions may have on their deferred asset (DTA) and/or deferred tax liability (DTL) accounts. The opening balance of the DTA was $10,000 and the DTL $1,500.
    You have been asked to provide applicable journal entries (including narrations) for these transactions as well as provide a schedule of temporary differences and calculate any DTA's and/or DTL's and applicable income tax expense.

    • Transaction 1 MQE Ltd purchased architecturally designed office furniture from Design Studios Pty Ltd in the amount of $240,000 on 1 July 2021. An amount of $90,000 was paid towards this purchase price by using cash reserves of the business. The remainder is being financed by the company's bank. It is estimated that this office furniture will have a useful life of 6 years with no salvage value. The useful life on office furniture from the Australian Taxation Office's perspective is estimated to be 5 years. An expert was asked to value the office furniture at the end of the financial year, as the company believes that the office furniture is now worth much more as the company they purchased from no longer makes these designs. A fair value of the office furniture came in at a valuation of $220,000.

    • Transaction 2 MQE Ltd has a development costs account in their Balance sheet as at the 30 June 2022 of $50,000. These development costs were claimed as a deduction in the prior financial year.
    • Transaction 3 The provision for annual leave is recorded in the accounts as at 31 May 2022 at $35,000. During the month of June an accrual for June's entitlement for annual leave totaled $7,000. Employees who took and were paid leave in June amounted to $8,000.
    • Transaction 4 At 30 June 2021 the amount recorded in the Balance sheet for goodwill amounted to $500,000. The goodwill was impaired by 10% in 2022 and this needs to be recorded in the financial statements.
    • Transaction 5 MQE Ltd rents out part of one of their warehouses to Burrows Pty Ltd. Burrows paid rent for the next quarter in advance in the amount of $30,000.
  7. MQE Ltd have leased a new van from Mercedes at Robina at a cost of $65,000 on the 1 July 2021. This new van will be used to move inventory from the various warehouses on the Gold Coast. The lease payments required by MQE Ltd to pay each year are $22,500. Additional costs incurred by MQE Ltd to get the van up and running for MQE Ltd to use included the MQE Ltd logo on the side panels and back of the van as well as window tinting. The cost incurred was $2,500. The implicit interest rate on the lease is 7%. MQE plans on keeping the van at the end of the lease term of 5 years, this has not been agreed upon as yet with Mercedes Robina. Mercedes Robina believes that this is the useful life of the leased asset to be 6 years. Record the relevant journal entries for MQE Ltd for the 2022 financial year. What is the closing lease liability as at 30 June 2022? (Ensure that you show all your workings).
  • Uploaded By : Abhi
  • Posted on : June 17th, 2022
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