In 20X1 Antiques Galore Ltd went on-line. This was a relatively small venture and involved nothing...

 

 

 

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In 20X1 Antiques Galore Ltd went on-line. This was a relatively small venture and involved nothing more than launching a website, which it used to provide the location and contact details of Antique Galore stores. After a few years of declining profits, management went on a retreat in the Barossa Valley and developed a new strategic plan to become the biggest on- line antique retailer (the BOAR Plan). After considerable research in how to become an on-line retailer Antiques Galore Ltd decided to develop its website to serve the following functions for years to come: • Publish electronic catalogues of items for sale • Advertise special promotions • Enable customers to place orders • Enable customers to make credit card payments for goods ordered • Enable customers to purchase and use gift card vouchers • Enable customers to register to receive an electronic newsletter about antiques • Host an intranet to enable retail staff to access information about stock levels in other Antiques Galore shops. Exhibit A (next page) lists key events pertaining to the development of the website. In the early stages of implementing the BOAR Plan, the chief financial officer (CFO) of Antiques Galore Ltd noticed that the company's accounting manual did not mention website costs. He decided to open a general ledger account called "website costs" to accumulate to record all costs associated with the emerging website and, thus, put off making any decision about how to account for them until now, when it is time to prepare the financial statements of Antiques Galore Ltd for the year ended 31 December 20X4. During December 20X4 and January 20X5 Antiques Galore Ltd engaged in a University accounting internship programme. The intern (student doing work integrated learning) was given the project of reconciling the Website Costs account, which by that time had accumulated over $400,000 in costs. The summary is provided in Exhibit B, which appears on the next page. || Exhibit A: Key Events in the Development of the Website Date, 20X4 Event 31 Senior management approve the BOAR plan January 31 March After investigating alternative arrangements, including outsourcing on-line retailing, and relying on the accounting department's capital budgeting analysis, senior management decided to invest in website development to enable on-line retailing 30 April Specifications were sent to external suppliers to quote on developing the website 31 May After evaluating quotes, management decided the website should be developed internally by the IT Department Exhibit B: Reconciliation of Website Costs Date(s) 20X4 Details Registration and travel costs for marketing director's attendance of a conference on on-line marketing February 12,000 February Accounting department labour costs in completing the capital budgeting analysis for the investment in the website IT department labour costs for consulting staff who will use the website so as to develop specifications of their requirements, such as customer records and security needs Accounting department labour costs for preparing analysis of IT department costs to develop the website IT department labour costs for developing code for on-line customer orders 6,000 April 17,000 May 5,000 June -July 87,000 28 July Purchase and installation of security software to facilitate customer payment by credit card for purchases IT department labour costs for developing code to integrate the website orders with the accounting information system In-house training workshops that serve the dual purpose of 100,000 August 23,000 20-24 40,000 September testing the software and staff training in its use 22 October Graphic artwork for new company logo that will be used in shops, on all stationery, on uniforms and on the website Advertising to promote launch of on-line antique shopping IT department labour costs for stress testing all website 50,000 November 30,000 November 25,000 systems Party held on premises to celebrate passing the stress tests and completion of the development of the website 28 4,000 November 16-20 Dec. IT department labour costs 7,000 Please assume that any amortisation for the month of December that may be applicable is considered immaterial for the year ended 31 December 20X4. 4. a,What is the main accounting policy issue in relation to the Website Costs account that would affect the preparation of financial statements for Antiques Galore Ltd for the year ended 31 December 20X4? b) Describe two principles from AASB 138 or Interpretation 132 (or some combination thereof) that are relevant to the accounting policy issue. c) The IT manager suggests that the website should be measured at fair value. Describe a different policy (i.e., different from the IT manager's suggestion) to account for the website. Your policy must be one that is permitted by Australian Accounting Standards. In answer in part c) you should briefly describe the policy in words and present in tabular form an itemised statement of how to account for the website, including a total. In answering part c) you should NOT consider the disclosure component of the policy and you should NOT attempt to justify the policy because that would just be repeating what you are asked to do in part (d) (i). d) Evaluate the alternatives by explaining: i) why measuring the website at fair value is not consistent with Australian Accounting Standards. ii) how the policy you proposed in part c) is consistent with the principles identified in part b). In answering this part of the question please explain why items have been included or excluded. State any assumptions that you consider necessary. In 20X1 Antiques Galore Ltd went on-line. This was a relatively small venture and involved nothing more than launching a website, which it used to provide the location and contact details of Antique Galore stores. After a few years of declining profits, management went on a retreat in the Barossa Valley and developed a new strategic plan to become the biggest on- line antique retailer (the BOAR Plan). After considerable research in how to become an on-line retailer Antiques Galore Ltd decided to develop its website to serve the following functions for years to come: • Publish electronic catalogues of items for sale • Advertise special promotions • Enable customers to place orders • Enable customers to make credit card payments for goods ordered • Enable customers to purchase and use gift card vouchers • Enable customers to register to receive an electronic newsletter about antiques • Host an intranet to enable retail staff to access information about stock levels in other Antiques Galore shops. Exhibit A (next page) lists key events pertaining to the development of the website. In the early stages of implementing the BOAR Plan, the chief financial officer (CFO) of Antiques Galore Ltd noticed that the company's accounting manual did not mention website costs. He decided to open a general ledger account called "website costs" to accumulate to record all costs associated with the emerging website and, thus, put off making any decision about how to account for them until now, when it is time to prepare the financial statements of Antiques Galore Ltd for the year ended 31 December 20X4. During December 20X4 and January 20X5 Antiques Galore Ltd engaged in a University accounting internship programme. The intern (student doing work integrated learning) was given the project of reconciling the Website Costs account, which by that time had accumulated over $400,000 in costs. The summary is provided in Exhibit B, which appears on the next page. || Exhibit A: Key Events in the Development of the Website Date, 20X4 Event 31 Senior management approve the BOAR plan January 31 March After investigating alternative arrangements, including outsourcing on-line retailing, and relying on the accounting department's capital budgeting analysis, senior management decided to invest in website development to enable on-line retailing 30 April Specifications were sent to external suppliers to quote on developing the website 31 May After evaluating quotes, management decided the website should be developed internally by the IT Department Exhibit B: Reconciliation of Website Costs Date(s) 20X4 Details Registration and travel costs for marketing director's attendance of a conference on on-line marketing February 12,000 February Accounting department labour costs in completing the capital budgeting analysis for the investment in the website IT department labour costs for consulting staff who will use the website so as to develop specifications of their requirements, such as customer records and security needs Accounting department labour costs for preparing analysis of IT department costs to develop the website IT department labour costs for developing code for on-line customer orders 6,000 April 17,000 May 5,000 June -July 87,000 28 July Purchase and installation of security software to facilitate customer payment by credit card for purchases IT department labour costs for developing code to integrate the website orders with the accounting information system In-house training workshops that serve the dual purpose of 100,000 August 23,000 20-24 40,000 September testing the software and staff training in its use 22 October Graphic artwork for new company logo that will be used in shops, on all stationery, on uniforms and on the website Advertising to promote launch of on-line antique shopping IT department labour costs for stress testing all website 50,000 November 30,000 November 25,000 systems Party held on premises to celebrate passing the stress tests and completion of the development of the website 28 4,000 November 16-20 Dec. IT department labour costs 7,000 Please assume that any amortisation for the month of December that may be applicable is considered immaterial for the year ended 31 December 20X4. 4. a,What is the main accounting policy issue in relation to the Website Costs account that would affect the preparation of financial statements for Antiques Galore Ltd for the year ended 31 December 20X4? b) Describe two principles from AASB 138 or Interpretation 132 (or some combination thereof) that are relevant to the accounting policy issue. c) The IT manager suggests that the website should be measured at fair value. Describe a different policy (i.e., different from the IT manager's suggestion) to account for the website. Your policy must be one that is permitted by Australian Accounting Standards. In answer in part c) you should briefly describe the policy in words and present in tabular form an itemised statement of how to account for the website, including a total. In answering part c) you should NOT consider the disclosure component of the policy and you should NOT attempt to justify the policy because that would just be repeating what you are asked to do in part (d) (i). d) Evaluate the alternatives by explaining: i) why measuring the website at fair value is not consistent with Australian Accounting Standards. ii) how the policy you proposed in part c) is consistent with the principles identified in part b). In answering this part of the question please explain why items have been included or excluded. State any assumptions that you consider necessary.

Answer rating: 100% (QA)

a What is the main accounting policy issue in relation to the Website Costs account that would affect the preparation of financial statements for Antiques Galore Ltd for the year ended 31 December 20X... View the full answer