PART 1: Enter Year-End Adjusting Journal Entries into MYOB & Print out a revised Profit and Loss Statement and Balance Sheet from MYOB – in pdf format – (5 Marks) a. Students are required to prepare and enter adjusting general journal entries directly into the MYOB data file to take into account all of the relevant and necessary adjustments (please include cents in all of your journal entries). The MYOB data file is available on the AYB 339 Blackboard site for students to download. The MYOB data file was created using MYOB AccountRight Enterprise (Educational Version 19). This version of MYOB is available in the student labs in both B and Z blocks. However, students can use any version of MYOB to open the data file and make adjustments (provided it is version 19 or higher). It will not be possible to open this MYOB data file if you use the MYOB trial versions available on the MYOB website or any version of MYOB lower than this version. The data file has been created in MYOB 19 for Windows. However, for those students who have an Apple Mac computer or laptop, the data file may be able to be converted and opened in Mac AccountEdge Pro. If students are having any issues converting the data file, please contact the QUT IT Helpdesk. These entries must be entered, produced and printed out using MYOB. Make sure you use MYOB. Students cannot use other packages like Handisoft, Xero, Solution 6, MYOB Accountants Office etc. When you open up the MYOB data file, please use the “Administrator” User ID. You can leave the “Password” field blank, as shown below. b. Adding Account Names to the Chart of Accounts Please note that students are expected to add additional accounts in the MYOB data file provided on the AYB 339 Blackboard site, as several of your adjusting general journal entries will be made to these new accounts (eg. depreciation expense). c. Do Not Record any Journal Entries for DTA’s and DTL’s Despite the fact that some transactions in this case study give rise to temporary differences, please do not record any deferred tax assets (DTA’s) and deferred tax liabilities (DTL’s). d. Dating your Adjusting General Journal Entries 30 June 2021 Please date all of your adjusting general journal entries 30 June 2021. Please also include a brief narration of the adjustment in the memo field in MYOB. e. Printing Adjusting General Journal Entries at 30 June 2021 in pdf format Make sure that you only print out your adjusting journal entries and not all of the other journal entries already residing in the MYOB data file that has been provided to you. Simply select the General Journal function and the date range: 30 June 2021 to 30 June 2021. e. Accounting Depreciation Journal Entries For accounting purposes, each depreciable asset listed on page 20 of this case study should be depreciated over their useful lives based on the following straight-line rates (rate shown in the final column). Depreciable AssetAccounting Useful LifeDepreciation Rate (Straight-Line %)1. Leasehold Improvements: Fit-out (consisting of floor covering, ducted air-conditioning, lighting and signage) 40 years 2.5% pa.2. Property, Plant and Equipment: Cash registersDesktop computers Photocopying machineFurniture – consisting of shelving and freestanding items 10 years 4 years 5 years 10 years 10% pa. 25% pa. 20% pa. 10% pa. 3. Computer Software: MYOB AccountRight and retail point-of-sale software 5 years 20% pa.4. Leased Premises (Right-of-Use Asset): Leased premises at 11 Elland Road, Carindale 3 years 33.33% pa. There are 7 individual assets listed above (as per the bullet points). Instead of putting through seven (7) separate depreciation/amortisation journal entries, students are asked to only record four (4) journal entries in MYOB for each of the following classes of assets, namely: leasehold improvements (1 asset);property, plant and equipment (total of 4 assets);computer software (1 asset); andleased business premises, being the right-of-use asset (1 asset). This means that you should only enter four (4) depreciation/amortisation journal entries into MYOB. As AASB 16 Leases will be applying to Toy Warehouse Pty Ltd, students are referred to Item 15 of this case study document for more information about the “right-of-use asset” (being the leased premises). For taxation purposes, being a small business entity (SBE), Toy Warehouse Pty Ltd will depreciate those eligible depreciating assets under Division 328 using the simplified depreciation regime (refer to the rules on pages 31 and 32). f. Print out a Revised Profit and Loss Statement and Balance Sheet from MYOB as at 30 June 2021 Finally, students are required to print out a revised Profit and Loss Statement and Balance Sheet from MYOB for Toy Warehouse Pty Ltd for the year ended 30 June 2021 taking into account their adjusting general journal entries and include it in their submission. In MYOB, your print range for the Profit and Loss Statement should be 1 August 2020 to 30 June 2021. For the Balance Sheet, please print this report out as at 30 June 2021. Please include cents when printing out both reports. [Total for Part 1 = 5 marks] PART 2: Prepare a Lease Schedule for the Right-of-Use (ROU) Asset (being the leased premises) for Toy Warehouse Pty Ltd in Microsoft EXCEL – (2 marks) a. Prepare a Lease Schedule for the ROU Leased Premises Prepare and print a lease schedule (using Microsoft EXCEL) for Toy Warehouse Pty Ltd in respect of the right-of-use leased premises at 11 Elland Road, at Carindale over the life of the three-year lease. In doing so, please calculate interest on a monthly basis. Please include cents when completing your lease schedule in EXCEL. [Total for Part 2 = 2 marks] PART 3: Prepare the 2021 Annual Report for Toy Warehouse Pty Ltd in Microsoft Word – (18 marks) Students must use Microsoft Word to prepare the annual report. Students are not permitted to use any other electronic account preparation software packages (eg. Handisoft, Xero, Solution 6, MYOB Accountants Office etc). However, you can draft the financial statements in EXCEL and export (convert) them into Microsoft Word. When preparing the external financial statements, please round all figures from your MYOB management accounts to the nearest whole dollar. In other words, please do not include cents when preparing the external financial statements. a. Students are required to prepare the Annual Report for Toy Warehouse Pty Ltd for the year ended 30 June 2021. The annual report should include the following documents (in the following order): all of the notes to the accounts; There is no need to prepare a Directors’ Report or an Auditor’s Independence Declaration, as the financial report was not audited. For the Accountant’s Compilation Report, please use the name of the firm that you created and used throughout the semester for your PBLs. Please do not include your MYOB profit and loss statement and balance sheet as your external financial statements. The MYOB profit and loss statement and balance sheet are management accounts, and are not a set of external financial statements. b. Which Accounting Standards Apply? For the purposes of this assignment, please treat Toy Warehouse Pty Ltd as a reporting entity. In other words, please prepare general purpose financial statements for Toy Warehouse Pty Ltd. In other words, please ensure that the 2021 financial statements (and notes to the accounts) are prepared in accordance with the recognition, measurement and disclosure requirements of all of the AASB Accounting Standards. However, please do not apply the following four (4) AASB Accounting Standards: All other AASB Accounting Standards (including their recognition, measurement and disclosure requirements) must be complied with. This includes the suite of financial instruments standards (including AASB 7, AASB 9 and AASB 139, where applicable as well as AASB 16). Finally, even though Toy Warehouse Pty Ltd is a reporting entity, it does not wish to apply the reduced disclosure requirements (RDR) contained in AASB 1053 Application of Tiers of Australian Accounting Standards. Furthermore, even though we are applying the tax-effect accounting principles contained in AASB 112 Income Taxes, students do not need to calculate deferred tax expense (comprising deferred tax assets and deferred tax liabilities). In other words, instead of calculating both current tax expense and deferred tax expense (as required under AASB 112), students are only asked to calculate and disclose current tax expense (ie. the amount due and payable to the ATO for the current year). c. Statement of Profit or Loss and Other Comprehensive Income When preparing the external financial statements for Toy Warehouse Pty Ltd, please ensure that you prepare and include a one-statement Statement of Profit or Loss and Comprehensive Income in accordance with AASB 101 Presentation of Financial Statements. When drafting the first part of the Statement of Profit or Loss and Other Comprehensive Income, Christie and Grace have requested that you classify expenses by function instead of by nature. Please show only those expenses on the face of the Statement of Profit or Loss and Other Comprehensive Income that are specifically required to be disclosed on the face under AASB 101. Students are advised to refer to the relevant paragraphs contained in AASB 101 for more information about disclosure of expenses by function. Furthermore, please group relevant individual expenses in the MYOB profit and loss statement on the face of the income statement under the following headings: “administrative expenses”, “depreciation and amortisation”, employee benefits”, “finance costs and “other expenses”. As is the case with classifying expenses by function, please use your discretion as to what individual expenses should be included in each of the above headings. d. Statement of Changes in Equity For the Statement of Changes in Equity, please use the minimum disclosure requirements required under AASB 101 Presentation of Financial Statements. e. Balance Sheet For the Balance Sheet, please use the minimum disclosure requirements required under AASB 101 Presentation of Financial Statements. f. “Real” and “Model” Financial Statements Students are advised (and encouraged) to download the 2021 financial report of an Australian listed public company (preferably a retailer) and review the content, structure and format of the financial report. Furthermore, some accounting firms have published model financial statements for companies on their websites that students should consider referring to. For example, a generic Google search on the term “model financial accounts Australia” will list several hyperlinks to a range of accounting firms websites where these model financial statements can be downloaded in pdf format. A copy of the 2021 annual report (containing the 2021 financial statements) of The Reject Shop Ltd has been placed on the AYB 339 Blackboard site to assist students. Please make sure that you find general purpose model financial statements, and not special purpose model financial statements. Several accounting firms provide model financial statements for proprietary companies. However, in most cases, special purpose financial statements are presented, and not general purpose financial statements. A reminder that in the case of Toy Warehouse Pty Ltd, we are asking that general purpose financial statements be prepared. Furthermore, when preparing the external financial statements for Toy Warehouse Pty Ltd, please do not include the references to AASB paragraphs in the left-hand margin of the financial statements (or notes to the accounts) like the model sets of accounts do. Students should also prepare a Director’s Declaration for Christie and Grace to sign. You can assume that both Christie and Grace believe that as at 3 September 2021 (being the date that the Directors’ Declaration is to be signed) there are reasonable grounds to believe that the company will be able to pay its debts as and when they fall due and payable. Please remember to draft and include the appropriate Accountant’s Compilation Report in the annual report. As mentioned in Item (a) on page 8, there is no need to prepare a Directors’ Report for Toy Warehouse Pty Ltd. When presenting the external financial statements (including the detailed notes to the accounts) for Toy Warehouse Pty Ltd, please round each figure to the nearest whole dollar. In other words, do not include cents in your external financial statements. g. Date of Declarations and Reports and Comparative Figures All declarations and reports should be dated 3 September 2021. Comparative figures are not required in the financial statements, as the company only commenced trading on 1 August 2020. [Total for Part 3 = 18 marks] PART 4: Prepare the 2021 Company Income Tax Return of Toy Warehouse Pty Ltd – (2 marks) a. Students are required to prepare the company’s Income Tax Return for Toy Warehouse Pty Ltd for the year ended 30 June 2021 A blank copy of the 2021 company tax return has been placed on the AYB 339 Blackboard site for you to download and complete. Students can either complete the tax return by printing off the pdf version and manually handwriting the figures in and then scanning it back into pdf. Alternatively, if you have Adobe Acrobat DC which allows the pdf form to be edited, you can complete the tax return electronically. However, please note that students cannot use a tax software package such as HandiTax, Xero, Solution 6, MYOB Accountants Office to complete the company tax return. Please make sure that you use your figures contained in your external financial statements to include in the relevant items (labels) of the company tax return. The company’s tax file number (TFN) is: 733 000 152. The business and postal address of Toy Warehouse Pty Ltd is: 11 Elland Road Phone: (07) 3398 1714 Carindale, QLD, 4152. Facsimile: (07) 3398 1715 Do not complete the BSB and account details on the second page of the tax return. For the purposes of the tax agent declaration (on the last page of the tax return), your tax agent reference number is 57203-006. Please put your name and contact details in this box. The income tax return should be dated 3 September 2021. It will be signed by Christie as she is the company’s public officer. Please type (or write) Christie’s name. However, please leave the signature panel blank. In other words, do not sign the tax return as Christie. There is no need to prepare the dividend franking account for the company or the dividends and interest schedule. Both of these schedules normally form part of the income tax return. However, students are not required to prepare these schedules. [Total for Part 4 = 2 marks] PART 5: Prepare the 2021 Tax Reconciliation for Toy Warehouse Pty Ltd – (3 marks) a. Students are required to prepare a One-Page Tax Reconciliation for Toy Warehouse Pty Ltd for the year ended 30 June 2021 Christie and Grace also ask you to prepare a one-page tax reconciliation showing the adjustments made to the accounting net profit before income tax to arrive at the company’s taxable income for the year ended 30 June 2021.. Students should start the tax reconciliation with the accounting net profit/(loss) before income tax and then list each relevant adjustments to arrive at the company’s taxable income for the year ended 30 June 2021. No marks will be given where adjustments are aggregated. This one-page tax reconciliation should be included immediately behind the last page of the company’s tax return. Furthermore, when presenting your tax reconciliation, there is no need to refer or quote sections of the ITAA (1936), ITAA (1997), cases or taxation rulings. Students are asked to start with the accounting net profit before income tax (from your income statement – after your MYOB adjustments from Part 1) and make individual adjustments which: (a) are not tax-deductible, which result in an increase to taxable income; (b) are assessable for taxation purposes, which result in an increase to taxable income; and (c) are tax-deductible, which result in a decrease to taxable income. The last line in your tax reconciliation should be the company’s 2021 taxable income (which should equal the 2021 taxable income figure in the company’s tax return). As we are not asking students to calculate deferred tax expense (comprising DTA’s and DTL’s), there is no need to prepare a deferred tax worksheet. Finally, please round all figures in the tax reconciliation to the nearest whole dollar. [Total for Part 5 = 3 marks] PART 6: Self-Reflection – (10 Marks) This reflection asks students to attend to the following two (2) tasks. Please provide your response to the two questions raised by Christie and Grace on your group’s firm letterhead that you used during the semester. Concerns as to the Rising Levels of Inventory on Hand at 30 June 2021 When you present your 2021 financial statements to Christie and Grace, they express some concern over the high levels of stock on hand at year-end. Being a retailer, having excess stock on hand is of a particular concern, particularly as inventory is one of the largest assets of every retailer. As such, Christie and Grace request that you specifically address the following two (2) issues: Using the figures contained in your external financial statements, please calculate the days inventory ratio of Toy Warehouse Pty Ltd at 30 June 2021, and compare the company’s actual days inventory ratio to the budgeted days inventory ratio on page 16 of the business plan. Please use the following formula: Days inventory = [ closing inventories x 365 ] cost of good sold For the numerator, please use the closing inventory figure at 30 June 2021, and not the average inventories figure as some accounting textbooks use. Please explain to Christie and Grace three (3) specific risks/concerns to the business if inventory levels (and the days inventory ratio) continue to rise over time? (4 marks) You must use 11 point Arial font with 1.5 line spacing in your letter to Christie and Grace. There is no need for a bibliography. The maximum number of words for part (i) 400. Solvency Statement and Whether Toy Warehouse Pty Ltd is Solvent at 30 June 2021? Finally, Christie and Grace are reviewing the Directors’ Declaration that you have drafted and included as part of your 2021 annual report. They note that one of the requirements is that you are asking them to consider and sign is the statement that: “whether, in the Directors’ opinion, as at the date of the declaration, there are reasonable grounds to believe that the company will be able to pay its debts as and when they fall due”. As such, Christie and Grace request that you specifically address the following three (3) issues: Using the figures contained in your external financial statements, please calculate the current ratio of Toy Warehouse Pty Ltd at 30 June 2021, and compare the company’s actual current ratio to the budgeted current ratio on page 16 of the business plan. Please use the following formula: Current ratio = current assets current liabilities Before signing this declaration, Christie and Grace ask you to outline what specific factors that directors should take into account in deciding whether the company is at risk of being insolvent. Please provide four (4) specific criteria that Christie and Grace should consider. Please cite any relevant references or sources used within your covering letter. Finally, based on the above criteria that you have provided in Part (b) and taking into account your calculation in part (a), please provide your opinion to Christie and Grace as to whether you believe that Toy Warehouse Pty Ltd is solvent or not? (6 marks) You must use 11 point Arial font with 1.5 line spacing in your letter to Christie and Grace. There is no need to include a bibliography. The maximum number of words for part (ii) is 600. [Total for Part 6 = 10 marks] PART 7: Professional Approach to Presentation This assessment expects a professional approach to presentation similar to that expected in an Accounting firm when delivering documents to a client. For this reason, you must satisfy the following professional presentation requirements or you may incur penalties. A professional approach also means that it is the responsibility of each student to ensure that the complete assignment is submitted by the due date and in the correct format (see below). Once submitted, students are not able to attach or submit any additional documentation whatsoever as in a client situation, you would be unable to deliver additional information to a client and late information will be regarded as being late and may not be useful. As students will be submitting all parts of the case study via QUT’s Turnitin, students are asked to collate all of the various documents and save them into one pdf document to upload into Turnitin. Please name your file “Your Student Name – Integrated Case Study.pdf”. Please save the documents in pdf format in the order listed on page 18 of this case study. Students are also required to submit the signed student integrity declaration (contained on page 33 of this case study). PART 8: Academic Conduct in Completing this Assessment Academic conduct is expected to be ethical and above reproach in producing this assessment in the same way you would produce a client document as part of an accounting firm. The following table provides you with clear examples of what constitutes academic misconduct and what does not. Please carefully read this list before starting the assessment. This integrated case study is an individual assignment. As such, no collaboration with other students is permitted in any way whatsoever. Any collaboration between students, including comparing answers, sharing ideas and research etc. constitutes academic dishonesty. Markers will be carefully checking case studies to ascertain whether there is any indication that collusion has taken place (particularly those students that were in the same groups during the semester for the PBLs). Students who are found to have committed academic misconduct as detailed below will be immediately referred to the QUT Business School academic misconduct committee. Please note that penalties will be applied not only to the student(s) who have used this information but also to the student(s) who have shared this information. To this end, each student is required to sign a student integrity declaration confirming that they have not used or plagiarised the work of others (more details are contained on page 33 of the case study). More information on plagiarism and QUT’s range of penalties that can be imposed can be found at: https://cms.qut.edu.au/__data/assets/pdf_file/0008/638981/student-academic-misconduct-penalty-matrix.pdf Examples of what constitutes (or does not constitute) Academic Misconduct Does Constitutes Academic MisconductDoes not Constitutes Academic MisconductUsing a case study (or any part thereof) of another student from a previous semester. This includes obtaining a soft or hard copy of a previously used annual report from a prior semester and overtyping or re-typing any part and submitting such as part of your submission. Using a listed public company’s annual report or a set of model financial statements as a basis of determining the format, layout and structure for the financial report of Toy Warehouse Pty Ltd.Using a case study (or any part thereof) of another student doing the unit this semester. This includes a student that has been in your group/team during the semester.Using the words contained in a listed public company or a set of model financial statements (eg. the Note 1 Significant Accounting Policy note) and using these words/sentences for Toy Warehouse Pty Ltd. Paying another person to complete your case study (or any part thereof). This is referred to as “contract cheating”. PART 9: Submission Instructions Please collate the following documents into one pdf document in the following order: Signed Student Integrity Declaration (on page 33);Part 1 – Your MYOB Adjusting Journal Entries dated 30 June 2021 including your revised MYOB Profit and Loss Statement and Balance Sheet as at 30 June 2021;Part 2 – The lease schedule (prepared in EXCEL), being the right-of-use leased premises at 11 Elland Road in Carindale (refer to Item 15);Part 3 – The 2021 Annual Report of Toy Warehouse Pty Ltd (including the external financial statements, notes to the accounts, the Directors’ Declaration and the Accountant’s Compilation Report) in that order;Part 4 – The 2021 income tax return of Toy Warehouse Pty Ltd;Part 5 – The one-page tax reconciliation of Toy Warehouse Pty Ltd (to be included at the end of the last page of the company’s tax return); andPart 6 – Your self-reflection (requirements detailed on pages 14 and 15). INTEGRATED CASE STUDY TOY WAREHOUSE PTY LTD Background Information: The date is Wednesday 30 June 2021. The time is 2:00 pm. As the external accountants and tax advisors of Toy Warehouse Pty Ltd, you are in a meeting with your clients, Christie and Grace Wagner at their toy store in Carindale. The purpose of the meeting is to review the draft MYOB management accounts of Toy Warehouse Pty Ltd for the year ended 30 June 2021 which have been prepared by the company’s contract bookkeeper, Suzanne Vega. The toy store has been closed all day as Christie, Grace and the staff have spent most of the morning conducting the annual stocktake counting stock on hand. Unfortunately, Suzanne is unable to attend the end-of-year meeting but has provided you with the MYOB data file. She asks that if you make any adjustments, you do so directly into the MYOB data file and date any adjustments 30 June 2021. Suzanne has advised you that she has entered all of the company’s transactions for the 2021 financial year (unless otherwise indicated). She has reconciled the company’s bank account and has reconciled the GST payable and GST receivable accounts in the Balance Sheet. Please note that the MYOB data file that has been presented to you is not a “real” client MYOB data file. All that was done was to enter journal entries to arrive at closing balances at 30 June 2021. Hence, please do not analyse the journal entries already existing in this MYOB data file. In your meeting, Christie and Grace have made you aware of the following information: The bookkeeper, Suzanne, has not recorded any depreciation/amortisation in respect of any non-current assets acquired by the company during the 2021 financial year. She asks you to calculate the relevant depreciation amounts and process these depreciation/amortisation journal entries for the 2021 financial year directly into MYOB (refer page 6 for details of depreciation rates for accounting purposes). On 1 August 2020, Toy Warehouse Pty Ltd purchased the following assets outright (all amounts are shown GST-exclusive): (a) Leasehold Improvements: Fit-out (consisting of floor coverings, ducted air-conditioning, lighting and signage) – $126,800. Property, Plant and Equipment: Cash registers – $9,600Desktop computers – $8,100Photocopying machine – $4,340Furniture (including shelving and freestanding items) – $28,180 (c) Computer Software: MYOB AccountRight and retail point-of-sale software – $12,760 Suzanne coded all of these purchases to their various asset category accounts in the Balance Sheet. Note: There are 334 days from 1 August 2020 to 30 June 2021. Please refer to the accounting useful lives for each of the above mentioned assets on page 6 of the case study. As at 30 June 2021, Toy Warehouse Pty Ltd had received lay-by payments from customers totalling $1,420 (GST-exclusive) in relation to certain toys. As at 30 June 2021, these toys remained in the closing stock of Toy Warehouse Pty Ltd as they were “on hand” and legal title does not pass to the buyer until the full amount of payment has been received. Suzanne recorded the following journal entry in MYOB: DATEPARTICULARSPOST REFDEBITCREDIT30 JuneCash at bank1-10101,420 Toy sales4-1000 1,420 (Cash received from customers in relation to the lay-by of toys to 30 June 2021) The lay-bys are non-refundable, meaning that if the buyer does not pay the full amount owing under the lay-by transaction, Toy Warehouse Pty Ltd keeps the monies already paid, the toys and does not refund any amounts paid by the customer. Do not make any adjustment to COGS or inventory. Ignore any GST consequences. 4. On 31 July 2020, Toy Warehouse Pty Ltd held an opening party at the store for potential new customers and toy, game and book suppliers. The party consisted of food and drinks (both alcoholic and non-alcoholic). A total of 40 guests attended the opening party. No employees attended the opening party. You can assume that at this point, that Christie and Grace were not yet formally employed by the company. Hence, they were not yet employees for FBT purposes. The occasion was purely social. The cost of the opening party came to $2,750 (GST-inclusive). Suzanne has correctly coded the total amount of $2,750 to “opening party” in the Profit and Loss Statement. Ignore any GST consequences. 5. The company’s Christmas party was held on Friday 18 December 2020 at a nearby licensed seafood restaurant. Christie, Grace and the three other employees attended the Christmas party. No customers were invited. The cost of the Christmas party came to $400 (or $80 per head). Suzanne has correctly coded this amount to “Entertainment – Christmas Party” in the Profit and Loss Statement. Ignore any GST consequences. 6. Apart from Items 4 and 5 above, the company did not provide any other meal entertainment to clients or employees whatsoever during the 2021 financial year. For FBT purposes, the company adopts the actual method in valuing its meal entertainment fringe benefits. No FBT applies as in the case of the opening party, due to the fact that no meal entertainment was provided to employees. In the case of the Christmas party, whilst the meal entertainment was provided to employees, the cost per head per employee was under $300. Hence, no FBT applies. The amounts of these expenses shown in the Profit and Loss Statement are shown GST-inclusive as the company is not entitled to claim back any GST input tax credits associated with these expenditure items. 8. Christie, Grace and the staff undertook a stocktake on the morning of 30 June 2021. Closing stock has been reliably ascertained at a cost of $198,125 (GST-exclusive). This amount reconciles with the computer system. This amount is shown as “inventory” in the Balance Sheet at 30 June 2021. The company adopts a perpetual inventory system and uses the weighted average cost inventory valuation method for both accounting and taxation purposes. The opening balance of inventory on the first day of business (ie. 1 August 2020) was $166,140. When completing the company tax return at Item 8, for Label S “Purchases and Other Costs”, please enter the purchases amount of $432,678. A reminder that under a perpetual inventory every time an item of inventory is purchased, the “inventory” account is debited. Conversely, every time an item of inventory is sold, the “inventory” account is credited and the “cost of goods sold” account is debited. As such, there is no need to prepare a Cost of Goods Sold schedule under the perpetual inventory method. From a taxation point of view, the purchases have already been booked to the inventory account. Hence, as we have been able to more precisely calculate the cost of goods sold during the reporting period using the perpetual inventory system, we can simply use the “cost of goods sold value” reported in the Income Statement as a tax deduction. Hence, no tax adjustment to this figure is required. 9. Toy Warehouse Pty Ltd extends credit to selected customers. For those customers that have been approved, the company has trade credit terms of net 30 days. The company rigorously pursues any bad debts owing by customers. The company uses the “provisioning” method in accounting for their bad/doubtful debts, not the “direct write-off” method. At 30 June 2021, Suzanne sat down with Christie and Grace and printed out an aged debtors report. Based on this report, Christie and Grace determined the likely uncollectability of each bracket (see below). Age of DebtorAccount ReceivableEstimated % UncollectableProvision for Doubtful Debts0-30 days (not past due)$42,140.000%$ –31-60 days$3,480.0020%$696.0061-90 days$1,880.0050%$940.00Totals:$47,500.00 $1,636.00 On 30 June 2021, Suzanne posted the following journal entry in MYOB: DATEPARTICULARSPOST REFDEBITCREDIT30 JuneBad debts expense6-10201,636 Provision for doubtful debts1-1040 1,636 (Providing for bad debts expense at 30 June 2021) At your year-end meeting with Christie and Grace, Suzanne presents you with a letter from one of the debtors dated 30 June 2021 (Billy Ocean) confirming that this debtor has been imprisoned due to fraud, and as such, is unable to pay his debt totalling $520 owing to Toy Warehouse Pty Ltd. After a brief discussion with Christie and Grace, it was decided that this entire debt of $520 should be written off at 30 June 2021. Suzanne was not aware of this outcome so she did not process this bad debt write-off in MYOB. This debt of $520 was included as part of the 61-90 debtors days breakdown totalling $1,880 above. Ignore any GST consequences. If any adjusting entries are required, please record this entry in the general journal in MYOB. Do not worry about the individual (subsidiary) debtor account for Billy Ocean. 10. The employees of Toy Warehouse Pty Ltd during the 2021 financial year were as follows: Christie Allen (Director and full-time manager of the retail store);Grace Knight (Director and full-time manager of promotions, purchasing and other services); andOne full-time and two part-time retail assistants. The total salaries and wages for the abovementioned employees are shown as an expense in the MYOB Profit and Loss Statement. There are no outstanding (accrued) wages owing to any of the employees at 30 June 2021. 11. Each full-time employee is entitled to four (4) weeks paid annual leave per annum. Part-time staff are entitled to pro-rata annual leave. At 30 June 2021, Suzanne had not yet recorded a journal entry to accrue the annual leave for these employees. Based on the projected salaries of when each employee is expected to take their annual leave, the total provision for annual leave (in respect of all employees) as at end of financial year totals $7,170. The company’s policy is that all annual leave must be taken within 12 months. No annual leave was taken by any employee during the 2021 financial year. No sick leave was taken by employees during the 2021 financial year. No provision for sick leave should be made in the 2021 accounts as no employee is considered likely to take more than their allocated sick leave entitlements. The sick leave is non-accumulating and non-vesting meaning that no entitlement (and therefore, no accrued sick leave) is carried over to the following financial year for any employee. Similarly, no employee is eligible for long service leave. As such, no provision for long service leave should be made in the 2021 accounts as, at 30 June 2021, it is not currently considered probable that any employee will reach the 10-year employment target with the company in order to qualify for long service leave. 12. The initial set-up costs of $2,020 incurred to establish the company and associated accounting and legal fees are shown as an expense in the Profit and Loss Statement under “Establishment Costs”. Assume that these costs were incurred directly by the company on 12 July 2020, being the date that the company was established. 13. Christie and Grace were delighted with the fact that the company made a small accounting net profit in respect of the 2021 financial year. So much so, that on Monday 28 June 2021, Christie and Grace called a directors meeting, and at that meeting unanimously resolved to declare, and pay, unfranked cash dividends totalling $20,000 to the three shareholders. These dividends comprised: ShareholderUnfranked Dividends PaidChristie Allen (45% shareholder)$9,000Grace Knight (45% shareholder)$9,000Jon English (10% shareholder)$2,000 The bookkeeper, Suzanne, recorded this $20,000 dividend payment in MYOB under “dividends paid” at the end of the profit and loss statement. 14. Furthermore, on Monday 28 June 2021, Christie and Grace decided to contribute an additional $5,000 each into their respective superannuation funds (total of $10,000). This was not part of a salary sacrificing arrangement. On 28 June 2021, Suzanne put through the following journal entry in MYOB: DATEPARTICULARSPOST REFDEBITCREDIT28 JuneSuper expense – Directors (Additional)6-124010,000 Superannuation payable2-1060 10,000 (Recording the additional superannuation contributions for Christie and Grace) The company uses the Small Business Superannuation Clearing House (SBSCH). Suzanne paid the $10,000 additional superannuation from the company’s bank account into the SBSCH on Friday 2 July 2021. 15. As outlined in the business plan, the directors of Toy Warehouse Pty Ltd signed a three-year lease at $5,000 per month (GST-exclusive commencing 1 August 2020) for the premises at 11 Elland Road, Carindale. A 2% annual rent increase is to take effect on 1 August each year. There is an option in the lease agreement to renew the lease for an additional three years at the expiration of the current lease and in perpetuity thereafter. For the year ended 30 June 2021, the company made eleven (11) monthly lease payments totalling $55,000 (GST-exclusive). Suzanne has coded these payments to “rent expense” in the MYOB Profit and Loss Statement. Being a bookkeeper, Suzanne did not know how to apply the principles contained in the recently introduced leasing standard, AASB 16 Leases. She requests that you put through the appropriate journal entries to record the “right-of-use asset” and corresponding lease liability at 30 June 2021 and to also adjust the figures in the Profit and Loss Statement. The following information is relevant for you to calculate the “right-of-use” asset and lease liability as per AASB 16 Leases: First monthly lease payment (made in advance) 1 August 2020Monthly lease payments for first 12 months (GST-exclusive) $5,000Monthly lease payments for second 12 months (GST-exclusive) * $5,100Monthly lease payments for third 12 months (GST-exclusive) ** $5,202Total undiscounted lease payments over 3-year period $183,624Period of the lease (3 years) 36 monthsDepreciation method straight-lineRent increase to take effect on 1 August each year 2.0%Annual discount rate to be used for the 36 monthly lease payments 4.00% * calculated at $5,000 x 2.0% increase (for the period 1 August 2021 to 31 July 2022) * calculated at $5,100 x 2.0% increase (for the period 1 August 2022 to 31 July 2023) Students will need to calculate the present value of the lease payments to determine the lease liability and then this will be the same amount as the “right-of-use” asset to be recorded in the Balance Sheet. As noted above, the first monthly lease payment of $5,000 made on 1 August 2020 was made in advance. Hence, there was no interest in respect of the first lease payment. Note: There are 334 days from 1 August 2020 to 30 June 2021. Additional Information Relating to the Lease: Being a new business, assume that there is no “reasonable certainty” at the inception of the lease (ie, 1 August 2020) that Christie and Grace will exercise the option to extend the lease term for an additional three years at the end of the original lease, which is due to expire on 31 July 2023. Hence, for the purposes of the leased (ROU) premises under AASB 16, assume that the right-of-use asset will be depreciated over three (3) years.Assume that there were no initial direct costs incurred in drafting and signing the lease agreement. These costs were borne by the lessor, and not the lessee.Assume that there were no prepaid lease payments made by Toy Warehouse Pty Ltd to the lessor.Finally, assume that there were no lease incentives received, nor any ‘make good provision’ (ie. no costs are estimated to be incurred at the end of the three years to restore the leased premises to its original condition). When drafting your external financial statements, please show the “right of use asset” as a separate line on the face of the balance sheet, with appropriate note disclosures. Please make sure that you include your lease schedule for the premises as part of your case study submission. ——————————————————————————————————————————— Additional Event that Occurred After 30 June 2021: Assume that it is now Thursday 12 August 2021. You are in the process of preparing the financial statements of Toy Warehouse Pty Ltd for the year ended 30 June 2021. The financial statements are yet to be signed off by the two Directors. You have just received a telephone call from Christie and Grace advising that they have just received notification of a pending legal suit from a customer who sustained a neck injury when a large life-size Transformer accidentally fell over and injured him. The accident occurred on Friday 9 July 2021. Whilst it is too early to assess the likelihood of losing the lawsuit, the person is suing the company for $20,000 for out-of-pocket medical expenses, loss of earnings from not being able to work for six weeks as well as the emotional trauma suffered as a result of the accident. A claim has been lodged with the Supreme Court of Queensland on Monday 26 July 2021 seeking damages. Toy Warehouse Pty Ltd has appointed solicitors and is strongly defending the claim. The court hearing has been set for Thursday 18 November 2021. No journal entries have been recorded by Suzanne in the MYOB management accounts in relation to this transaction to 30 June 2021 as Suzanne did not know what to do. She defers this decision to you. Additional Facts: The MYOB management accounts have been prepared on an accruals basis. The company is on the accruals basis for income tax purposes. The Australian Company Number (ACN) of Toy Warehouse Pty Ltd is: 156 577 258. Toy Warehouse Pty Ltd is registered for the GST. Its ABN is: 83 156 577 258. Christie and Grace are the only two Directors of the company. Jon English is a 10% shareholder, but is not a director of the company. Being a small proprietary company, the company’s accounts were not required to be audited for the 2021 financial year (and were not). All PAYG withholding tax owing in respect of employee’s salaries and wages have been remitted by Toy Warehouse Pty Ltd to the ATO by the due dates. The 30 June 2021 PAYG withholding tax has not yet been remitted to the ATO. This amount of $12,178 shown in the Balance Sheet as a current liability will be paid to the ATO when the company lodges its June 2021 Business Activity Statement with the ATO (sometime before the due date of 28 July 2021). The three quarterly Business Activity Statements (BAS) for September 2020, December 2020 and March 2021 quarters have been lodged with the ATO by their due dates and the net GST owing (ie. GST payable minus GST receivable) for each quarter have been paid to the ATO. The amount of GST payable and GST receivable shown in the Balance Sheet at 30 June 2021 represents the amount of GST collected ($20,446) and GST paid ($12,108) by the company to the ATO in respect of the June 2021 quarter. The net amount of $8,338 will be paid to the ATO before the due date for lodgement of the BAS (ie. before 28 July 2021). The company has paid the following PAYG income tax instalments to the Australian Taxation Office (ATO) on each quarterly BAS during the 2021 income year: September 2020 quarter ($169 income tax paid to the ATO on 14 October 2020)December 2020 quarter ($235 income tax paid to the ATO on 15 February 2021)March 2021 quarter ($714 income tax paid to the ATO on 19 April 2021) The fourth quarterly PAYG income tax instalment payable of $1,578 shown in the current liability section of the Balance Sheet at 30 June 2021 represents the amount owing in respect of the April-June 2021 quarter. This amount will be paid when the company lodges its June 2021 Business Activity Statement (sometime before 28 July 2021). All four PAYG income tax instalments totalling $2,696 have been debited to “income tax receivable” in the Balance Sheet. This amount represents the total of the four PAYG quarterly income tax instalments paid/(payable) to the ATO in respect of the 2021 income year (being $169 plus $235 plus $714 for the first three quarters as well as the $1,578 accrued June 2021 quarterly instalment which is due and payable by the company by 28 July 2021). The share capital of $100 shown in the Balance Sheet comprises the following: – Christie Allen (45 x $1.00 fully paid ordinary shares) $45 – Grace Knight (45 x $1.00 fully paid ordinary shares) $45 – Jon English (10 x $1.00 fully paid ordinary shares) $10 These 100 fully paid ordinary shares were issued by the company on 12 July 2020. On 12 July 2020, Jon lent Toy Warehouse Pty Ltd an amount of $240,000. Christie and Grace also lent the company $180,000 each on the same date (total of $360,000). The company has been making regular loan repayments to each lender and as at 30 June 2021, the total outstanding balance of the three loans came to $504,632 (split in the MYOB Balance Sheet as $152,136 current and $352,496 non-current). The bookkeeper, Suzanne, has correctly split each loan payment between interest paid and reduction of the loan liability. There were no initial borrowing costs associated with the bank loan. The borrowings are unsecured and no assets were pledged as security against these borrowings. The company has been making the compulsory 9.5% employer-sponsored superannuation contributions into each employee’s superannuation fund on a quarterly basis on the last day of each quarter based on each employee’s ordinary times earnings (OTE). Accordingly, all superannuation amounts owing in respect of the 2021 financial year (except the $10,000 additional contributions made by the company – refer Item 14 on pages 24 and 25) have been paid into each employee’s superannuation fund by 30 June 2021. The amounts contained in the MYOB data file are based on the actual results of Toy Warehouse Pty Ltd for the period 1 August 2020 to 30 June 2021 (ie. 11 months of trading). These amounts override any amounts contained in the business plan and in any of the PBLs during the semester relating to Toy Warehouse Pty Ltd. Students should also note that the figures contained in the initial business plan were budgeted amounts, not actual amounts. Background information relating to Toy Warehouse Pty Ltd and personal details involving Christie and Grace can be found in the business plan. Furthermore, ignore any additional information in PBLs during the semester relating to Toy Warehouse Pty Ltd (eg. PBL 1 Part B when students were asked to develop a chart of accounts). Only use the information contained in this case study. Assume that Toy Warehouse Pty Ltd did not require any wage subsidies under the Federal Government’s JobKeeper program during the 2021 financial year. Please ignore cash flow boost payments for the purposes of this case study. Impairment testing has been conducted at 30 June 2021 in respect of all assets (including the leased premises). There is no indication that any asset shown in the Balance Sheet is impaired. For the purposes of preparing the financial statements, Christie and Grace have considered the current impact of the COVID-19 pandemic on the company as well as the general economic and business conditions in which the company operates and concluded that the company was able to trade through the initial phase of the COVID-19 pandemic with minimal disruption. In the MYOB management accounts, no non-current asset has been revalued (or devalued) to fair value. All assets are shown at their historical cost. The legal expenses ($1,744), general expenses ($905) and repairs and maintenance ($1,268) shown in the Profit and Loss Statement are all tax-deductible. The staff amenities ($898) shown in the Profit and Loss Statement relates to tea, coffee and biscuits purchased by the company and provided to employees for consumption on the business premises during morning and afternoon tea breaks. The sundry expenses ($702) shown in the Profit and Loss Statement represent non-tax deductible expenses. They are shown GST-inclusive as no GST can be claimed back. Workers compensation ($1,032) relates to the workers compensation premium paid to Workcover Queensland on behalf of the employees and is tax-deductible. Insurance of $5,250 represents premiums paid by the company during the 2021 financial year to Ace Insurance Ltd in respect of both public liability insurance and directors and officer’s professional indemnity insurance. Any adjusting journal entries made in MYOB (through the “Record Journal Entry” function) should be made without adjusting for the effects of the GST (except where otherwise indicated in the case study). Please date all of your MYOB adjusting journal entries as 30 June 2021. In other words, all journal entries you decide to make to the MYOB data file provided should be made using the GST tax code “N-T” (except where otherwise indicated in the case study). In terms of depreciation for accounting purposes, please refer to the table on page 6 of this case study which outlines each depreciable asset for accounting purposes, its estimated useful life and depreciation rate. Assume that all assets listed have an estimated residual (salvage) value of $Nil. As noted on page 6, for accounting purposes, the company will use the straight-line depreciation method for all depreciable assets. As previously noted, in the case of accounting depreciation/amortisation journal entries, students are requested to combine depreciation/amortisation amounts for each individual asset class and show depreciation per asset class (ie. leasehold improvements, property, plant and equipment, computer software and the right-of-use leased premises). This should result in four (4) separate depreciation/amortisation journal entries in MYOB. Do not put through separate MYOB journal entries for each of the seven individual assets listed on page 6 of the case study. In terms of depreciation for taxation purposes, being a small business entity (SBE), Toy Warehouse Pty Ltd will depreciate those eligible depreciating assets using the simplified depreciation regime (refer rules below). Simplified Depreciation Rules for Small Business Entities (SBE’s) Date of Acquisition of Depreciating AssetInstant Asset Write-off ThresholdAnnual SBE TurnoverBefore 12 May 2015 (7:30 pm)$1,000< $2 million12 May 2015 (7:30 pm) to 28 January 2019$20,000< $10 million29 January 2019 to 2 April 2019 (7:30 pm)$25,000< $10 millionAfter 7:30 pm on 2 April 2019 to 11 March 2020 $30,000 *< $10 millionAfter 12 March 2020 to 6 October 2020$150,000 *< $10 million6 October 2020 to 30 June 2023Unlimited *< $10 millionAfter 1 July 2023$1,000< $10 million For taxation law purposes, computer software is considered to be a depreciating asset. Hence, the MYOB accounting software and retail point-of-sale software costing $12,760 are subject to the same SBE simplified depreciation rules outlined in the table above. Due to the above, the company is using different depreciation rules for accounting and taxation purposes. The company is also keen to take advantage of any other SBE tax concessions that it may be eligible for (if applicable). In the case of the fit-out, as this constitutes a separate asset (being capital works) for income tax purposes, please write this asset off over 40 years as per Division 43 of the ITAA (1997). This equates to a rate of 2.5% prime costs. This rate equates to the same rate for accounting purposes (being 40 years) as per the table on page 6 of the case study. This means that you should have the same figure for both accounting and income tax purposes. For the purposes of this case study, please ignore any temporary differences that give rise to deferred tax assets (DTA’s) and/or deferred tax liabilities (DTL’s). In other words, please do not record any DTA or DTL journal entries in respect of any transactions contained in this case study. All calculations should be made on a daily basis. The ATO has a useful facility where you can calculate the number of days, being: https://www.ato.gov.au/Calculators-and-tools/Host/?anchor=CalculateDays&anchor=CalculateDays#CalculateDays/questions. Please use 365 days in all calculations.
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