Financial statement disclosuresYou are the financial accountant for Superstore Ltd, and are inthe process...Financial...

80.2K

Verified Solution

Question

Accounting

Financial statement disclosures
You are the financial accountant for Superstore Ltd, and are inthe process of preparing its financial statements for the yearended 30 June 2018. Whilst preparing the financial statements, youbecome aware of the following situations:
On 1 July 2017, the directors made a decision, using informationobtained over the last couple of years, to revise the useful lifeof an item of manufacturing equipment. The equipment was acquiredon 1 July 2015 for $800,000, and has been depreciated on astraight-line basis, based on an estimated useful life of 10 yearsand residual value of nil. Superstore Ltd uses the cost model formanufacturing equipment. The directors estimate that as at 1 July2017, the equipment has a remaining useful life of 6 years and aresidual value of nil. No depreciation has been recorded as yet forthe year ended 30 June 2018 as the directors were unsure how toaccount for the change in the 2018 financial statements, and unsurewhether the 2016 and 2017 financial statements will need to berevised as a result of the change.
In June 2018, the accounts payable officer discovered that aninvoice for repairs to equipment, with an amount due of $20,000,incurred in June 2017, had not been paid or provided for in the2017 financial statements. The invoice was paid on 12 July 2018.The repairs are deductible for tax purposes. The accountantresponsible for preparing the company’s income tax returns willamend the 2017 tax return, and the company will receive a taxrefund of $6,000 as a result (30% x $20,000). No journal entrieshave been done as yet in the accounting records of Superstore Ltd,as the directors are unsure how to account for this situation, andwhat 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 2018at their market value on that date - $600,000. A major fall in thestock market occurred on 10 July 2018, and the value ofSuperstore’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. Thepayment was for the purchase of a swimming pool at Max’s house. Thepayment had been recorded in the accounting system as anadvertising expense. You advise the directors of this fraudulentactivity, and they will investigate.
Assume that each event is material.
Required:
i) State the appropriate accountingtreatment for each situation. Provide explanations and referencesto relevant paragraphs in the accounting standards to support youranswers. Where adjustments to Superstore Ltd’s financial statementsare required, explain which financial statements need to beadjusted (ie. 2016, 2017, 2018 or 2019).
ii) Prepare any note disclosures andadjusting journal entries that are needed in the 2018 financialstatements for each situation.

Answer & Explanation Solved by verified expert

4.2 Ratings (608 Votes)

Changes in assess incorporate tfie alteration nonnal cashrelated enunciation ertretym light anew intonnation eXI3erlenCeThISMay On for InstailfeAanging the terrhle commdeers measurefron 39bOr changIng the suppOrtive preSenCe Cif leverage from Poreto seven years Can9E errangedapckabon suggestIng thatthe cashrelated clanare not reiterated yet rather the change isrepresented in the present 9nle allotment and in future perlOck Ina manner of Speal3ng Earlier accommodating was assessed to he 10years which is reexamined he 8 See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

In: AccountingFinancial statement disclosuresYou are the financial accountant for Superstore Ltd, and are inthe process...Financial statement disclosuresYou are the financial accountant for Superstore Ltd, and are inthe process of preparing its financial statements for the yearended 30 June 2018. Whilst preparing the financial statements, youbecome aware of the following situations:On 1 July 2017, the directors made a decision, using informationobtained over the last couple of years, to revise the useful lifeof an item of manufacturing equipment. The equipment was acquiredon 1 July 2015 for $800,000, and has been depreciated on astraight-line basis, based on an estimated useful life of 10 yearsand residual value of nil. Superstore Ltd uses the cost model formanufacturing equipment. The directors estimate that as at 1 July2017, the equipment has a remaining useful life of 6 years and aresidual value of nil. No depreciation has been recorded as yet forthe year ended 30 June 2018 as the directors were unsure how toaccount for the change in the 2018 financial statements, and unsurewhether the 2016 and 2017 financial statements will need to berevised as a result of the change.In June 2018, the accounts payable officer discovered that aninvoice for repairs to equipment, with an amount due of $20,000,incurred in June 2017, had not been paid or provided for in the2017 financial statements. The invoice was paid on 12 July 2018.The repairs are deductible for tax purposes. The accountantresponsible for preparing the company’s income tax returns willamend the 2017 tax return, and the company will receive a taxrefund of $6,000 as a result (30% x $20,000). No journal entrieshave been done as yet in the accounting records of Superstore Ltd,as the directors are unsure how to account for this situation, andwhat 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 2018at their market value on that date - $600,000. A major fall in thestock market occurred on 10 July 2018, and the value ofSuperstore’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. Thepayment was for the purchase of a swimming pool at Max’s house. Thepayment had been recorded in the accounting system as anadvertising expense. You advise the directors of this fraudulentactivity, and they will investigate.Assume that each event is material.Required:i) State the appropriate accountingtreatment for each situation. Provide explanations and referencesto relevant paragraphs in the accounting standards to support youranswers. Where adjustments to Superstore Ltd’s financial statementsare required, explain which financial statements need to beadjusted (ie. 2016, 2017, 2018 or 2019).ii) Prepare any note disclosures andadjusting journal entries that are needed in the 2018 financialstatements for each situation.