. Explain the following terms:

                a. Purpose of an audit
                b. Accounting cycle and transaction process
                c. Balances
                d. Presentation and disclosure

Gatco Industries is a decentralized firm. It has two production centres: Vancouver and Kamloops. Each one is evaluated based on its return on investment. Vancouver has the capacity to manufacture 100,000 units of component TR222. Vancouver's variable costs are $150 per unit. Kamloops uses component TR222 in one of its products. Kamloops adds $90 of variable costs to the component and sells the final product for $450.
Requirements Consider the following independent situations:
(a) Vancouver can sell all 100,000 units of TR222 on the open market at a price of $250 per unit. Kamloops is willing to buy 10,000 of those units. What should the transfer price be? Explain your decision. (b) Of the 100,000 units of component TR222 it can produce, Vancouver can sell 70,000 units on the open market at a price of $250 per unit. Kamloops is willing to buy an additional 10,000 units. What should the transfer price be? Explain your decision. (c) Of the 100,000 units of component TR222 it can produce, Vancouver can sell 80,000 units on the open market at a price of $250 per unit. Kamloops is willing to buy an additional 30,000 units. What should the transfer price be? Explain your decision. (d) The head office of West-Coast has asked the two centres to negotiate a transfer price. List the advantages and disadvantages of negotiated transfer prices. (adapted from CGA-Canada, now CPA Canada)

When managing the performance of an organization, the leadership is always balancing between the risks and rewards of using financial and non-financial information as well as internally and externally sourced information, in its performance report.

(a) Define and provide an example of each of the following:

            i. financial information and non-financial information.                 

            ii. internally and externally sourced information.

Word count should be a minimum 150 words, not exceeding 250 words.

(b) Elaborate on the benefits and issues of using the following information:

i. financial information versus non-financial information. (6.5 marks)

ii. internally sourced information versus externally sourced information.             (6.5 marks)

For each set of information, there should be at least two advantages and two disadvantages provided (no tables allowed, your answers should have proper headers and paragraphs and word count should be a minimum 350 words, not exceeding 450 words.            Marks will be awarded for format.                                               

THE COFFEE CLUB celebrates almost three decades of really good food, great service and excellent coffee. It manages 400 stores throughout 9 countries, with upwards of 40 million dedicated customers. THE COFFEE CLUB has identified Westfield Parramatta and Sunshine Marketplace as two possible locations for a new Wimpy franchise given the considerable growth in the local economy. The cost of the feasibility study amounted to $30 000. Assume that you are the capital budgeting manager of THE COFFEE CLUB and have been assigned to this project. Consider the following information and calculate the relevant cash flows for the two mutually exclusive locations. The coffeehouses will have the same serving capacity, i.e. they are the same size.

• The cost of kitchen and restaurant equipment will amount to $600 000.
• Installation cost will amount to $25 000.
• The change in net working capital is $90 000.
• Although THE COFFEE CLUB operates as a franchise, they still consider operating cash flows

before setting up a new franchise to ensure the maximum profitability.

• Annual sales in Westfield Parramatta is expected to be $1.4 million and $900 000 in Sunshine

Marketplace.

• THE COFFEE CLUB franchisee will rent suitable premises to house the coffeeshop. In Westfield

Parramatta the annual rent will amount to $200 000 whereas the annual rent in Sunshine

Marketplace will be slightly less, namely $170 000.

• Operating expenses (excluding depreciation) will amount to $600 000 p.a. for Westfield Parramatta

and $450 000 p.a. for Sunshine Marketplace.

• Fixed (non-current) assets are expected to have a life span of 5 years and will be depreciated on a straight-line basis.
• Profits are taxed at the normal company tax rate of 28%.
• Assets will be sold after 5 years. Given the fact that sales in Westfield Parramatta are expected to

be higher (and thus assets are exposed to more wear and tear). THE COFFEE CLUB expects to get less for Westfield Parramatta’s assets than those of Sunshine Marketplace. It is thus expected that Westfield Parramatta’s assets could be sold after 5 years for $18 000 whereas Sunshine Marketplace’s could be sold for $20 000.

Therefore, you are required to:

1. (a) Calculate the Initial Investment Outlay (IIO) of the new franchises. Note: it will be the same for Westfield Parramatta and Sunshine Marketplace. Clearly show your calculations. (4)
2. (b) Calculate the Operating Cash Flows (OCFs) for both locations for the first year. Clearly show all calculations. (6)
3. (c) Calculate the terminal Cash Flow (TCF) in the last year for both locations. Clearly show your calculations. Assume that the capital gain tax applies at a rate of 25%. (7)
4. (d) What is the optimal location for the new THE COFFEE CLUB franchise? The required rate of return is 15%. Motivate your answer using the NPV and IRR technique. (11)

[The following information applies to the questions displayed below.]

Juliette formed a new business to sell sporting goods this year. The business opened its doors to customers on June 1. Determine the amount of start-up costs Juliette can immediately expense (not including the portion of the expenditures that are amortized over 180 months) this year in the following alternative scenarios: (Leave no answer blank. Enter zero if applicable.)

Problem 10-72 Part a

a. She incurred start-up costs of $2,000.

b. She incurred start-up costs of $45,000.

c. She incurred start-up costs of $53,500.

d. She incurred start-up costs of $63,000.

e. How would you answer parts (a) through (d) if she formed a partnership or a corporation and she incurred the same amount of organizational expenditures rather than start-up costs (how much of the organizational expenditures would be immediately deductible)?

various provisions of IFRS/FASB related to Franchise Accounting

Access the FASB website and identify the three most recent exposure drafts issued by the FASB.

Assess the FASB website. Examine 2014, 2015 and 2016 ASU's. Identify and list the PCC ASU's.

MATCHING!

Maria's Food Service provides meals that nonprofit organizations distribute to handicapped and elderly people. Here is her forecasted income statement for April, when she expects to produce and sell 2,200 meals:

Fixed costs included in this income statement are $2,420 for meal production and $440 for administrative costs. Maria has received a special request from an organization sponsoring a picnic to raise funds for the Special Olympics. This organization is willing to pay $3.10 per meal for 300 meals on April 10. Maria has sufficient idle capacity to fill this special order. These meals will incur all of the variable costs of meals produced, but variable administrative costs and total fixed costs will not be affected.

Required:

a. What impact would accepting this special order have on operating profit? (Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.)

b. From an operating profit perspective for April, should Maria accept the order?

Would an unexpected increase in sales and production result in an under-applied or over-applied overhead? Explain.

Please no hand-written answers.

Part 2

Accounting policies

At a meeting on 16 June 2019, the directors of Swan Ltd decided to change the company’s accounting policy in regard to research and development expenditure. In previous years, research and development expenditure had been capitalized and amortized over 3 years. In line with this policy, $75 000 was capitalized on 1 January 2018. The new policy is to write off all research and development to expense when incurred. During the year ended 30 June 2019, the company spent a further $62 000 on research and development which was capitalized on 1 January 2019. Research and development expenditure is allowable as a deduction for tax purposes when incurred.

Required

Prepare any note disclosures required by AASB 108/IAS 8 in respect of the change in accounting policy. Show all workings.

Li Ltd requires you to determine, for the two  scenarios below, the ‘cash and cash equivalents’ amount to include in its Statement of Cash Flows.

Vittoria Ltd requires a Statement of Cash Flows to be prepared for the year ended

31 March 2018, the following information has been collected for this purpose.

Question 2 continued:

Additional information:

Vittoria Ltd classifies interest expense and dividends paid as cash outflows from financing activities.

Plant and equipment, with a fair value of $100 000, has been acquired by the issue of

$100 000 worth of fully paid Vittoria Ltd shares to the sellers of the plant and equipment.

During the year, equipment that originally cost $100 000 was sold for $30 000 cash.

Plant and equipment was revalued upwards by $30 000.

A long-term loan of $30 000 was specifically organised for the purchase of plant and equipment costing $30 000.  

Required:

(i) Prepare the general ledger accounts as required in the answer booklet.

(ii) Prepare a statement of cash flows for Vittoria Ltd, for the year ended 31 March 2018, in accordance with NZ IAS 7 Statement of Cash Flows. Vittoria Ltd uses the indirectmethod for the cash flows from operating activities (CFOA) section.  

(iii) Prepare a statement of cash flows for Vittoria Ltd, for the year ended 31 March 2018, in accordance with NZ IAS 7 Statement of Cash Flows. Vittoria Ltd uses the directmethod for the cash flows from operating activities (CFOA) section. Complete the necessary reconciliation, as required by NZ FRS-44, to be included in the notes.

(iv) Explain, by completing the table in the answer booklet, how your answers to (ii) and (iii) above would changeifVittoria Ltd classified interest expense paid as a cash outflow from operating activities.

(v) Vittoria Ltd has provided you with 15 types of cash inflows and cash outflows in the answer booklet and requires you to determine where they should be included in the Statement of Cash Flows in accordance with NZ IAS 7 Statement of Cash Flows. AssumeVittoria Ltd uses the direct method for CFOA.  Hint: Remember certain cash flows have a choice of classification; for these particular cash flows highlight the two choices available.

CFOA = cash flows from operating activities, CFIA = cash flows from investing activities and CFFA = cash flows from financing activities.                                                                                                    

The 2018 Annual Reports/Financial Statements forboth Air NZ and Auckland Airportare provided on Canvas/Modules/5.Assignments 1 to 5.Answer the questions in the Answer Booklet for both Air NZ and Auckland Airport. All questions relate to 2018.

Air NZ : https://p-airnz.com/cms/assets/PDFs/Air-NZ-2018-Financial-Results.pdf

AKL airport : https://corporate.aucklandairport.co.nz/-/media/Files/Corporate/Annual-Report-2018/Annual-Report-2018-Financial-Statements.ashx?la=en&hash=3FD590BBFBB78389CD2DEA7EE8402BCAEC4332E9