Accounting and Finance - Superstore Ltd - Financial Statement Disclosures - Accounting and Finance Assessment Answer

Accounting and Finance Assessment Answer

Assignment Task: Financial statement disclosures You are the financial accountant for Superstore Ltd and are in the process of preparing its financial statements for the year ended 30 June 2018.  Whilst preparing the financial statements, you become aware of the following situations:

1. Superstore Ltd provides a warranty on goods sold for a period of 12 months from the date of sale.  The company has, in the past, always recognised a provision for warranties equal to 5% of sales made during the year.  Due to increasing warranty costs and the number of goods returned under warranty in previous years, the directors met during the financial year (ended 30 June 2018), and decided to increase the provision to 8% of sales made during the year.  The provision for warranties accounts currently has a balance of $19,000, which is the balance carried forward from 30 June 2017.  Sales for the year ended 30 June 2018 amounted to $430,000.
2. Two of Superstore Ltd’s major debtors filed for bankruptcy in July 2018.  The amounts owing from these two customers total $420,000, and in the draft financial statements (prior to Superstore Ltd being aware of the bankruptcies), an allowance for doubtful debts of $40,000 had been recognised.  The directors of Superstore Ltd met with the liquidators of the two debtors on 28 July 2018 (prior to the 2018 financial statements being finalised), and it appears that no amount will be recovered from in respect of either debt.
3. On 5 July 2018, the Commonwealth Government enacted legislation altering the company income tax rate from 30% to 28%, applicable from the financial year commencing on 1 July 2018.
4. On 30 June 2018, when reviewing the plant and equipment, the reports showed that there was a ‘Trailer’ purchased on 1 July 2016 for $22,000.  You looked into this further and discovered that the invoice was actually for repairs to one of the company’s trailers, not the purchase of a new trailer.  The $22,000 should have been recognised as an expense, not as an asset.  Depreciation of $1,000 was recognised in the 2017 financial statements, and no depreciation has been recognised as yet in the 2018 draft financial statements.  The accountant responsible for preparing the company’s income tax returns will amend the 2017 tax return, and the company will receive a tax refund of $6,300 as a result.  No journal entries have been recorded as yet in the accounting records, as the directors are unsure how to account for this situation, and what period adjustments need to be made in.

Assume that each event/situation is material. Required:

1. State the appropriate accounting treatment for each situation. Provide explanations and references to relevant paragraphs in the accounting standards to support your answers.  Where adjustments to Superstore Ltd’s financial statements are required, explain which financial statements need to be adjusted (ie. 2016, 2017, 2018 or 2019).
2. Prepare any note disclosures and adjusting journal entries that are needed in the 2018 financial statements for each situation.

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