Please calculate all the items listed below:

In your meeting, David and Jake have made you aware of the following information:

-the external financial statements excluding the Statement of Cash Flows, but including all of the notes to the accounts;

Income Statement

For the Income Statement, David and Jake have requested that you classify expenses by function instead of by nature.

Please show only those expenses on the face of the Income Statement that are specifically required to be disclosed on the face under AASB 101 Presentation of Financial Statements.

Furthermore, please group relevant individual expenses in the profit and loss statement on the face of the income statement under the following headings: "employee benefits", "depreciation and amortisation", "finance costs", "administrative expenses" and "other expenses".

Statement of Comprehensive Income

When preparing the external financial statements for Bike Galaxy Pty Ltd, please ensure that you prepare and include a separate Statement of Comprehensive Income in accordance with AASB 101 Presentation of Financial Statements.

The company wishes to adopt a two-statement approach in presenting their statement of profit or loss and other comprehensive income. In other words, David and Jake want you to prepare an Income Statement and a Statement of Comprehensive Income separately.

e.Statement of Changes in Equity

For the Statement of Changes in Equity, please use the minimum disclosure requirements required under AASB 101 Presentation of Financial Statements.

f.Balance Sheet

For the Balance Sheet, please use the minimum disclosure requirements required under AASB 101 Presentation of Financial Statements.

1.The bookkeeper, Summer, has not recorded any depreciation/amortisation in respect of any non-current assets acquired by the company during the 2020 financial year. She asks you to calculate the relevant depreciation amounts and process these depreciation/amortisation journal entries for the 2020 financial year directly into MYOB (refer page 7 for details of depreciation rates for accounting purposes).

2.On 1 September 2019, Bike Galaxy Pty Ltd purchased the following assets outright (all amounts are shown GST-exclusive):

(a)Leasehold Improvements:

Fit-out (consisting of floor tiles, ducted air-conditioning, lighting, in-built shelving and signage) - $142,400.

(b)Property, Plant and Equipment:

Cash registers - $8,200

Computer equipment (including printer) - $8,140

Photocopying machine - $4,780

Television sets and video equipment - $9,650

Fluorescent lighting system - $16,120

Cycling equipment (eg. cycle racks) - $32,150

Carpets (for the retail store) - $36,300

(c)Computer Software:

Accounting software and retail point of sale software - $11,440.

Summer coded all of these purchases to their various asset category accounts in the Balance Sheet.

Note: There are 304 days from 1 September 2019 to 30 June 2020.

Note: Please note that 2020 is a leap year. Hence, please use 366 days in your calculations.

3.On 18 February 2020, Bike Galaxy Pty Ltd entered into a lease agreement to finance the acquisition of a motor vehicle (ie. a Ford Transit SWB Van) that will be used exclusively in the business. Details of the finance lease agreement are

Fair value of van (GST-exclusive) $42,000

Present value of the minimum lease payments

(including the present value of the guaranteed residual).$42,000

Amount financed under the lease agreement$42,000

Lease term5 years

Number of monthly lease payments60

Monthly lease payments (GST-inclusive) due on the 18^th day of each month$726

The first lease payment of $726 is made in advance on 18 February 2020.

As the payment is made in advance, there is no interest on the first lease payment.

Thereafter, 59 monthly lease payments are due on the 18^th day of each

month. The 60^th and final lease payment is due on 18^th January 2025.

Under the lease agreement on 18^th January 2025 (being the same date

as the final $726 lease payment, the company is also required to make

the guaranteed lease residual payment of $11,000 (GST-inclusive). The company

intends to pay out the guaranteed lease residual in 5 years time and

take full legal possession of the van.

Total GST-inclusive lease payments (including the guaranteed residual)$54,560

Total GST-exclusive lease payments (including the guaranteed residual)$49,600

Useful/(effective) life of the van (same for accounting and taxation)8 years

Depreciation policy: the company uses the straight-line method for accounting purposes and the SBE simplified depreciation regime for small business entities for taxation purposes.

The residual value of the van at the end of the eighth year $Nil

Note:There are 134 days from 18 February 2020 to 30 June 2020.

Note: Please note that 2020 is a leap year. Hence, please use 366 days in your calculations.

David and Jake have provided you with the original lease agreement. All of the above information is contained in the lease agreement. Unfortunately, the lease agreement does not stipulate the implicit interest rate. Hence, you will need to calculate the implicit interest rate when preparing your EXCEL lease spreadsheet.

David and Jake use the van to pick up various stock items, and visit cycle company representatives and suppliers. It is therefore used 100% for business purposes.

The van is garaged every day and night of the year at the store. As there is no private use, all of the running costs associated with the van shown in the Profit and Loss Statement are fully tax-deductible to the company.

As it is not available for private use by any employee, there are no fringe benefits tax implications in respect of the vehicle.

In the MYOB management accounts that Summer has provided you with, on 18 February 2020, as per AASB 16 Leases, she recorded the right-of-use leased motor vehicle in the Balance Sheet (as a non-current asset) by debiting it for its GST-exclusive cost of $42,000 and crediting the corresponding lease liability for $42,000. This lease liability was recorded exclusively as a non-current liability by Summer in MYOB.

A total of five (5) lease repayments of $660 each (GST-exclusive) have been made between 18 February 2020 and 30 June 2020. Summer has debited the 5 lease payments for their GST-exclusive amount totalling $3,300.00 to the "lease payments" account which is shown as an expense in the Profit and Loss Statement and credited "cash at bank" for this amount.

Being a lease, the company has claimed back the $66 GST input tax credits associated with each lease payment on the 18^th day of each month in the company's Business Activity Statement (BAS) for the relevant quarter. Summer has correctly debited the total GST paid of $330 associated with the 5 monthly lease payments of $66 each to the "GST receivable" account in the company's Balance Sheet.

Please make sure that you include your lease schedule as part of your case study submission.

4.On 31 August 2019, Bike Galaxy Pty Ltd held an opening party at the store for suppliers, major customers and local business owners. The party consisted of food and drinks (both alcoholic and non-alcoholic).

A total of 40 guests attended the opening party. No employees attended the opening party. You can assume that at this point, that David and Jake were not yet formally employed by the company. Hence, they were not yet employees for FBT purposes. The occasion was purely social. The cost of the opening party came to $4,400 (GST-inclusive).

A lucky door prize consisting a weekend at The Star Casino (Deluxe room for two with breakfast included) on the Gold Coast plus two tickets to see "The Australian Bee Gees" tribute concert was presented to the person whose business card was drawn out of the bucket. The company paid the cost of this prize of $880 (GST-inclusive).

Summer has correctly coded the total amount of $5,280 (comprising the opening party of $4,400 and the lucky door prize of $880) to "opening party & lucky door prize" in the Profit and Loss Statement.

5.The company's Christmas party was held on Friday 20 December 2019 at a nearby licensed Italian restaurant. David, Jake and the three employees attended the Christmas party. No customers were invited. The cost of the Christmas party came to $370 (or $74.00 per head). This amount was coded to "Entertainment - Christmas Party" in the Profit and Loss Statement.

6.Apart from Items 4 and 5 above, the company did not provide any other meal entertainment to clients or employees whatsoever during the 2020 financial year.

7.For FBT purposes, the company adopts the actual method in valuing its meal entertainment fringe benefits. No FBT applies as in the case of the opening party, due to the fact that no meal entertainment was provided to employees. In the case of the Christmas party, whilst the meal entertainment was provided to employees, the cost per head per employee was under $300. Hence, no FBT applies. The amounts of these expenses shown in the Profit and Loss Statement are shown GST- inclusive as the company is not entitled to claim back any GST input tax credits associated with these expenditure items.

8. David, Jake and the staff undertook a stocktake on the morning of 30 June 2020. Closing stock (which consists of bicycles, bicycle accessories, bicycle clothing and drinks) has been reliably ascertained at $264,090 (GST-exclusive).

The company adopts a perpetual inventory system and uses the weighted average cost inventory valuation method for both accounting and taxation purposes. The opening balance of inventory on the first day of business (ie. 1 September 2020) was $228,600.

Being a perpetual inventory system, the computer system keeps a running balance of inventory each time the company buys and sells stock. As such, the closing stock figure of $264,090 is shown in the balance sheet correctly, and the cost of goods sold figure of $321,983 (comprising bicycle plus bicycle accessories) correctly represents the cost price of the various inventory items sold during the 2020 financial year.

9.Bike Galaxy Pty Ltd extends credit to selected customers. For those customers that have been approved, the company has trade credit terms of net 30 days. The company rigorously pursues any bad debts owing by customers. The company uses the "provisioning" method in accounting for their bad/doubtful debts, not the "direct write-off" method.

At 30 June 2020, Summer sat down with David and Jake and printed out an aged debtors report. Based on this report, David and Jake determined the likely collectability of each bracket (see below).

On 30 June 2020, Summer debited "bad debts expense" and credited "provision for doubtful debts" for $1,444.00 (being the estimated total uncollectible bad debts).

The breakdown of this amount (apportioned across the age of each debt) is summarised below.

Age of Debtor

Account Receivable

Estimated % Uncollectable

Provision for Doubtful Debts

0-30 days (not past due)

$45,892.00

0%

$ -

31-60 days

$9,320.00

5%

$466.00

61-90 days

$3,912.00

25%

$978.00

Totals:

$59,124.00

$1,444.00

At your year-end meeting with David and Jake, they present you with a letter from one of the debtors dated 24 June 2020 (John Waite) confirming that this debtor has been imprisoned due to fraud and as such, is unable to pay their outstanding debt totalling $780.

After a brief discussion with David and Jake, it has been decided that this debt of $780 should be written off at 30 June 2020. This debt of $780 was included as part of the 61-90 debtors days breakdown above. In other words, the amount of $780 was included in the $1,444 'Provision for doubtful debts' figure shown in the table above.

10.Several cyclists pay for their coaching lessons in advance. As at 30 June 2020, a total amount of $7,170 (GST-exclusive) had been paid in advance. This amount relates to cycling classes that will be provided during July and August 2020.

Summer has correctly credited the current liability account "coaching fees received in advance" for the GST exclusive portion of this payment and the GST input tax credit has been booked to the GST payable account.

These coaching fees are non-refundable, meaning that cyclists will not receive any refunds for any coaching classes that they do not attend or cancel.

11.The employees of Bike Galaxy Pty Ltd are as follows:

David Robson (Director and full-time head coach of the coaching division);

Jake Montgomery (Director and full-time retail store manager);

One full-time cycle coach;

One part-time cycle coach and wind training assistant; and

One full-time repair mechanic.

The total salaries and wages for these six employees are shown in the Profit and Loss Statement. There are no outstanding (accrued) wages owing to any of the employees at 30 June 2020.

12.Each full-time employee is entitled to four (4) weeks paid annual leave per annum. Part-time staff are entitled to pro-rata annual leave. At 30 June 2020, Summer had not yet recorded a journal entry to accrue the annual leave for these employees. Based on the projected salaries of when each employee is expected to take their annual leave, the total provision for annual leave (in respect of all employees) as at end of financial year totals $12,680. The company's policy is that all annual leave must be taken within 12 months. No annual leave was taken by any employee during the 2020 financial year.

No sick leave was taken by employees during the 2020 financial year. No provision for sick leave should be made in the 2020 accounts as no employee is considered likely to take more than their allocated sick leave entitlements. The sick leave is non-accumulating and non-vesting meaning that no entitlement (and therefore, no accrued sick leave) is carried over to the following financial year for any employee.

Similarly, no employee is eligible for long service leave. As such, no provision for long service leave should be made in the 2020 accounts as, at 30 June 2020, it is not currently considered probable that any employee will reach the 10-year employment target with the company in order to qualify for long service leave.

13.The initial set-up costs of $1,580 incurred to establish the company and associated accounting and legal fees are shown as an expense in the Profit and Loss Statement under "Establishment Costs". Assume that these costs were incurred directly by the company on 22 July 2019, being the date that the company was established.

14.On 2 May 2020, Bike Galaxy Pty Ltd purchased 5,000 shares in Qantas Ltd at a cost of $3.00 per share (including brokerage). Summer recorded the shares in the company's Balance Sheet at their cost of $15,000. These shares were purchased with the view to holding them for the long-term. Hence, why they were recorded as a non-current asset.

No other shares were bought or sold during the 2020 financial year. As at 30 June 2020, the share price of Qantas Ltd was trading on the ASX at $3.60 per share (fair value of $18,000). No dividends were paid by Qantas Ltd between acquisition date and 30 June 2020.

As previously mentioned, the company has made an irrevocable election to present subsequent changes in fair value of these shares through Other Comprehensive Income (OCI) instead of recording increases and decreases in fair value through profit or loss.

15. Bike Galaxy Pty Ltd has made the compulsory 9.5% employer-sponsored superannuation contributions into all employee's nominated superannuation fund's (including David and Jake's superannuation fund).

However, as the company has a sizeable cash balance, on 30 June 2020, David and Jake decide to contribute an additional $5,000 each into their respective superannuation funds (being a total of $10,000).

On 30 June 2020, Summer put through the following journal entry in MYOB:

DATE

PARTICULARS

POST REF

DEBIT

CREDIT

30 June

Superannuation - (Directors Additional)

6-1230

10,000

Superannuation payable

2-1070

10,000

(Recording the additional superannuation contributions for David and Jake)

The company uses the Small Business Superannuation Clearing House (SBSCH). Summer paid the $10,000 superannuation owing at 30 June 2020 into the SBSCH on Thursday 3 July 2020.

16.As outlined in the business plan, the directors of Bike Galaxy Pty Ltd signed a three-year non-cancellable operating lease at $6,000 per month (GST-exclusive commencing 1 September 2019).

A 2.5% annual increase is to take effect on 1 September each year. There is an option in the lease agreement to renew the lease for an additional three years at the expiration of the current lease and in perpetuity thereafter.

For the year ended 30 June 2020, the company made ten (10) lease payments totalling $60,000 (GST-exclusive). Summer has coded these payments to "rent expense" in the MYOB Profit and Loss Statement.

Being a bookkeeper, Summer did not know how to apply the principles contained in the recently introduced leasing standard, AASB 16 Leases.

She requests that you put through the appropriate journal entries to record the "right-of-use asset" and corresponding lease liability at 30 June 2020 and to also adjust the figures in the Profit and Loss Statement.

The following information is relevant for you to calculate the "right-of-use" asset and lease liability as per AASB 16 Leases:

Monthly lease payments (GST-exclusive)$6,000.00

Monthly lease payments for first 12 months$6,000.00

Monthly lease payments for second 12 months *$6,150.00

Monthly lease payments for third 12 months **$6,303.75

Total undiscounted lease payments over 3-year period$221,445

Period of the lease 36 months

Depreciation methodstraight-line

Rent increase to take effect on 1 September each year2.5%

Discount rate to be used for the 36 monthly lease payments 4.00%

*calculated at $6,000 x 2.5% increase (for the period 1 September 2020 to 31 August 2021).

*calculated at $6,150 x 2.5% increase (for the period 1 September 2021 to 31 August 2022).

Students will need to calculate the present value of the lease payments to determine the lease liability and then this will be the same amount as the "right-of-use" asset to be recorded in the Balance Sheet.

Additional Information Relating to the Lease:

Assume that there is no "reasonable certainty" at the inception of the lease (ie, 1 September 2019) that David and Jake will exercise the option to extend the lease term for an additional three years at the end of the original lease on 31 August 2022. Hence, the terms of the lease is three years.

Assume that there were no initial direct costs incurred in drafting and signing the lease agreement. These costs were borne by the lessor, and not the lessee.

Assume that there were no prepaid lease payments made by Bike Galaxy Pty Ltd to the lessor.

There were no lease incentives received, nor any 'make good provision' (ie. no costs are estimated to be incurred at the end of the three years to restore the premises to its original condition).

When drafting your external financial statements, please show the "right of use asset" as part of "property, plant and equipment".

Please make sure that you include your lease schedule as part of your case study submission.

Additional Facts:

The MYOB management accounts have been prepared on an accruals basis.

The company is on the accruals basis for income tax purposes.

The Australian Company Number (ACN) of Bike Galaxy Pty Ltd is: 006 287 485

Bike Galaxy Pty Ltd is registered for the GST. Its ABN is: 14 006 287 485

David and Jake are the only two Directors of the company.

All PAYG withholding tax owing in respect of employee's salaries and wages have been remitted by Bike Galaxy Pty Ltd to the ATO by the due dates. The 30 June 2020 PAYG withholding tax has not yet been remitted to the ATO. This amount of $14,560 shown in the Balance Sheet as a current liability will be paid to the ATO when the company lodges its June 2020 Business Activity Statement with the ATO (sometime before the due date of 28 July 2020).

The three quarterly Business Activity Statements (BAS) for September 2019, December 2019 and March 2020 quarters have been lodged with the ATO by their due dates and the net GST owing (ie. GST payable minus GST receivable) for each quarter have been paid to the ATO.

The amount of GST payable and GST receivable shown in the Balance Sheet at 30 June 2020 represents the amount of GST collected ($16,860) and GST paid ($9,290) by the company to the ATO in respect of the June 2020 quarter. The net amount of $7,570 will be paid to the ATO before the due date for lodgement of the BAS (ie. before 28 July 2020).

The company has paid the following PAYG income tax instalments to the Australian Taxation Office on each BAS:

-September 2019 quarter ($952 income tax paid to the ATO on 20 October 2019)

-December 2019 quarter ($2,024 income tax paid to the ATO on 15 February 2020)

-March 2020 quarter ($4,594 income tax paid to the ATO on 14 April 2020)

The fourth quarterly PAYG income tax instalment payable of $4,175 shown in the current liability section of the Balance Sheet at 30 June 2020 represents the amount owing in respect of the April-June 2020 quarter. This amount will be paid when the company lodges its June 2020 Business Activity Statement (sometime before 28 July 2020).

Please ignore cash flow boost payments for the purposes of this case study.

All four PAYG income tax instalments totalling $11,745 have been debited to "income tax receivable" in the Balance Sheet. This amount represents the total of the four PAYG quarterly income tax instalments paid/(payable) to the ATO in respect of the 2020 income year (being $952 plus $2,024 plus $4,594 for the first three quarters as well as the $4,175 accrued June 2020 quarterly instalment which is due and payable by the company by 28 July 2020).

The share capital of $300,000 shown in the Balance Sheet comprises the following:

-David Robson (150,000 x $1.00 fully paid ordinary shares)$150,000

-Jake Montgomery (150,000 x $1.00 fully paid ordinary shares)$150,000

These 300,000 fully paid ordinary shares were issued by the company on 15 August 2019.

The original $300,000 loan from The Bank of Australia that the company took out is fixed at an interest rate of 5% per annum and fully repayable in five years. The company has been making loan repayments and as at 30 June 2020, the outstanding balance of the loan is $264,103 (split in the MYOB Balance Sheet as $58,776 current and $205,327 non-current). The bookkeeper, Summer, has correctly split each loan payment between interest paid and reduction of the loan liability.

There were no initial borrowing costs associated with the bank loan. The borrowings are unsecured and no assets were pledged as security against these borrowings.

Assume that on the 2 May 2020 (being the date that Bike Galaxy Pty Ltd acquired the 5,000 shares in Qantas Ltd) that Jake and David made an irrevocable election to present subsequent changes in fair value in OCI.

The company has been making the compulsory 9.5% employer-sponsored superannuation contributions into each employee's superannuation fund on a quarterly basis on the last day of each quarter based on each employee's ordinary times earnings (OTE). Accordingly, all superannuation amounts owing in respect of the 2020 financial year have been paid into each employee's superannuation fund by 30 June 2020 (including the amount owing in respect of the June 2020 quarter).

The only exception was the additional superannuation contributions of $10,000 made on behalf of the two directors (refer Item 15) which were paid into the director's superannuation funds on Thursday 3 July 2020.

The amounts contained in the MYOB data file are based on the actual results of Bike Galaxy Pty Ltd for the period 1 September 2019 to 30 June 2020 (ie. 10 months of trading). These amounts override any amounts contained in the business plan and in any of the PBLs during the semester relating to Bike Galaxy Pty Ltd. Students should also note that the figures contained in the initial business plan were budgeted amounts, not actual amounts.

Background information relating to Bike Galaxy Pty Ltd and personal details involving David and Jake can be found in the business plan.

Furthermore, ignore any additional information in PBLs during the semester relating to Bike Galaxy Pty Ltd (eg. PBL 1 Part B when students were asked to develop a chart of accounts). Only use the information contained in this case study.

Assume that Bike Galaxy Pty Ltd did not require any wage subsidies under the Federal Government's JobKeeper program during the 2020 financial year.

Impairment testing has been conducted at 30 June 2020 in respect of all assets (including the leased motor vehicle). There is no indication that any asset shown in the Balance Sheet is impaired.

For the purposes of preparing the financial statements, David and Jakes have considered the current impact of the COVID-19 pandemic on the company as well as the general economic and business conditions in which the company operates and concluded that the company was able to trade through the initial phase of the COVID-19 pandemic with minimal disruption.

In the MYOB management accounts, no non-current asset has been revalued (or devalued) to fair value. All assets are shown at their historical cost.

Other income ($14,754) refers to income generated from cycle tours organised by Bike Galaxy Pty Ltd.

The legal expenses ($1,215), general expenses ($2,278) and repairs and maintenance ($1,970) shown in the Profit and Loss Statement are all tax-deductible.

The staff amenities ($818) shown in the Profit and Loss Statement relates to tea, coffee and biscuits purchased by the company and provided to employees for consumption on the business premises during morning and afternoon tea breaks.

The sundry expenses ($524) shown in the Profit and Loss Statement represent non-tax deductible expenses. They are shown GST-inclusive as no GST can be claimed back.

Workers compensation ($642) relates to the workers compensation premium paid to Workcover Queensland on behalf of the employees and is tax-deductible.

The motor vehicle expenses ($3,165) represent the running costs associated with the motor vehicle (including petrol and oil, registration, insurance and RACQ). Depreciation has not been calculated or included as part of this figure. These motor vehicle expenses have been paid directly by the company. In other words, there was no employee contribution or reimbursement in respect of the running costs of the vehicle.

Insurance of $7,040 represents premiums paid by the company during the 2020 financial year to Topstar Insurance Ltd in respect of both public liability insurance and directors and officer's professional indemnity insurance.