Morning sir/ms

I will highly appreciate it if you can help with the question below. Its for Financial accounting 3B

QUESTION 1

The following information pertains to Quartet Ltd (Quartet) for its financial year ended 30

June 2021:

Quartet sells all its products on one-year warranty which covers all types of defects.

Previous history indicates that 2% of the products contain major defects whereas 10%

have minor defects. It is estimated that if major defects were detected in all the

products sold, repair costs of N$ 150m would result. If minor defects were detected in

a products sold repair costs of N$70m would result. Total sales for the year amounted

too N$830m

Quartet has two large warehouses Windhoek and Katima. These were acquired under

non-cancellable lease agreements. Details are as follows:

Details

Windhoek Warehouse

Katima Warehouse

Effective date

July 1 2016

January 1. 2019

Lease period

10 years

8 years

Rental amount

N$450 000

N$300 000

On Account of serious operating difficulties Quartet vacated both the warehouses on

1 January 2021 and moved to the warehouse situated close to its factory. On the same

day Quartet sublet Windhoek warehouse at N$250 000 per month for the remaining

lease period. Warehouse Katima was sublet at N$350 000 per month for the remaining

lease period.

On 18 July 2021, Quartet was sued by an employee claiming damages for N$6m on

account of an injury caused to him due to alleged violation of safety regulations on the

part of the company, while he was working on the machine on 15 June 2021. Before

filling the suit, he contacted the management on 29 June 2021 and asked for N$4m

compensation which was turned down by management. The lawyer of the company

anticipates that the court may award compensation between N$1,5 to N$3m.

However, in his view the most probable amount is N$2m.

On 1 November 2020 a new law suit was introduced requiring all factories to install

specialized safety equipment within 4 months. The Equipment Costing N$5m was

ordered on 15 December 2020 against 100% advance payment but the supplier

delayed installation to 31 July 2021. On 5 August 2021 the company received a notice

from the authorities levying a penalty of N$0.4m i.e. N$01m for each month during

which the violation continued. Quartet has lodged a claim for recovery of the penalty

from the supplier of the equipment.

REQUIRED:

MARKS

Sub-

Total

total

Describe how each of the above issues should be dealt with in the

financial statements for the year ended June 30, 2021.

15

15

QUESTION 1 The following information pertains to Quartet Ltd (Quartet) for its financial year ended 30 June 2021: i. Quartet sells all its products on one-year warranty which covers all types of defects. Previous history indicates that 2% of the products contain major defects whereas 10% have minor defects. It is estimated that if major defects were detected in all the products sold, repair costs of NS150m would result. If minor defects were detected in a products sold repair costs of N\$70m would result. Total sales for the year amounted too NS830m ii. Quartet has two large warehouses Windhoek and Katima. These were acquired under non-cancellable lease aareements. Details are as follows