Protek Ltd, a masks distributor company, provides the following trial balance for the year ended 30 June 2020:

Protek Ltd Trial balance as at 30 June 2020
	Debit ($)	Credit ($)
Sales of N97 surgical masks		2,151,670
Sales of 4-ply masks		3,120,850
Sales of masks filters		3,288,426
Cost of goods sold	4,688,000
Rental expenses	375,950
Salaries and wages	1,980,000
Administration expenses	128,450
Annual leave expense	98,510
Doubtful debts expense	158,000
Depreciation expense	376,000
Amortisation expense - patent	56,900
Interest expense	22,500
Interest income		8,200
Selling expenses	66,800
Income tax expense	228,600
Cash on hand	53,000
Cash management account	230,000
Trade debtors	478,600
Allowance for doubtful debts		19,144
Inventories	455,040
Land	760,000
Motor vehicles	630,000
Accumulated depreciation - motor vehicles		252,000
Office equipment	620,000
Accumulated depreciation - office equipment		124,000
Patent (5 years)	569,000
Accumulated amortisation - patent		56,900
Deferred tax asset	28,500
Deferred tax liability		125,000
Bank loan		450,000
Trade creditors		182,560
Provision for annual leave		43,000
Current tax liability		132,100
Retained earnings, 1 July 2019		70,000
Dividends paid	20,000
Share capital		2,000,000
	12,023,850	12,023,850

Additional information:

• Protek Ltd is a reporting entity in accordance with the requirements of Australian’s Conceptual Framework.
• The bank loan is repayable in 3 years.
• The depreciation expense of $376,000 relates to motor vehicles and office equipment amounted to $252,000 and $124,000 respectively.
• 60% of the provision for annual leave are expected to be payable within 1 year and the remaining is payable after 1 year.
• The patent was acquired on 1 January 2020. It represents fees paid to Teknova Group, a manufacturer company based in China. Protek Ltd is given the sole distributorship in Australia to sell the new high quality mask, N97, designed for first line workers in the health industry. The patent lasts for 5 years.
• There was no new shares issued during the financial year ending 30 June 2020.
• Protek Ltd uses the single statement format for the statement of profit or loss and other comprehensive income and presents an analysis of expenses by function on the statement.

• The following expenses are allocated to administrative expenses and distribution costs for the purposes of preparation of the statement of profit or loss and other comprehensive income:

	Administrative expenses	Distribution costs
Rental expenses	40%	60%
Salaries and wages	50%	50%
Administration expenses	100%	-
Annual leave expense	50%	50%
Doubtful debts expense	-	100%
Depreciation expense – motor vehicles	10%	90%
Depreciation expense – office equipment	80%	20%
Amortisation expense - patent	100%	-
Selling expenses	-	100%

• In relation to the statement of financial position, where AASB 101 requires entities to disclose further sub-classifications of the minimum line items on the face of the statement or in the notes, the directors of Protek Ltd want to report only the minimum line items on the face of the statement, and leave the sub-classifications to be disclosed in the notes.

Part A

As the accountant for the entity, prepare the following statements of Protek Ltd the year ended 30 June 2020 in accordance with AASB101:

• Statement of profit or loss and other comprehensive income;
• Statement of financial position; and
• Statement of changes in equity.

In preparing the above statements, you should use the line items that a listed company is likely to use and refer to paragraphs 54, 82, 82A and 106 of AASB 101 in determining the line items to be presented. Show all workings to support your figures presented in the statements. Disclosure notes and comparative figures are not required.

Note: In preparing the statements for Part A, you should consider only information given in this part and ignore information given in Part B below.

Part B

The following events occurred after the preparation of statements was completed in Part A above.

Event 1

The directors have asked you to review the doubtful debts allowance due to the high level of bad debts expense that occurred during the year. The allowance is currently measured based on 4% of trade debtors’ balances following the advice of Jane, who is one of the directors. After reviewing industry averages, you have advised the directors that the allowances should be revised to 8% of the trade debtors’ balances and the directors agreed to your proposal and adopt the new basis from 1 July 2019. This change is considered material in Protek Ltd.’s case.

Required:

1. State if the above situation would constitute a change in accounting policy or a change in accounting estimate. Explain and support your answers by making reference to relevant paragraphs in AASB108.
2. Prepare necessary adjusting entries and/or notes disclosures required to account for the change in the doubtful debt allowance for the year ended 30 June 2020.

Event 2

Protek Ltd stored its masks in rented warehouses located in several locations. One of the warehouses in Orange was destroyed by bushfires on 29 July 2020. From the accounting records, there were 8,000 boxes of N95 masks stored in that warehouse, with cost of inventories valued at $120,000. Unfortunately, there was no insurance policy acquired to cover this loss and the loss is considered material for Protek Ltd.

The financial statements for the year ended 30 June 2020 were authorized for issue by the directors on 28 August 2020.

Required:

1. Classify the above event as either an adjusting or non-adjusting event after the end of the reporting period. Justify your answer by making reference to AASB110.
2. Consistent with your answer to (i) above, prepare any journal entries and/or note disclosures required to comply with the requirements of AASB110.

Answer rating: 100% (QA)

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