BigGuard Winter Gear Ltd (BWG) is a company listed on the ASX. On 19 May 2024, Jamie, the Chief Accountant of BWG, left the company abruptly due to sickness. In June, you were appointed to take over Jamie's position. BWG specialises in selling high-quality winter gear, including jackets, gloves, hats, and boots. Currently, their products are sold directly to customers through retail stores in Sydney and Melbourne and, to several retailers who buy items in bulk and resell them at stores in regional cities. Michael, the Assistant Accountant, is assisting you to prepare the financial statements for the year ended 30 June 2024. For this purpose, Michael has provided you with the trial balance below. The directors have asked you to finalise the financial statements by 31 August 2024 as they are to be authorised by the directors at their meeting scheduled on 6 September 2024.

BigGuard Winter Gear Ltd
Trial balance as at 30 June 2024
		DR ($)	CR ($)
Sales revenue			1,500,750
Dividend income			22,500
Cost of goods sold		432,970
Advertising expense		63,909
Salaries and wages		135,320
Prepayments		4,625
Doubtful debts expense		3,850

Charles Sturt University Subject Outline ACC294 202460 A D Version 1 - Published 24 June 2024 Charles Sturt University - TEQSA Provider Identification: PRV12018 (Australian University). CRICOS Provider: 00005F

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Depreciation & amorisation expense		195,000
Interest expense		15,675
Other expenses		17,220
Warranty expense		38,641
Income tax expense		86,410
Cash at bank		41,000
Trade debtors		85,160
Trademark		150,000
Brand		100,000
Goodwill		80,000
Accumulated amortisation - goodwill			8,000
Inventory		56,788
Investment in shares		368,000
Retail store buildings		850,000
Accumulated depreciation - retail store buildings			127,500
Furniture and fittings		300,000
Accumulated depreciation - furniture and fittings			60,000
Office and POS equipment		589,000
Accumulated depreciation - office and POS equipment			124,820
Deferred tax asset		13,000
Bank loan			340,000
Trade creditors			71,200
Deferred tax liability			8,000
Allowance for doubtful debts			12,774
Provision for warranty			8,000
Accrued expenses			32,000
Current tax liability			102,340

Charles Sturt University Subject Outline ACC294 202460 A D Version 1 - Published 24 June 2024 Charles Sturt University - TEQSA Provider Identification: PRV12018 (Australian University). CRICOS Provider: 00005F

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Retained earnings, 1 July 2023			328,684
Dividends paid		120,000
Share capital			1,000,000
		3,746,568	3,746,568

Answer ALL questions below independently.

Question 1 [10 marks]

Accounting policies, changes in accounting estimates and errors

This question is relevant to these items given in the trial balance: Warranty expense $38,641 and provision for warranty $8,000.

The directors of BWG are concerned over the rising warranty expense, which is largely related to one of the high-quality winter clothing brands named "The South Face" which was added to its product line from 1 January 2023. Currently, BWG provides warranty based on 50% of its prior year's warranty claims. You are asked to review this policy.

Wherever relevant and possible, you should answer the following questions by making specific references to AASB108.

Required:

Suggest and justify, another basis on how the provision for warranty can be determined. (3 marks)

Assume that your suggestion above is accepted by the directors, and it is to be applied from 1 July 2023. Discuss if the introduction of this new basis of provision for warranty results in a change in accounting policy, accounting estimates or an error. (3 marks)

Following the above, what is the accounting implication for the preparation of financial statements for the year ended 30 June 2024?

Question 2 [10 marks]

Events after the reporting period

This question is relevant to these items given in the trial balance: Trade debtors $85,160 and allowance for doubtful debts $12,774.

Included in the trade debtors above is a debt of $46,500 owed by one of its major retail clients, Super Stores (SS), with shops located in Albury and Shepparton. BWG provides 15% on all its debt balances as doubtful debts. On 15 July 2024, you are notified that SS has closed its stores and declared bankrupt. On 25 July 2024, you have been advised by the liquidator that for

every $1 of SS's debt, you will be able to recover $0.20. The liquidator paid BWG on SS's debt on 9 August 2024.

Wherever relevant and possible, you should answer the following questions by making specific references to AASB110.

Required:

Explain the accounting implication of SS's bankruptcy on the financial statements of BWG for the year ended 30 June 2024. (2 marks)

What is the appropriate accounting treatment of SS's bankruptcy in BWG's 2024 financial statements following AASB110? (5 marks)

Following the above, prepare journal entries in relation to the accounting treatment required. (3 marks)

Question 3 [15 marks]

Impairment of assets

This question is relevant to these items given in the trial balance: Office and POS equipment $589,000 and accumulated depreciation - office and POS equipment $124,820.

Due to some evidence of obsolescence and physical damage, the office and POS equipment of BWG are subject to impairment review on 30 June 2024. Michael was not sure how to conduct impairment reviews and has not accounted for any impairment in the trial balance provided. The following information is provided by Michael to assist you to perform the impairment review:

All figures stated on 30 June 2024:	Extracted from asset register	Results of investigation work by Michael upon your requests
Cost	Accumulated depreciation	Value in use	Fair value	Cost of disposal
	$	$	$	$	$
Computers, printers & laptops	125,000	37,500	175,000	186,000	35,000
Photocopiers	96,000	16,500	72,000	85,000	10,000
Telephone & network equipment	148,000	26,820	113,250	118,370	3,700
POS equipment	220,000	44,000	165,000	175,000	16,500

589,000 124,820

BWG adopts cost model for all its office and POS equipment and applies straight-line method to account for their depreciation.

All POS equipment were acquired on 1 July 2022 with an estimated useful life of 10 years, with no residual value. On 1 July 2024, after the impairment review, the remaining useful life of that those equipment are revised from 8 to 6 years.

Wherever relevant and possible, you should answer the following questions by making specific references to AASB136.

Required:

Determine whether any impairment loss occurred for all these assets given above as at 30 June 2024. (8 marks)

What is the depreciation for the POS equipment for the year ended 30 June 2025? (1 mark)

Due to increased efficiency, it has been determined that the recoverable amount of the POS equipment is determined at $158,000 on 1 July 2025. The directors have asked you to reverse any impairment loss recognised for the asset on 30 June 2024. (6 marks)

Determine the amount of reversal of impairment loss for POS equipment, if any, as permissible in accordance with AASB 136.

What is the revised carrying amount to be recorded for the asset after this reversal on 1 July 2025?

Question 4 [10 marks]

Intangible assets

This question is relevant to these items given in the trial balance: Trademark $150,000, brand $100,000, goodwill $80,000, and accumulated amortisation of goodwill $8,000.

The following table provides some details on the intangible assets of BWG provided in the trial balance as at 30 June 2024.

	Trademark	Brand	Goodwill
	$	$	$
Value as determined by directors on 30 June 2024	-	-	80,000
Cost	150,000	100,000

Less: Accumulated amortisation up to 30 June 2024	Not yet determined	-	(8,000)
Carrying amount	150,000	100,000	72,000

Trademark On 1 January 2023, BWG purchased the trademark from Snow Gear Ltd, a winter clothing manufacturer. The trademark would enable BWG to hold exclusive retail rights for 5 years on all winter products under the brand of 'Bolani'. The trademark can be renewed indefinitely, subject to continued use. The cost was initially expensed on 1 January 2023, but recognised as intangible asset on 1 January 2024 after the brand 'Bolani' started to gain popularity among consumers.

Brand In July 2023, the directors of BWG decided to create an in-house brand 'Elegance' for winter hats and boots and to building an online presence with that brand. This cost represents expenses incurred to design a logo, crafting a brand message, exploring various online platforms and all administrative and transportation related costs in building that brand. The directors believed the brand will build strong presence in the long term and not to amortise the asset.

Goodwill The goodwill was accounted for on 1 July 2023, when BWG bought over a retail store in Lonsdale Street in the heart of Melbourne city. The directors have decided to amortise the goodwill for the 10 years on a straight-line basis. No impairment loss has identified so far.

Wherever relevant and possible, you should answer the following questions by making specific references to AASB138, or any other relevant accounting standards.

Required:

For each of the intangible asset item provided above, critically analyse if they have been accounted for appropriately in accordance with AASB138. Show any relevant journal entries, if any, to make adjustments to these assets recorded.