Alpha Group Limited (AGL), a company listed on the Singapore Exchange (SGX) has a diversified portfolio of
Question:
Alpha Group Limited (AGL), a company listed on the Singapore Exchange (SGX) has a diversified portfolio of businesses.
The Gourmet Butchery (GB) line of business now has 12 retail outlets across the island. On 1 July 20x2, GB entered into an arrangement with Ninja Speed (NS) for the latter to provide a home delivery service on behalf of GB. The arrangement will last for three years, under which GB would pay an initial sum of $4,000 as arrangement fee and an annual fee of $50,000 in arrears and an additional amount of $2 per additional delivery if the number of deliveries made in a year exceeds 15,000.
NS has purchased two new delivery trucks to be used exclusively for GB’s deliveries. These trucks have been specifically reconfigured into refrigerated vehicles to suit GB's requirements and painted with GB's corporate colours and logo.
NS will provide qualified drivers and delivery personnel, and they will wear GB’s uniform. Further, the drivers will follow route plans as devised by GB, however the contract specifies that the trucks may not be taken out of Singapore.
NS made 15,623 deliveries in the year ended 30 June 20x3.
AGL Group companies' incremental borrowing rate is 4%.
Explain how the arrangement between GB and NS is to be accounted in books of GB and provide relevant journal entries. Narrations are not required.
(Note: PV annuity factors for 4%: 1 year 0.96154; 2 years 1.88609; 3 years 2.77509; 4 years 3.62990)
Intermediate Accounting
ISBN: 978-0071339476
Volume 1, 6th Edition
Authors: Beechy Thomas, Conrod Joan, Farrell Elizabeth, McLeod Dick I