QUESTION Two (10 marks in total... parts to the question) You have been asked to

Question

QUESTION Two (10 marks in total... parts to the question) You have been asked to provide advice to the management of Fiji Limited on h t the following items in the financial statements. The balance date is 30 June 2015. Ensure you include an explanation to support your advice. Assume that the financial statements are authorised for issue on 30 September 2015 a) Fiji Limited spent $10 000 on a corporate box to entertain its client at a major sporting event. b) Fiji Limited sales staff receive 5% commission on all sales made during the year ended 30 June 2015. In accordance with their contracts these amounts will not be paid to the employees until 31 October 2015. c) Fiji Limited has struggled for several years to develop a new product and has spent $100 000 on product development and market research so far. In 2015 the decision was made to cease this development project. d) Annual leave not yet taken by employees as at 30 June 2015 is $50000. e) Fiji Limited has incurred advertising expenditure s23 00. The company wants to record the expenditure as an asset so that it does not have an impact on the current year's profit. osition r rev

Explanation / Answer

a.spent $10,000 on a corporate box to entertain its client is a part of business strategy of sellings in business as entertainment exp,meal exp all are part of business expenses as it promotes selling of the business. so it is adviced to keep an eye on these expenses as it is only to promote sales and must be treated as business expenses.

b.The sales staff will be paid 5%of sales not recieved at year end ,the commission should be treated as a business expenses and should be debited in PL ac and shown in liability side as an outstanding commission.

c.money spent for the developement of a new product which is ceased should be treated as sunk cost as it is unaviodable and cannot be recovered as the money spent of reserch and developement of new product cannot be recovered.

d.Employees of the company have the right for annual leave i.e. holidays but if the employees does not take leave the salary of the number of days should be paid by the company and it is not paid by fiji limited till 30 june 2015 should be debited in books and then paid accordingly

e.It is adviced to fiji limited not to record advertisement expense as an asset because the future value of the ads that promotes business sales of goods and services cannot be determined,and it is adviced to show it as a business expense in the income statement.

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