Intermediate Corporate Accounting Individual or Group Assignment

TOPIC:  Preparation of Financial Statements and Report

DAISY TEXTILES

Daisy Textiles was registered as a company on 1 July 2012 under the name Daisy Textiles Distribution WA Pty Ltd and is involved in the wholesale distribution of textiles and haberdashery in Western Australia (WA). The company has been operating for 4 years. Inventory is sourced and imported from all around the world for clothes and furnishings. The Company employs' the services of a customs broker to ensure all import duty costs are minimised and goods entering the county comply with Western Australian Customs Regulations.

The Managing Director (MD) of Daisy Textiles is Mrs Rose Gardiner and she is the majority shareholder with 70% of the shares.  The remaining 30% is held by her husband Mr Ryan Gardiner (10%) and her two children Ms Iris Gardiner (10%) and son Mr Bryan Gardiner (10%).Mrs Rose Gardiner is listed as the only director of the company. All shares are classified as ordinary shares and dividends are determined at the end of each year by the MD. The MD Mrs Rose Gardiner is also paid a salary of $100,000 per annum.

Daisy textiles is classified as a small proprietary company under the requirements of the Corporations Act 2001, as evidenced by operating revenue being less than $25 million, gross assets are less than $25 million and they employ less than 50 staff. [6 full time staff excluding the MD and 9additional part time staff are currently employed].  Being classified as small, they are not required to prepare financial statements in accordance with Australian Accounting Standards.  However they are required to keep sufficient records for financial statements to be prepared and audited if required. 

The company has been notified in writing in a letter received 8 July 2017 that they are to be audited by the Australian Tax Office in the next 3 months. The company has been asked to provide a full set of financial statements for 2017 prepared in accordance with Australian Accounting Standards.  Daisy Textiles currently employs a part-time bookkeeper to pay bills and keep basic financial records.  To assist with the preparation of the necessary financial documents, Daisy Textiles has employed you as a Financial Accountant to assist in the preparation of the required financial statements and notes to the financial statements.  You work for ABC Accounting Services and have agreed in a written contract dated 15 July 2017 to prepare the requested general purpose financial reports for a set fee of $25,000 or $5,000 a day for 5 days.

REQUIRED -

Using Microsoft Excel and Word students are required to:

1) Prepare a full set of general purpose financial reports for 2017 (including as many notes and comparatives as possible) using the information and additional information for adjustments provided. This includes a Statement of Profit and Loss and Other Comprehensive Income, Statement of Financial Position, Statement of Equity and Statement of Cash Flows. (Note: comparatives means the current year and previous year data are required on the face of the statements and in the notes).

2) Prepare a concise report for the managing director explaining the financial performance of Daisy's Textiles Ltd. The report should follow the format of an executive summary and should be no more than 2 pages (using 1 ½ spacing and size 11 font).  

3) This assignment can be completed individually or as a small group with 2 members. Both group members are to submit the same assignment online to allow feedback to be provided to both group members. Students MUST clearly identify in their submission their fellow group member. IF students fail to do this, they risk being reported for plagiarism.

4) Students are to assume they need to submit documents that may be required if this was a real client and consulting contract.

5) Assignments are to be submitted via the assignment box link provided in Blackboard.

6) Assignment coversheets are required and will be made available on Blackboard.

7) Students are to submit the following:

a. 1 x Excel spreadsheet with all workings and show a clear effort to utilise the functionalities of Excel to ensure information is linked and clearly displayed. (multiple worksheets may be used but they must be clearly labelled to allow the marker to adequately navigate through the data provided.

b. 1 x PDF file with signed assignment coversheet, copy of report, final financial statements and notes with comparatives that would be submitted to the MD and any other documents deemed necessary to fulfil the contract.

Additional Operating Information -

Notes

• All adjustments listed should be included in the restatement of the adjusted trial balance.
• The Statement of Profit and Loss should show the cost of sales, gross profit, distinguish between Administration, Selling and Financial Expenses and show the before and after income tax profit or loss.
• Other expenses should be part of Administration Expenses unless otherwise specified.
• Office related expenses should be treated as Administrative Expenses.
• Sales and Workshop related expenses should be treated as Selling Expenses.
• The salary related expenses of the MD should be included in Selling Expenses.
• The company operates a financial year end of 30 June and prepares a Business Activity Statement annually. GST owing is paid in July each year and company tax of 30% is paid in September each year.
• Depreciation is calculated using the diminishing balance method at the rates shown in the Depreciation Schedule below.
• Tax depreciation is the same as Accounting Depreciation so there are no deferred tax assets or liabilities associated with non-current assets.
• The COGS account is treated as a clearing account for the purchase and sale of inventory and is not required to be used for calculations in the general purpose financial statements.

Cost of sales in the statement of Profit and Loss should be calculated as follows:

• Opening Inventory
• Add: Purchases
• Less Purchase Returns and Allowances
• Less: Discounts Received
• Add: Freight Inwards
• Cost of goods available for sale
• Less Closing Inventory
• Cost of sales

Notes on Sales and Inventory

• All Sales revenue and Purchases attract 10% GST. Sales and Purchase figures in the unadjusted trial balance are net of GST. That is GST Outlays and Collection accounts are used to determine GST payable ore receivable for the annual Business Activity Statement (BAS).
• All sales and purchases of inventory are on credit.
• Daisy Textiles provides discounts to some customers to encourage payments within 7 days.
• Daisy Textiles receives some discounts for bulk purchases of inventory from suppliers.
• Freight inwards is payable separately by Daisy Textiles when inventory is purchased.
• Most customers pay separately for their own freight to have their goods delivered by their own preferred delivery mode.
• Closing Inventory on the 30 June 2015 was $270,000.

Notes related to Employees' salaries

• Superannuation is payable on total gross salary. Refer to Schedule of Employees' Salaries and Leave entitlements for details.
• Full time staff (excluding the MD) are entitled to 2 weeks accumulating annual leave. (Note: this is in addition to the paid compulsory 4 week closedown period in December and January meaning that staff receive 6 weeks paid leave per annum).
• Full time staff receive up to 2 weeks paid sick leave per annum. Sick leave is non-accumulating therefore there is no provision for sick leave.
• Fulltime employees (excluding the MD) are entitled to 3 months Long Service Leave (LSL) on full pay after completing 10 years' of service. All employees are very loyal and are expected to reach the 10 years' of service. In addition if any employee leaves the organisation prior to this date they are entitled to a pro-rata payment for long service leave. This represents a present obligation and therefore a provision is required. The Provision for LSL should be treated as a non-current liability.
• All Staff (excluding the MD) receive an annual bonus equivalent to 10% of their salary. The bonus amount is included in gross salary and attracts income tax and compulsory superannuation payments.
• Salaries for full time staff and hourly rates for part-time staff (except the MD) increase 3% per annum.
• Daisy Textiles are small and do not pay any overtime or Payroll tax as the monthly salary threshold is below $70,833 per month.
• Part-time employees are not entitled to annual leave or sick leave but they do receive the same annual bonus as all other staff.
• Daisy Textiles have a Provision for Long Service Leave entitlements and a separate accrual account for annual leave.

Adjustments outstanding

1) Depreciation for new Office Furniture purchased on 1/1/2017 and new Workshop Equipment purchased on 1/3/2017 have not been included in the unadjusted trial balance. (Refer to schedules provided).

2) A review of Office Supplies on hand as at 30 June 2017 indicated the balance should be $2,150 while Workshop Supplies should be $3,685.

3) Prepaid Rent for the workshop should be $4,000.

4) Gas and electricity expenses of $3800 related to the Workshop require accruing.

5) Prepaid Rent for the Office should be $2,000.

6) Income tax (30%) accrual for the financial year ended 30 June 2017 requires adjusting.

7) The Provision for Employee Entitlements needs to be updated for 2017. (refer to schedules provided)

8) Allowance for doubtful debts is estimated to be 5% of current accounts receivable. The allowance for 2017 requires adjusting.

9) The long term investment of $650,000 has continued to be invested at 3% per annum.  Interest is received annually on the 15th of July each year and is deposited directly into the bank account. Annual interest needs to be accrued as at 30 June 2017. 

10) The company director declared a 10% dividend to all shareholders. All dividends are paid by 31 August in the relevant financial year. This adjustment is still required as at 30 June 2017.

Attachment:- Assignment Files.rar