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Prepare the two journals to record the allocation of profit

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Reference no: EM13495544

Question 1:

CASE STUDY: LOGITECH LIMITED

To: Tom Jones ([email protected])

From: Peter Keens ([email protected])

Re: Accounting Issues: Year Ending 30 June 2014

Sent: Friday, 25th July 2014

Dear Tom

We currently have two accounting issues. Could you please provide us with some accounting advice for each issue. Please reference any relevant Australian Accounting Standards (AASB) in your letter, so we can show our external auditors at year end.

1. A customer has lodged a law suit against our company. We sold the customer a hard drive which was faulty and it has caused a huge loss of data for their business. The court decision to award damages to the customer was held on 26th June 2014; however the amount of the damages will not be decided until 30th September 2014. Our lawyer has advised the damages will be between $50,000 and $1 million.

Please advise what steps we should take, in order to record this event in our financial statements for the year ended 30th June 2014.

2. Our sales team sells iPads and offers an interest-free period of 12 months to certain customers. These customers received the benefit of having their payment deferred for 12 months. The total amount owing by these customers is $10,000 and we use 7% as our discount rate in all financial transactions. Please advise what the correct accounting treatment would be to record these transactions.

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

P Keens

Peter Keens

Managing Director, Logitech Ltd
Level 1, 250 Hutt Street
Adelaide SA 5000

Question 2

John and Paul are in partnership and profits are shared 60:40 respectively. On 1 July 2013 the equity accounts were as follows:

John received a salary of $50,000 and Paul received a salary of $75,000. Each partner was entitled to 10% interest on their capital balances. The profit for the year was $850,000 before providing for salaries and interest on capital balances.

1. Use a table to calculate the profit distribution for each partner.

2. Prepare the two journals to record the allocation of profit as at 30th June 2014, using Method 2.

3. Prepare the Retained Earnings account for John as at 30th June 2014.

Question 3 - Accounting for Income Tax

Explain how the following items are treated differently for accounting and tax purposes:

a. Depreciation of non-current assets
b. Long-service leave payable
c. Allowance for doubtful debts
d. Prepaid insurance
e. Fines and penalties

Reference no: EM13495544

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