The following details are taken from the accounting records of the company as at 30 June 2020:

Additional information: Note: Unless otherwise indicated the events and transactions outlined below have already been accounted for in the balances above if required.

(a) The amount of revenues in the trial balance is comprised of:

 $71,621,900 from providing services

 $19,940,600 from sale of goods

 $233,920 from interest received/earned on cash held during the period. 

(b) There was previously concerns from shareholders that the company was too reliant on debt. In response to these concerns, the Directors undertook a number of actions including:

 In August 2019 undertaking a non-renounceable rights issue offering 1 ordinary share at an issue price of $2.40 for every 4 shares held, with the full amount payable on application. As a result, the company received applications for and issued 1,550,000 ordinary shares on 20 September 2019. Costs associated with this issue totalled $34,000.

 On 1 October 2019 the company sold three items of land to Opportunity Ltd for a total of $5,435,000 in cash. The original cost for these three items was: Land A $2,150,000, Land B $3,210,000 and Land C $1, 895,000. The extraordinary loss relates to the sale of these items of land.

Part of the cash received was used to pay off a loan from EBank.

(c) Included in the amount of ‘Other Expenses’ in the trial balance are:

 Employee expenses of $41,839,000 comprising salaries and wages of $35,340,860, commissions of $3,874,040 and annual leave expense of $2,624,100. The balance of the provision for annual leave at 30 June 2019 was $1,112,600. Employees are required to take annual leave within 12 months of accrual.

 General operating expenses of $8,740,380. This includes building maintenance, insurance, power and utility expenses and other operating expenses.

 Vehicle expenses (excluding depreciation) of $3,470,000 (these include government fees, parking fees, insurance, fuel and maintenance costs). These increased substantially (by almost 25%) as the Directors decided to increase the number of mobile service staff (and so a number of additional vehicles were purchased).

 $1,200 prize paid to employee for best suggestion of the year. The company has a suggestion box where employees can offer suggestions to improve any aspect of the company’s operations. This year the prize was won by Justine Aider who suggested that the company arrange for free flu vaccinations for staff to reduce illness and staff absences. The free flu vaccinations initiative for staff was implemented in May 2020.

 Marketing expenses $7,845,230.

 Depreciation expense for plant & equipment $2,340,200.

 Depreciation expense for vehicles of $1,873,100.

 Depreciation expense for buildings of $86,400.

 Warranty expense of $598,400. The company provides a 12 month warranty on a range of its products and services.

 Expenses relating to previous loan from EBank that was repaid in October 2019. These comprised interest expense of $415,000 and an early termination fee of $5,000. This early termination fee was paid by the company to Ebank for early settlement of loan (original loan term ended in October 2022).

 $1,940,000 payment to auditors ($1,750,000 of this was for the audit of the company. The remainder was for advice regarding alternative ways of reducing debt).

 $1,300,000 legal expenses (refer e below).

 Doubtful/bad debts expense of $1,140,000. 

(Note: This does not detail all expenses included in the total of ‘Other Expenses’ in the trial balance above. You should classify any remaining expenses as ‘other’ or ‘miscellaneous’)

(d) At 30 June 2020 the share capital comprised:

 5,000,000 fully paid ordinary shares at an issue price of $1.80 issued in 2001. Share issue costs paid in relation to this issue were $112,000.

 2,000,000 fully paid ordinary shares at an issue price of $2.60 issued in 2012. Share issue costs paid in relation to this issue were $187,000.

 1,550,000 fully paid ordinary shares at issue price of $2.40 on 20 September 2019. Costs associated with this issue totalled $34,000. 

(e) The balance of the Legal Provision in the trial balance relates to a claim made in early June 2020 from an employee. The employee was given the flu vaccination as part of the company’s new free flu vaccination initiative. However, the staff member had a severe allergic reaction to the vaccination and is expected to have continuing health issues as a result. As the company’s flu vaccination program is voluntary (staff are not required to have the vaccination) and all staff are required to sign a permission form that explains the potential risks associated with the vaccination, legal advice has indicated that there is only a 25% chance that the company will be liable for any payment. The case is expected to be decided in court in December 2021. The assistant accountant has included this provision to ensure that the company’s liabilities are not understated.

At the beginning of the period (1 July 2019) the balance of the legal provision was $350,000. This related to a claim against the company for alleged underpayment to a supplier in 2018. This case was settled in January 2020 and the company paid $400,000 to the supplier. This amount was paid in February 2020.

(f) The unearned revenue relates to payments in advance by customers for services to be provided by the company. The prepayments relates to insurance and certain marketing expenses.

(g) Directors had declared a dividend of $770,000 from retained earnings on 29 June 2019. This required no further authorisation or approval and was paid on 18 August 2019.

An interim dividend, of 6c per share was declared and paid on 10 January 2020 from the general reserve.

Unless otherwise indicated the following events/transactions are not reflected in the trial balance above. You will need to make appropriate adjustments if required.

(h) A review by the chief accountant on 3 July 2020 revealed that as at 30 June 2020 there were accrued expenses of $478,000 (these related to amounts owed for utilities, rates and maintenance) that had not been accounted for at all in the trial balance.

(i) Directors declared a final dividend (from retained earnings) on 30 June 2020 of 17 cents per share. This requires no further approval and/or authorisation and is expected to be paid in mid-August 2020.

(j) On 14 August 2020 the Directors announced that a sponsorship contract had been signed with the Team Australia cricket team. This will mean that the company’s logo will appear on all of the cricketers’ uniforms and other equipment. This is expected to increase the awareness of the company’s brands and services/products in the market and result in significant increases in revenues. The sponsorship contract will cost $10,000,000 over 4 years.

(k) On 20 September 2020 the company signed a contract to sell an item of land. The council of the area where the company owned one item of land advised of new zoning requirements. Previously the land was zoned for commercial use only. However, the land will now be able to be used for high density residential development. This has increased the market value substantially. In September 2020 the Directors have been offered $3,000,000 for this property by Develo Corp Ltd and have signed a contract to sell the land to Develo Corp Ltd for that amount. This land was originally purchased by the company in 2001 for $400,000.

(l) The company tax rate is 30%. Ignore tax-effect accounting. Tax expense should be based on 30% of the accounting profit before tax. No tax expense has yet been recorded.

You should assume that the company is a reporting entity and that the date the annual report (including the financial report) is authorised for issue is 24 August 2020.