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TDM Limited Company

 

Question 1: (Approximately 400 words)

 

TDM Ltd is a manufacturing business at Mudjimba on the Sunshine Coast. You are the accountant for the company and the following items/issues relate to the financial year ending 30th June, 2016:

 

  1. Photographs of the company’s founders and original buildings, which are of great sentimental and historical value only.
  2. TDM Ltd is being sued for negligence by Zero Ltd and the legal advice is that it is likely the company will lose the case in court.
  3. TDM Ltd is being sued for negligence by Badger Ltd and the legal advice is that it is likely the company will win the case in court.
  4. Obsolete plant and equipment is now (as at 30 June 2016) retired from use by the company.
  5. TDM Ltd has received a donation of $20,000.

 

Question 2: (Approximately 600 words)

 

On 1st July, 2016, SC Airlines Ltd acquired a new aeroplane for a total cost of $10 million dollars. The following breakdown of the costs to build the aeroplane was given by the manufacturers.

 

Aircraft body $3,000,000
Engines (2) $4,000,000
Fitting out of aircraft:
       Seats $1,000,000
       Carpets $ 50,000
Electrical equipment:
       Passenger seats $ 200,000
       Cockpit $1,500,000
Food preparation equipment $ 250,000

 

All costs include installation and labour costs associated with the relevant part.

It is expected that the aircraft will be kept for 10 years and then sold. The main value of the aircraft at that stage will be the body and the engines. The expected selling price is $2.1 million, with the body and engines retaining the existing proportionate value.

Costs in relation to the aircraft over the next 10 years are expected to be as follows:

  • Aircraft body: This requires an inspection every 2 years for cracks and wear and tear, at a cost of $10,000.
  • Engines: Each engine has an expected life of 4 years before being sold for scrap. It is expected that the engines will be replaced in 2020 for $4.5 million and again in 2024 for $6 million. These engines are expected to incur annual maintenance costs of $300,000. The manufacturer has informed SC Airlines that a new prototype engine with an extra 10% capacity should be on the market in 2022, and that existing engines could be upgraded at a cost of $1 million.
  • Fittings: Seats are replaced every 3 years. Expected replacement costs are $1.2 million in 2019 and $1.5 million in 2025. The repair of torn seats and faulty mechanisms is expected to cost $100,000 per annum. Carpets are replaced every 5 years. They will be replaced in 2022 at an expected cost of $65,000, but will not be replaced again before the aircraft is sold in 2026. Cleaning costs amount to $10,000 per annum. The electrical equipment (such as the TV) for each seat has an annual repair cost of $15,000. It is expected that, with the improvements in technology, the equipment will be totally replaced in 2022 by substantially better equipment at a cost of $350,000. The electrical equipment in the cockpit is tested frequently at an expected annual cost of $250,000. Major upgrades to the equipment are expected every 2 years at expected costs of $250,000 (in 2015), $300,000 (in 2017), $345,000 (in 2019), and $410,000 (in 2024). The upgrades will take into effect the expected changes in technology.
  • Food preparation equipment: This incurs annual costs for repair and maintenance of $20,000. The equipment is expected to be totally replaced in 2022.

 

 

 Question 3: (Approximately 200 words)

 

 

In the discussion by Upton (2001, 71) regarding the lives of intangible assets it is noted that the formula for Coca-Cola has grown more valuable over time, not less, and that Sir David Tweedie, former chairman of the IASB, jokes that the brand name of his favourite Scotch whisky is older than the United States of America — and, in Sir David’s view, the formula for Scotch whisky has contributed more to the sum of human happiness.

 

Required:

Outline the accounting treatment for brands under AASB 138/IAS 38, and discuss the difficulties for standard setters in allowing the recognition of all brands and formulas on statements of financial position.

Question 4: (Approximately 300 words)

 

Provisions are recognised as a liability in the statement of financial position whereas contingent liabilities are not recognised in the financial statements but disclosed in the notes to financial statements. Paragraph 12 of AASB 137/IAS 37 Provisions, Contingent Liabilities and Contingent Assets states that ‘in a general sense, all provisions are contingent because they are uncertain in timing or amount’.

 

                                                     SAMPLE SOLUTION

Accounting is a systematic way of managing a company’s belongings through proper records known as book keeping (Neel, 2017). For the financial statements to reflect the true and fair value for an organization, it is prudent that all items be accounted. In the case of TDM Company, the items below will be accounted for as follows;

Photographs and Original Buildings

The above items are non-current assets for the company since the company will be in possession of them for a period which is more than one year. According Anton (2016), International Financial Reporting Standards law 9 requires that all assets be recognized in the statement of financial position. However, these items are not used in revenue generation hence they will be categorized as other non-current assets and not as part of Plant Properties and Equipment. Before recognizing in the annual financial reports, valuation for them has to be done.

 

 

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