Letter received from Ms$.$ Kathy King $($High Ltd$)$Ms$.$ Kathy KingOn behalf of the Directors of High Limited$8$ Goulbourne St$,$ Sydney NSW $200027$ May $2024$The ManagerKaplan Pty Ltd$,$ Accounting firm$63$ Elizabeth Street, Sydney, NSW $2000$Dear Sir$/$MadamI am writing to seek your advice regarding numerous accounting issues for the year ended $30$June $2024.$ Our senior accountant is on indefinite sick leave and we require your services. I haveincluded following items that we require for your completion. All work must comply with theAustralian Accounting Standards and please also provide a detailed explanation of the rationalebehind the appropriate accounting treatments.The items of concern are as follows:Item $1$The following information is financial statements of High Ltd for the year ended $30$ June $2024.$Income statement of High Ltd for the year ended $30$ June $2024$$$\text{'}000$ $$\text{'}000$Sales $927$Interest revenue $11$Dividend revenue $5$Total Income $943$Less ExpensesCost of Sales $320$Other expenses $($paid$)15$Bad debts expenses $7$Wages expense $266$Interest expense $14$Depreciation $-$ plant $95$Loss of sale of plant $10(727)$Profit before income tax $216$Less income tax expenses $(74)$Profit for the year $142$Kaplan Business School Assessment $3$ Case StudyStatement of financial position of High Ltd as at $30$ June $2023$ and $202420232024$Current assets $$\text{'}000$ $$\text{'}000$Deposits at call $131277$Trade receivable $221253$Less allowance for bad debts $(11)(8)$Interest receivable $2015$Inventories $285335$Non$-$current assetsLoan receivable $4040$Plant at cost $17602115$Less accumulated depreciation $(230)(295)$Current liabilitiesTrade payables $90100$Accruals $2030$Tax payables $4574$Bank overdraft $8065$Non$-$current liabilitiesConvertible notes $300$Shareholders equityIssued capital $15562256$Retained earnings $125207$Other information$1)$ For the purposes of the statement of cash flows, High Ltd defines cash and cash equivalents asincluding cash on hand and at bank and short$-$term deposits at call, net of outstanding bankoverdrafts$\mathrm{.}2)$ During the reporting period, High Ltd made two issues of ordinary shares as follows: the convertible notes outstanding at $30$ June $2024$ were converted to $150000$ ordinaryshares issued at a conversion price of $$2\mathrm{.}00$ per share; and $200000$ shares were issued at $$2\mathrm{.}00$ per share for cash$\mathrm{.}3)$ During the year ended $30$ June $2024,$ plant and equipment costing $$60000$ and having a bookvalue of $$30000$ was sold and made a loss of $$10000\mathrm{.}4)$ The opening and closing balances of the accruals accounts $($under current liabilities$)$ wereattributable to wages and salaries and interest payable as follows:Kaplan Business School Assessment $3$ Case StudyWages and Salaries InterestOpening at $1/7/2023$ $$5,000$ $$15,000$Closing at $30/6/2024$ $$10,000$ $$20,0005)$ The company had access to bank overdraft facilities of up to a maximum of $$100000.$ Thebank overdrafts were payable on demand and were subject to annual review$\mathrm{.}6)$ The accounting policy of High Ltd was to disclose interest received and dividends received asinvesting activities.Please prepare a statement of cash flows for High Ltd using the direct method. Additionally,include the note sections for cash and cash equivalents and provide a reconciliation of profit forthe period to net cash flows from operating activities.Item $2$Please provide some recommendation on the following issues with appropriate accountingtreatments as per the Australian Accounting Standard$\mathrm{.}1)$ As at the beginning of the current financial year $2024,$ High Ltd has two provision accounts:$($a$)$ Provision for lawsuit claims $$14$m$,$ and$($b$)$ Provision for warranty $$29$m$.$During the year ended $30$ June $2024,$ the lawsuit claims were settled at $$16$m and warrantycosts of $$32$m were paid. We would like to increase the warranty provision to $$39$m at yearend in tandem with the increase in products sold during the year.Please provide journal entries $($if any$)$ that we should make for $30$ June $2024$ to prepare ourannual report. Please show all workings $($settlement of the lawsuit claims and increase ofwarranty provision$)\mathrm{.}2)$ High Ltd is the primary contractor responsible for constructing a power plant for Thai Lid. It hasbeen discovered that there are defects in the construction of the power plant. The estimatedcost to fix these defects is $$100$m$.$ It had previously recognised a provision for warranty of$$40$m on the project as part of project costs. However, High Ltd believes it can recover asubstantial part of the costs from the subcontractors who performed some of the constructionworks. Negotiations with these subcontractors are ongoing, and so far, only two subcontractorshave accepted liability. The amount of reimbursement that is considered virtually certain isestimated to be $$10$m$.$Kaplan Business School Assessment $3$ Case StudyCan you explain with journal entries how High Ltd shall account for the above estimates ofcosts and reimbursements? What would be criteria for recording such liabilities?$3)$ The ice cream factory located in Thailand has been incurring losses for the past $3$ years.Management is contemplating the option of either restructuring the plant or selling it to anexternal party. Management believes that losses will continue for another $2$ years at about$$30$m per year before the business operation could turnaround. At year end, neither therestructuring plan nor the plan to sell was finalised. The carrying amount of the net assets ofthe plant at year end was $$400$m$.$ Based on its current condition, the recoverable amount of theplant was estimated at $$350$m$.$Can you explain the accounting treatment that shall be accorded to the above case, shall werecord provision liabilities?$4)$ On $18$ March $2024,$ the Board of Directors of the company decided to close down the chocolatemaking products plant. On $25$ May $2024,$ a detailed plan for closing down the plant was agreedby the Board; letters were sent to customers warning them to seek an alternative source ofsupply and redundancy notices were sent to the staff of the plant. The carrying amount of thenet assets of the plant is $$20$m$.$ The net proceeds from selling the individual assets and settlingthe liabilities is $$12$m$.$Other costs expected to be incurred are as follows. termination costs of $$2$m $($changes in management structure costs$),$ costs to sell a line of business $$3$m$,$ staff relocation costs $$1\mathrm{.}2$m$,$ staff retraining costs $$1\mathrm{.}4$m and expected additional operating costs for the first quarter of $2025$ financial year $$8$m$.$The closure of the plant is expected to be completed by $25$ August $2024.$ The company's year$-$end is $30$ June.Can you please explain, with reasons, whether the closure of the plant shall be recognised inthe financial statements of $2024.$ Also, state the amount of provision, if any, which shall berecognised in its financial statements.Kaplan Business School Assessment $3$ Case StudyI look forward to hearing from you shortly.Yours sincerely$,$Kathy KingManaging director,On behalf of the Directors of High Limited$8$ Goulbourne St$,$Sydney NSW $2000$Requirements of Statement of Advice$1)$ You must include the following in your Statement of Advice $($SoA$)$:a$)$ Cover Page should include:i$)$ name$/$logo of your accounting and consulting firmii$)$ The words "Statement of Advice"iii$)$ Who the document is prepared byiv$)$ Who the document is prepared forv$)$ Datevi$)$ Brief information on what the document is aboutb$)$ Table of Contentsc$)$ Recommendations and explanations must include in$-$text referencingd$)$ Reference list$2)$ Any sources that you use need to be acknowledged in order to avoid plagiarism.Information on referencing can be found under "Study Resources Academic Skills" onMyKBS at this link$\mathrm{.}3)$ You must identify and refer to specific paragraphs of the relevant accounting standards in youradvice.