Reference no: EM132578303

UG037 Financial Accounting - College of Banking And Financial Studies

Case Scenario

Abudul Salah Hospitality (ASH) LLC is well established hotel network in the sultanate. With spectacular views of the majestic Hajar mountains and just steps away from the Arabian Sea, ASH Muscat embodies the richness of Omani warmth and culture within authentic Arabian architecture. Make the most of five-star facilities including modern meeting rooms, a spectacular wedding hall for destination weddings, as well as local and international restaurants and bars, all while taking in the convivial ambience from the moment guest enter the lobby.
Assume that you have been appointed as the Financial Accountant of ASH Muscat and it is considering a process of financial-policy streamlining in the internal operations for the year ended 31st December 2019. Following accounting policies are being reviewed.
1. Depreciation of hotel buildings
2. Sale of Hotel furniture and room amenities
3. Purchases of kitchen supplies
Details of policy reviews and requirements are as follows:
1. Depreciation of hotel buildings
ASH Muscat is perfect for both business and leisure pursuits. For a weekend in Muscat or staying longer, it is one of the largest and most opulent luxury hotels Muscat has to offer, with 280 stylishly appointed hotel rooms & suites, with a remarkable Arabian style interior design.
As of 1st January 2019, the company has been accumulated a depreciation of OMR 12 500 for all buildings and the following details are available for your reference.

*Estimated total number of days for the entire economic lifetime is 1500 days.
**Previously accumulated depreciation of North-wing is OMR 12000 as at 1st January 2019.
***Remaining lifetime of South-wing is 4 years.
NB: ‘Selection is from your own choice' for Deprecation rate, Economic lifetime and Activity level wherever applicable.

Question 1
a) Explain the factors of depreciation for hotel buildings and justify each of these factors with case referred examples.
b) Calculate the annual depreciation for each of the building separately and justify the reasons for the given depreciation method.
c) Prepare ‘provision for depreciation account' for the year ended 31st December 2019.

2. Sale of Hotel furniture and room amenities

ASH Muscat features stunning luxury suites with views of the ocean, mountain, garden or city from a spacious balcony. Exclusive amenities include living area with sofa, king bedroom, generous work area, complimentary high-speed Internet access, and marble bath with tub and walk-in shower. Master suite features four-poster king bed with choice of king or twin beds in additional room.

Sofa and king sizes beds are being imported from Thailand and incurred costs of import duties, Luxury tax, carriage cost other than the buying price of furniture. A maintenance contract for this furniture was signed with an Omani company for OMR 4000 per year and further repainting cost of OMR 5000 will incur annually.

ASH Muscat on 1 January 2015, purchased new hotel furniture and room amenities at a cost of OMR 200000.

For the purpose of accounting for depreciation, the company has decided the following:

i. The room amenities part was OMR 50000 and this would not be depreciated.

ii. The room furniture part was the remaining OMR 150000. This would be depreciated by the straight-line method to a nil residual value over 20 years.

After five years of trading, on 1 January 2020 ASH Muscat decides that the company hotel furniture and room amenities are now worth OMR 300000, divided into: hotel furniture OMR 150000 and room amenities OMR 150000. The company estimates that the hotel furniture still has a further 20 years of useful life remaining.

ASH Muscat is planning to sell a part of hotel furniture for OMR 3000 on 1st January 2021. The costs of hotel furniture were OMR 15000 and depreciated 5 years out of 20 years.

Question 2

a) Differentiate capital expenditures from revenue expenditures and give case related examples from the above discussion.

b) Calculate the annual charge for depreciation for the first five years of the hotel furniture's life and prepare extracts of statement of financial position of hotel furniture and room amenities as at the end of each of the first five years.

c) Demonstrate the impact the revaluation will have on the depreciation charge and the statement of financial position value of the hotel furniture and room amenities.

d) What was the profit or loss on planned disposal assuming that the ASH Muscat uses the straight line method for depreciation? Prepare ‘hotel furniture disposal account' for the year 2021.

3. Purchases of kitchen supplies

At ASH Muscat, fine dining is a calling. From restaurants, Catering and Room Service offering abundance of choices for guests. Live cooking, wood fired oven and show stations are just the way we do it. ASH Muscat has the best Italian restaurant in Muscat with excellent seasonal menus. Finest and freshest products are available with the essence of authentic Italian cooking. ASH Muscat's award-winning food theatre serves international fare and also specializes in Arabic cuisine. A relaxed setting overlooking the hotels garden offers both buffet and a la carte menu options presented by a team of culinary experts. Guests can select from a range of salads, soups and starters on the buffet, and then take a pick from an a la carte menu featuring a selection of sumptuous steaks, specialty game meats and freshly caught seafood.
ASH customers are fully satisfied with the company kitchen operations, hence no disruptions for meal services. Kitchen equipment are highly modernized and annual maintenance are in place. Only the competent kitchen staff will be employed to safeguard the equipment. Purchases of kitchen supplies are well recorded and keeping at the custody of "Head of Kitchen Operation'. Usage of kitchen supplies will measure accurately to record correct operational costs. At the end of very serving session, cost records of kitchen operations will file at finance department as a company policy.

Question 3

a) Define the term "Internal Control" and identify the control environment and control procedures at ASH Muscat.

b) Explain the objectives of internal controls and discuss how could ASH Muscat will enhance the operations by having strong internal controls.

c) Identify and explain the following types of internal controls at ASH Muscat.
1. Preventive controls
2. Detective controls
3. Mandatory controls
4. Application controls
d) Suggest and explain THREE control procedures for ASH Muscat for Internal controls.

Attachment:- Financial Accounting.rar