Reference no: EM131356

CASE STUDY: Pacific Ltd

Re: Accounting Issues: Year Ending 30 June 2014

From: Steven Evans ([email protected])

Sent: Monday, 8^th August 2013

To: Paul Jones ([email protected])

Dear Paul

Thank you for your phone call this morning, as discussed I am emailing below the accounting issues we briefly discussed.

To assist us in our decision making process could you please make sure you reference any relevant sources relating to your advice, for example AASBs, Corporations Act, and relevant websites.

1. Pacific Limited is seeking a large sum of money to invest in a couple of large projects and was considering issuing a prospectus offering shares to the public. Brad Condor, the finance director suggested we issue debentures instead. He says it is cheaper than issuing shares and that all costs of issuing debentures, unlike shares, would be expensed. Is this correct? Also, how is it cheaper than increasing share capital?

2. We have entered into a long term contract to construct and supply plant and machinery to our mining customers. This means that we often receive a confirmed order from a customer in one financial year but due to the time taken to construct the item, deliver it to the customer about 18 months later. At present we recognise the sale as revenue on delivery of the item although the cost of constructing the item for sale is expensed as and when it is incurred. Is this correct treatment for revenue? Are there any other matters we need to consider regarding revenue?

Please respond by letter (not email) as I would like to present this to the board. I look forward to hearing from you in the near future.

Regards

S Evans

Steven Evans

Managing Director, Pacific Ltd

Level 6, 510 King William Street

Adelaide SA 5000

Question 2

The following is a balance sheet for Happy Feet Ltd as at 30 June 2013. On that date the company went into voluntary liquidation.

Balance Sheet as at 30^th June 2013

Current  Assets	$	$
Cash at bank	14,500
Receivables	16,000
Inventory	14,500	45,000
Non-Current Assets
Plant and Equipment	164,000
Less: Accumulated Depreciation	135,000
	29,000
Land	86,000	115,000
Total Assets		160,000
Current Liabilities
Accounts Payable		72,000
NET ASSETS		88,000
Equity
Share capital
95,000 Shares issued at $1 and called to $0.50	47,500
Less: Calls in arrears (5 000 shares at $0.25 each)	1,250	46,250
Reserves		22,000
Retained Profits		19,750
EQUITY		88,000

 Additional Information:

1. All assets were sold and realized cash of $215,500 and calls in arrears were collected/

2. The cost of liquidation was $3,235 and this was paid in cash to the liquidator.

3. Accounts Payables allowed us a discount of $3,200 and the outstanding debts were paid.

4. The electricity bill/invoice for June 2013 amounted to $675. This was received on 3 July 2013 and was paid by the company. It had not been recorded in the accounts previously.

Required:

Using the information above, prepare the attached general ledger T-accounts: Happy Feet Limited - General Ledger

Question 3

Refer to the prescribed text book Company Accounting 9^th Edition 2012 (CA)Leo K., Hoggett J., and Sweeting J:666-667.

Prepare the statement of financial position and Notes to the accounts at 30^th June 2013 in accordance with the requirements of AASB101. You are not required to prepare the Statement of changes in equity.