Question

Financial statement disclosures

You are the financial accountant for Superstore Ltd, and are in the process of preparing its financial statements for the year ended 30 June 2018. Whilst preparing the financial statements, you become aware of the following situations:

On 1 July 2017, the directors made a decision, using information obtained over the last couple of years, to revise the useful life of an item of manufacturing equipment. The equipment was acquired on 1 July 2015 for $800,000, and has been depreciated on a straight-line basis, based on an estimated useful life of 10 years and residual value of nil. Superstore Ltd uses the cost model for manufacturing equipment. The directors estimate that as at 1 July 2017, the equipment has a remaining useful life of 6 years and a residual value of nil. No depreciation has been recorded as yet for the year ended 30 June 2018 as the directors were unsure how to account for the change in the 2018 financial statements, and unsure whether the 2016 and 2017 financial statements will need to be revised as a result of the change.

In June 2018, the accounts payable officer discovered that an invoice for repairs to equipment, with an amount due of $20,000, incurred in June 2017, had not been paid or provided for in the 2017 financial statements. The invoice was paid on 12 July 2018. The repairs are deductible for tax purposes. The accountant responsible for preparing the company’s income tax returns will amend the 2017 tax return, and the company will receive a tax refund of $6,000 as a result (30% x $20,000). No journal entries have been done as yet in the accounting records of Superstore Ltd, as the directors are unsure how to account for this situation, and what period adjustments need to be made in.

Superstore Ltd holds shares in a listed public company, ABC Ltd, which are valued in the draft financial statements on 30 June 2018 at their market value on that date - $600,000. A major fall in the stock market occurred on 10 July 2018, and the value of Superstore’s shares in ABC Ltd declined to $250,000.

On 21 July 2018, you discovered a cheque dated 20 April 2018 of $32,000 authorised by the company’s previous accountant, Max. The payment was for the purchase of a swimming pool at Max’s house. The payment had been recorded in the accounting system as an advertising expense. You advise the directors of this fraudulent activity, and they will investigate.

Assume that each event is material.

Required:

i) State the appropriate accounting treatment for each situation. Provide explanations and references to relevant paragraphs in the accounting standards to support your answers. Where adjustments to Superstore Ltd’s financial statements are required, explain which financial statements need to be adjusted (ie. 2016, 2017, 2018 or 2019).

ii) Prepare any note disclosures and adjusting journal entries that are needed in the 2018 financial statements for each situation.  

Answer 1

Changes in assess incorporate tfie alteration nonnal cash related enunciation ertretym light anew intonnation eXI3erlenCe. ThISMay On, for Instailfe,Aanging the terrhle comm....deers measure fron, 39bOr changIng the suppOrtive preSenCe Cif leverage from Pore to seven years. C,an9E, errangedapckabon, suggestIng thatthe cash related clan...are not reiterated yet rather the change is represented in the present 9nle allotment and in future perlOck In a manner of Speal3ng. Earlier accommodating was assessed to he 10 years which is reexamined.. he 8 years wM1 zero watng regard For the past estimation !cot obliged years 5.9,m000no1= $1,00p00 Recorded motivate. as on firstJuly,17= $8,00,000 51.62000 SWAM An. pated application requires the degrading to b adusted tronythe present year onwards 2015 and 016 money related declare-bons require not he adpsted Uplated loot each year including 2018 fiscal explanations should he =$1040,000/6= $106,667

2 Repairs being related to 2017, stauld he charged as cortforthat year and a contrasting clanger should with have heen obliged that around a similar-bale

journal segment requIred thus:

A cure of a bungle when a material oversight is made a before greriod's ca. related enundations and requires an djus. .. der repeat the money re.. darticadons so in cornplete.ey reflect an exact held acpuifinig balance.
Bungles made Impact the compensation Or hards"prepi , pnor pen°. are redressed by changing the beginn, ee, out of held benefit Since repairs has not been dolged in 2017, the held benefit modify and .e wage is misrepresented by 520,000 Thus. held benefit es moreover overstated which should beadjuged 00..09 520,000 thusly remembering .e Agra. oPestive to influence rt. cure _ A...shapes had qume recently been sub.. in 2017*. rejects She deductablerk,zabon of repairs and hence ought to ere ....arid refl. ...e end for reparrs rs open in the yearn wrikb Ft is pald..e cost-types 012017 should reflect 120,000 repairs and a Sfi3ODO.rce rebate is available in.. ,rear a manner of speaking

3.The organization b.s snares esteeming af00,000 in otter organisation by rnett. for a long haul venture, For the most oar, by haul ventures are conveyed at fetched and ought. be accounted for one persistent urernne. On the off chance...ere is any sign which Is almost certainly, going torn...thee...on of the speculations for all time, he ventures are composed clown. the feasible.... this ...on teepee
Man. crashes on tenth July,18to cause...a fay in Me esimation Ape re.. .thetas n may, the ran for this occasion was absent at the monetary record date anclhen..e esteem must be enrolled in Me some.nt year in 2018 mo etaryamicvNtons, no modifications ...red V. in the following year ...bans ought to be composed down sxo.ono and iheorganleation is tom., a misfortune for the same