CASE STUDY OF BRITTLE LTD Brittle Ltd is a reporting entity which operates in the mining industry in Australia. The firm has been in operation for the past five (5) and has recently gotten listed on the Australian Stock Exchange (ASX). The firm had revamped its corporate governance structure to ensure compliance with the recommendations of ASX. The firm's financial performance has been improving steadily until the Covid-19 pandemic. Due to a high Covid-19 infection rate among the employees of the firm, the operating capacity of the firm reduced to 50%, which resulted in a significant decline in the sales revenue of the firm for the reporting years, 2020 and 2021. While an operating loss of $550 000 was made in 2020, an operating profit of $120 000 was generated in 2021. Currently, management is unsure of the future profitability of the firm's operation but remains hopeful of a better performance if the pandemic is managed effectively. Required: With reference to the case of Brittle Ltd, provide appropriate responses to the following questions: a) With regards to the provisions of AASB 112, present a critical analysis with justifications of at least three points of how Brittle Ltd is expected to account for the loss made in 2020 assuming Brittle Ltd is not likely to generate profit in 2022 and 2023 respectively. b) Provide an appropriate journal entry to account for the response provided in (a) if any c) How would your response in (a) change if it is assumed that Brittle Ltd is likely to generate profit in 2022 and 2023 respectively. Assume an applicable tax rate of 30% for Brittle Ltd. 1 CASE STUDY OF BRITTLE LTD Brittle Ltd is a reporting entity which operates in the mining industry in Australia. The firm has been in operation for the past five (5) and has recently gotten listed on the Australian Stock Exchange (ASX). The firm had revamped its corporate governance structure to ensure compliance with the recommendations of ASX. The firm's financial performance has been improving steadily until the Covid-19 pandemic. Due to a high Covid-19 infection rate among the employees of the firm, the operating capacity of the firm reduced to 50%, which resulted in a significant decline in the sales revenue of the firm for the reporting years, 2020 and 2021. While an operating loss of $550 000 was made in 2020, an operating profit of $120 000 was generated in 2021. Currently, management is unsure of the future profitability of the firm's operation but remains hopeful of a better performance if the pandemic is managed effectively. Required: With reference to the case of Brittle Ltd, provide appropriate responses to the following questions: a) With regards to the provisions of AASB 112, present a critical analysis with justifications of at least three points of how Brittle Ltd is expected to account for the loss made in 2020 assuming Brittle Ltd is not likely to generate profit in 2022 and 2023 respectively. b) Provide an appropriate journal entry to account for the response provided in (a) if any c) How would your response in (a) change if it is assumed that Brittle Ltd is likely to generate profit in 2022 and 2023 respectively. Assume an applicable tax rate of 30% for Brittle Ltd. 1
