You have been presented with an extract of the management accounts (and in particular, the Balance Sheet)
Question:
You have been presented with an extract of the management accounts (and in particular, the Balance Sheet) of Everything Electronic Pty Ltd as at 30 June 2020.
Everything Electronic Pty Ltd is an electronics retailer that sells a wide range of electrical appliances, including television sets, DVD recorders and blu-rays, refrigerators, dishwashers, washing machines, dryers as well as small household electrical appliances, such as toasters, kettles, food processors, irons, microwave ovens and vacuum cleaners.
Everything Electronic Pty Ltd is a small proprietary company, but is considered a reporting entity. The company is a family owned business that was established in April 2009. It is in the process of preparing its financial statements for the year ended 30 June 2020.
The company's CFO, Ian Moss, has drafted the external financial statements for the year ended 30 June 2020. However, before presenting them to the board for signing, Ian approaches you seeking advice as to how certain figures appearing in the company's balance sheet shown on the following page should be accounted for.
Ian states that whilst he has drafted the external financial statements, he considers himself primarily to be a management accountant and readily admits that he does not have detailed knowledge of AASB Accounting Standards.
Accordingly, Ian has requested that your group review the draft figures shown on the following page and advise him in a letter of advice as to what changes (if any) are required when preparing the final version of the company’s 2020 external financial statements to give to the company's directors.
Required:
Ian requests that your group write him a letter explaining the relevant AASB Accounting Standard that applies to each transaction as well as the accounting treatment you have come up with in relation to each item.
Furthermore, if any adjustments are required to the figures included in the draft financial statements, please include a brief explanation of any adjustments that you recommend be made and the correct figure for each item that should be included in the revised balance sheet to be provided to directors.
Please use each of the two items shown in the extract of the balance sheet on the previous page (being the land and shares in DVD Kingdom Pty Ltd) as the two individual headings within your letter.
In your letter, Ian requests that you clearly explain any changes you propose to make to these two figures with references to applicable AASB Accounting Standards. Please do not include journal entries in your letter. However, instead, please explain the changes you make to the figures on the previous page with appropriate explanations.
Please make sure you take into account the effects of income tax (including considering the implications of deferred tax assets (DTA's) and deferred tax liabilities (DTL's). However, ignore the effects of GST.
Assume that the company's annual turnover for the year ended 30 June 2020 was $12.2 million. Hence, it has a base rate entity tax rate of 27.5%, and not 30%.
Please make sure you reference appropriate paragraphs to relevant AASB Accounting Standards in your answer for each issue.
Financial Accounting Tools for Business Decision Making
ISBN: 978-0470239803
5th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso