Reference no: EM133631448

Advanced Financial Accounting

Task

You must prepare a Statement of Advice (SoA) that addresses all the questions raised in the letter on the following three pages of this document.

Assessment Description

Assume that you are a team of graduate accountants working for APMG Pty Ltd, an independent consulting & accounting firm located at 100 Bourke Street, Melbourne, VIC 3000. Among other things, your firm provides its clients with advice regarding accounting issues, including applying the Australian Accounting Standards in preparing Financial Reports. You must prepare a Statement of Advice (SoA) for Australia Ltd to address several accounting issues raised by Ms. Cathy Taylor on behalf of the company's directors. Ms. Taylor has raised these issues in a letter in the following three pages.

The maximum length for the SoA is 2,000 words (+/- 10%). You should address all the technical issues in your advice, followed by a Reference List. Marks will be awarded based on two components:

Letter received from Ms. Cathy Taylor (Australia Ltd)

Ms. Cathy Taylor On behalf of the Directors of Australia Limited 77 Pearl Avenue, Bell Park, VIC 3220

1 July 2024

The Manager
APMG Pty Ltd, Accounting firm
100 Bourke Street, Melbourne, VIC 3000 Dear Sir/Madam
I am writing to seek your advice regarding numerous accounting issues for the year ended 30 June 2023 and 30 June 2024. As you know, most of our directors have limited accounting knowledge and are a bit confused with the accounting treatment for several items that our junior accountant has proposed. Our senior accountant is on sick leave, and we are unsure when she will be back. The directors want to ensure that the junior accountant's proposal is in line with the requirements of the Australian Accounting Standards. They would also like to understand the reasoning behind the appropriate accounting treatments. The items of concern are as follows:

Item 1

Australia Ltd has been involved in a project to develop an engine that runs hydrogen fuel cell electric vehicles. It started the project in March 2023. Between the starting date and 30 June 2023, the end of the reporting period for the company, Australia Ltd spent $900,000 on the project. At 30 June 2023, there was no indication that the project would be commercially feasible, although the company had made significant progress and was sufficiently sure of future success that it was prepared to outlay more funds on the project.

After spending a further $350,000 during September and November, the company had built a prototype that appeared to be successful. The prototype was demonstrated to a number of engineering companies in December, and several of these companies expressed interest in the further development of the engine. Convinced that it now had a product that it would be able to sell, Australia Ltd spent a further $200,000 during January adjusting for the problems that the engineering firms had pointed out. On 15 February, Australia Ltd applied for a patent on the engine, incurring legal and administrative costs of $105,000. The patent had an expected useful life of 5 years but was renewable for a further 3 years upon application.

Between February and March 2024, Australia Ltd spent an additional amount of $320, 000 on engineering and consulting costs to develop the project such that the engine was at manufacturing stage. This resulted in changes in the overall design of the engine, and costs of $15,000 were incurred to add minor changes to the patent authority.

On 1 June 2024, Australia Ltd invited tenders for the manufacture of the engine for commercial sale.

Discuss how Australia Ltd should account for these costs. Provide journal entries with an explanation of why these are the appropriate entries.

Item 2
Australia Ltd's directors decided on 1 April 2024 to restructure the company's operations as follows.
Plant Alpha would be closed down and put on the market for sale.
1000 employees working in Plant Alpha would be retrenched on 30 June 2024, and would be paid their accumulated entitlements plus 3 months wages.
The remaining 500 employees working in Plant Alpha would be transferred to Plant Beta, which would continue operating.
Five head-office staff would be retrenched on 15 May 2024, and would be paid their accumulated entitlements plus 3 months wages.

As at the end of Australia Ltd's reporting period, 30 June 2024, the following transactions and events had occurred.
Plant Alpha was shut down on 1 June 2024. An offer of $100 million had been received for Plant Alpha and there is a binding sales agreement.
The 200 retrenched employees had left and their accumulated entitlements had been paid. However, an amount of $5 million, representing a portion of the 3 months wages for the retrenched employees, had still not been paid.
Costs of $1 million were expected to be incurred in transferring the 500 employees to their new work in Plant Beta. The transfer is planned for 1 July 2024.
10 of the 11 head-office staff who have been retrenched have had their accumulated entitlements paid, including the 3 months wages. However, one employee, Nokomoto, remains in order to complete administrative tasks relating to the closure of Plant Alpha and the transfer of staff to Plant Beta.
Nokomoto is expected to stay until 31 July 2024. His salary for July will be $15,000 and his retrenchment package will be $45,000, all of which will be paid on the day he leaves. He estimates that he would spend 40% of his time administering the closure of Plant Alpha, 40% on administering the transfer of staff to Plant Beta, and the remaining 20% on general administration.

Please explain and calculate the restructuring provisions to be recognised as at 30 June 2024.

Item 3

2023
Jan 1 A prospectus was issued inviting applications for 200,000 ordinary shares at an issue price of $10, with $6 payable on application, $2 Payable on the allotment and the balance payable on future call as determined by the directors.
Jan 31 Applications closed with the ordinary share issue oversubscribed by 50,000.
Feb 1 All shares were allotted on a pro-rata basis, and application money was refunded to unsuccessful applicants.
Feb 15 Share issue costs of $15000 were paid. All outstanding Allotment money was received.
May 25 The final call was made with money received by 10th June.
June 10 The call money was received from holders of 180,000 ordinary shares.

June 15 The shares on which call money was not received were forfeited.
June 25 The forfeited shares were placed with a financial institution and paid to $10 on a payment of $8.60. The cash was received from the financial institution, and any balance in the forfeited shares account was returned to the former shareholders. Reissue costs amounted to $5,000.

It would be great if you could provide journal entries of the share issue process as examples in your explanations.

Additional Requirements

You must include the following in your Statement of Advice (SoA):
Cover Page should include:
name/logo of your accounting and consulting firm
The words "Statement of Advice"
Who the document is prepared by
Who the document is prepared for
Date
Brief information on what the document is about
Table of Contents
Recommendations and explanations - include in-text referencing
Conclusion
Reference list