You are the Group Accountant for the Australian-based company GIRAFE Ltd. The Chief Financial Officer (CFO) has asked you to provide a report related to information/transactions outlined below in preparation of the annual report of the company for 2022 (assume 30 June date). Today’s date is 25 July 2022. The CFO wants to ensure that transactions are being reported accurately by you and that you have a thorough understanding of the applicable accounting standards related to these transactions and accounts.
The following events/transactions have occurred over the time since the last annual report was prepared and issued. You need to determine how you will treat these transactions as well as provide appropriate disclosures or adjustments to the accounts where required, in GIRAFE Ltd’s financial statements for the 2022 financial year and upcoming annual report to shareholders.
Required:
a) Identify the nature of the transaction/event.
b) Provide and discuss the applicable accounting standard the transaction/event relates and why.
c) Is there a requirement for the transaction or event to be disclosed in the annual report? If so, provide
a suitable disclosure note to the accounts that the company will use in their upcoming annual report or alternatively where it should appear in the financial statements. (Ensure you include amounts as well as any workings where applicable).
d) Is there a requirement for an adjustment to be made to the financial statements? If so, what would this adjustment amount be to the accounts? Provide sufficient workings (calculations) where required.
Events/Transactions:
1. On July 17, 2022, GIRAFE's management made the decision to sell Pelican Ltd., one of its key subsidiaries, as a result of the detrimental effects that Covid19 lockdowns had on its operations during the year. Since Pelican's operations and brands are well-known throughout South-East Asia and its management team, long-term employees, and know-how are highly regarded by competitors, the company estimated that Pelican has a fair value of around $50 million overall, which includes the market value of all its assets, liabilities, and potential goodwill.
2. The accounts receivable amount for GIRAFE Ltd. as of June 30, 2022, was $5.564 million. The corporation wrote down a $450,000 bad debt from a local client whose business suffered severely as a result of COVID-19 difficulties in the previous financial year. At the time, it was anticipated that this contribution would not be recouped, so a provision for it was created in the accounts. The customer informed GIRAFE Ltd on July 1, 2022, that they are now in a position to pay off their obligation and will send payment in full on July 31, 2022.

3. From July 2021 to December 2021, GIRAFE Ltd. received almost $950,000 in job keeper payments from the Australian government. The government gave these payments to the company in order to help it maintain it’s staff in jobs. Receiving these payments is subject, among other things, on the business's profits having declined by more than 20% before the COVID-19 conditions. GIRAFE Ltd saw a 17% decline in profits for the fiscal year. The Australian government is looking at amending legislation and requiring businesses to repay the payments they have received from Job Keeper if their profits have not decreased by more than 20% because they are concerned that businesses have received Job Keeper payments without significant profits falling. As at balance date the legislation had not passed.
4. GIRAFE Ltd have the following transactions that have occurred during the 2021 financial year and are looking at the impacts these transactions may have on their deferred asset (DTA) and/or deferred tax liability (DTL) accounts. The opening balance of the DTA was $10,000 and the DTL $1,500.
You have been asked to provide applicable journal entries (including narrations) for these transactions as well as provide a schedule of temporary differences and calculate any DTA’s and/or DTL’s and applicable income tax expense.
a. Transaction 1 – GIRAFE Ltd purchased architecturally designed office furniture from Best Designs Pty Ltd in the amount of $180,000 on 1 July 2021. An amount of $90,000 was paid towards this purchase price by using cash reserves of the business. The remainder is being financed by the company’s bank. It is estimated that this office furniture will have a useful life of 6 years with no salvage value. The useful life on office furniture from the Australian Taxation Office’s perspective is estimated to be 5 years. An expert was asked to value the office furniture at the end of the financial year, as the company believes that the office furniture is now worth much more as the company they purchased from no longer makes these designs. A fair value of the office furniture came in at a valuation of $160,000.
b. Transaction 2 – GIRAFE Ltd has a development costs account in their Balance sheet as at the 30 June 2022 of $140,000. These development costs were claimed as a deduction in the prior financial year.
c. Transaction 3 – The provision for annual leave is recorded in the accounts as at 31 May 2022 at $45,000. During the month of June an accrual for June’s entitlement for annual leave totaled $8,000. Employees who took and were paid leave in June amounted to $7,000.
d. Transaction 4 – At 30 June 2021 the amount recorded in the Balance sheet for goodwill amounted to $650,000. The goodwill was impaired by 10% in 2022 and this needs to be recorded in the financial statements.
e. Transaction 5 – GIRAFE Ltd rents out part of one of their warehouses to Rabbit Pty Ltd. Rabbit paid rent for the next quarter in advance in the amount of $45,000.
f. Advice - GIRAFE have just reported a profit for the year in their income statement and provided their tax accountant with their financial statements. The tax accountant told GIRAFE’s management that they have no tax to pay, but they are not sure why this would be the case. Explain why GIRAFE may not have to pay the tax office any tax for profits made this year. Use an example to assist with your explanation.

5. GIRAFE Ltd have leased a new van from Hyundai at Robina at a cost of $55,000 on the 1 July 2021. This new van will be used to move inventory from the various warehouses on the Gold Coast. The lease payments required by GIRAFE Ltd to pay each year are $20,500. Additional costs incurred by GIRAFE Ltd to get the van up and running for GIRAFE Ltd to use included the GIRAFE Ltd logo on the side panels and back of the van as well as install a solar system including solar panels, deep cell battery and solar regulator. The cost incurred was $9,500. The implicit interest rate on the lease is 9%. GIRAFE plans on keeping the van at the end of the lease term of 5 years, this has not been agreed upon as yet with Hyundai Robina. Hyundai Robina believes that the useful life of the leased asset to be 8 years. (Ensure that you show all your workings and appropriate referencing when required).
a) Record the relevant journal entries for GIRAFE Ltd for the 2022 financial year.
b) What is the closing lease liability as at 30 June 2022?
c) If Hyundai Robina has the right to enforce GIRAFE to acquire a new van at any point within the 5 years contract, by demonstrating that any alterations (e.g. solar system) made by GIRAFE are not reversible or changed the original characteristics and purposes of use of the van, would GIRAFE be able to record the vans as a lease asset? Support your discussion applying the appropriate accounting standards.

Answer rating: 100% (QA)

Answer a Nature of the TransactionEvent The eventstransactions are 1 The sale of a subsidiary Pelican Ltd 2 The writedown of a bad debt from a customer with potential repayment 3 Receipt of Job Keeper ... View the full answer