Under a LuxRewards Card system, each year, on the anniversary of the issue of

each customer's card, the store grants a non-refundable credit to each customer's

account according to a sliding scale based on aggregate purchases for the previous 12

months period. The credit is 2% up to $5,000, 3% for the next $5,000 and 4%

thereafter. There is no limit. The credit may only be used to reduce the amount payable

for LuxRewards Card credit purchases.

For example: Customer A commenced his credit card account a few years ago on

1 February so he is entitled to a credit on the anniversary of that date each year,

based on his actual purchases for the previous 12 months. Therefore, at balance

date, 30 June, an accrual is made based on the actual sales since 1 February

although the actual credit cannot be accurately calculated and neither will it arise

until the following financial year.

At 30 June 2020 Luxwood estimates that for the period up to that date its liability in

respect of these credits is $220,000. In addition, it has already credited $245,000 during

the year ended 30/6/20. The store estimates that, on average, 10% of these credits will

lapse.

Task 2 (30 marks)

Luxwood prides itself on its "no questions asked" refund policy for return of defective

goods. It has gathered statistics over the previous 8 years since it adopted this policy and

it concludes, as a reliable estimate, that of all its refunds under this policy, 60% are

covered by supplier warranties. It bears the balance as a cost of doing business.

In this respect the store has made the following entry in its journal for the year ended

30 June 2020:

Dr. Profit and Loss 25,000

Cr. Provision for warranties 25,000

Narration: Being 40% of estimated refunds for claims in respect of defective

goods sold during the year ended 30 June2020 for which no supplier

warranty is available.

Task 3 (20 marks)

During the year it came to the directors' attention that a rival firm was marketing a lounge

suite that appeared identical to Luxwood's best-selling line. An action to recover

damages was commenced. The matter is yet to be finalised but the company's legal

advisors are confident. At June 30 only $1,500 had been paid in legal fees but estimated

additional costs of $24,000 had accrued although no account had been received.

Task 4 (20 marks)

In November 2019 a visitor to Luxwood showroom slipped on the steps and sustained

injuries requiring medical attention. She claims one of the steps was loose and

commenced legal proceedings against Luxwood alleging her injuries were caused by the

poor condition of the building. Luxwood has so far incurred legal expenses of $4,000 and