farisha
Oct 16, 2010, 07:01 PM
Makers International Pty Ltd, the Australian subsidiary of the UK parent company Emirate Group Corporation (UK) Limited', is a manufacturing company with operations in all states and its head office in Sydney. The major manufacturing plant at Smithfield, New South Wales accounted for 60% of the company's sales during the year ended 31 March 1998, with the remaining sales spread evenly across the other states.
Makers International had turnover of $60 million and made a pre-tax profit of $2.4 million for the year. After adjusting for permanent and timing differences the company had a tax liability for the year of $1.1 million. No major audit problems were encountered by the auditors in completing the Group Reporting Package for the UK which was sent on 17 April 1998. However, by the time the auditors returned to prepare the Australian statutory accounts the following events had occurred:
a) A flood occurred in the stores of the Perth manufacturing unit on 24 April 1998 causing substantial damage to inventory valued at approximately $100,000. The directors believe that the inventory is not fully covered by insurance.
b) On 30 April 1998 the company made an out of court settlement for $2 million in relation to a litigation case, dating back to 1996, for damages and loss of profits arising from the malfunction of some electronics equipment supplied. There was an accrual of $1.5 million in the 31 March 1998 accounts.
c) On 1 May 1998 the company entered into an agreement to acquire the assets of the business LD Towns Pty Ltd effective from that date, for a consideration if $14.7 million.
d) Legislation was passed by the federal government on 13 May 1998 which changed the company's income tax rate from 39% to 35%. This change is to be retroactively applied to financial years ended on or after 31 March 1998.
e) At a board meeting on 14 May 1998 the directors decided to shut down their manufacturing plant in Darwin. This decision arose because during the year ended 31 March 1998, while it had represented 4% of the company's turnover, it had made a loss of $300,000 for the year.
f) A major customer owed $750, 000 at 31 March 1998. A specific provision was made for 50% of this amount. On 1 May 1998 this customer was placed in liquidation and on very preliminary information the likely repayment to unsecured creditors is Zero.
Required
As the senior on the audit you have been made responsible for determining whether any of the above events require changes (from the UK Package) to be made to the year end Australian Statutory accounts, or notes to those accounts. Give reasons for each decision.
Makers International had turnover of $60 million and made a pre-tax profit of $2.4 million for the year. After adjusting for permanent and timing differences the company had a tax liability for the year of $1.1 million. No major audit problems were encountered by the auditors in completing the Group Reporting Package for the UK which was sent on 17 April 1998. However, by the time the auditors returned to prepare the Australian statutory accounts the following events had occurred:
a) A flood occurred in the stores of the Perth manufacturing unit on 24 April 1998 causing substantial damage to inventory valued at approximately $100,000. The directors believe that the inventory is not fully covered by insurance.
b) On 30 April 1998 the company made an out of court settlement for $2 million in relation to a litigation case, dating back to 1996, for damages and loss of profits arising from the malfunction of some electronics equipment supplied. There was an accrual of $1.5 million in the 31 March 1998 accounts.
c) On 1 May 1998 the company entered into an agreement to acquire the assets of the business LD Towns Pty Ltd effective from that date, for a consideration if $14.7 million.
d) Legislation was passed by the federal government on 13 May 1998 which changed the company's income tax rate from 39% to 35%. This change is to be retroactively applied to financial years ended on or after 31 March 1998.
e) At a board meeting on 14 May 1998 the directors decided to shut down their manufacturing plant in Darwin. This decision arose because during the year ended 31 March 1998, while it had represented 4% of the company's turnover, it had made a loss of $300,000 for the year.
f) A major customer owed $750, 000 at 31 March 1998. A specific provision was made for 50% of this amount. On 1 May 1998 this customer was placed in liquidation and on very preliminary information the likely repayment to unsecured creditors is Zero.
Required
As the senior on the audit you have been made responsible for determining whether any of the above events require changes (from the UK Package) to be made to the year end Australian Statutory accounts, or notes to those accounts. Give reasons for each decision.