Assignment
Important Information
The main purpose of this assignment is to assess your ability to recognise and value accounting for bad debts and make some economic decisions for a small business. It is expected that the students will do some research and study some other text book to have a better understanding of the subject matter.
The course specification (available from the course homepage) contains information about:
o Assignment late policy o Assignment extension policy
o Plagiarism and academic misconduct (such as collusion and cheating)
To ensure that the submission in this case study is your own work, plagiarism detection software may be used.
Assignment Preparation and Submission
Please read the following points carefully.
o The assignment must be lodged using USQ’s online submission system (MOODLE). o The assignment must be made by word processing software like MS Word (2003 and above). o Page margin should be 1 inch (2.54 cm) all around. o The font should be 12 ‘Times New Roman’. o The line spacing should be double spaced. o The table (if any) should be nicely formatted.
o Referencing: for referencing please visit USQ library http://www.usq.edu.au/library/referencing.
o There is no word count. However, unnecessary and irrelevant write up will lead to penalty in the form of negative marking and it will be determined by the course examiner.
Extensions
Extensions are only granted in extenuating circumstances and will not be granted after the due date – you must contact the course leader on or before the due date to seek an extension. Crashing of computers, too busy with other assignments and such reasons are not considered extenuating circumstances. You must organise your study time around these other commitments. Extensions will only be considered where supporting documentation is provided (e.g. doctor’s certificate). You must also provide a copy of your assignment (even if incomplete) to show that you have attempted the assignment to a reasonable level, prior to the extenuating circumstances. Work commitments are generally not considered to be extenuating circumstances; if you have had to do extensive amounts of overtime or work-related travel you must provide a supporting letter from your employer, which provides details of such circumstances.
Case study requirements
The case study requirements, which are set out in detail in this document, are as follows:
Requirement Marks
Requirement 1: 6
Requirement 2: 4
Requirement 3 4
Requirement 4: 4
Requirement 5: 6
Requirement 6: 2
Requirement 7: 4
Awarding of Marks
The purpose of this assignment is to test your ability to meet the objectives of module 5 and to a similar extent the objectives of modules 1 and 6. The assignment contributes 30% to your final grade. Marks will be awarded for:
• Presentation of your assignment
• Answering the questions correctly
• Evidence of doing research including reference to relevant accounting standards • Clarity of argument.
Assignment instructions
PLEASE READ THESE INSTRUCTIONS VERY CAREFULLY BEFORE YOU START
If you have any questions about this assignment, please post a message to the assignment discussion forum. Make sure you have read all the instructions a few times and checked the ‘discussion forum’ before you send a message. However, while making a post to the discussion forum, please refrain from asking or answering questions that directly or indirectly may help doing the assignment. For further information please visit USQ Academic Miscount Policy at http://policy.usq.edu.au/documents/14132PL.
You can start this case study now and work on it progressively over the next few weeks. DO NOT leave this to the last weekend. This is a large assignment and contributes 30% to your final grade.
The Assignment
Tony, Tania and Sonia are in partnership and started a new business called “Computer World”.
The business is selling a notebook which it assembles from local and imported loose parts. Although in first year of operations, they were reluctant to extend credit, in their second year of operations they are exploring if the business can extend credit to improve sales. The partners are in dilemma whether the business should follow up the collection by itself or make other arrangements. One option is to make sales by extending credit through “Easy Money”, a credit union. If a customer makes a purchase through “Easy Money”, the business will get immediate cash subject to 12.5 percent Easy Money’s commission to be deducted from the gross amount. The second option is to follow up the sales and collection by the business itself. The third option is to offer a discount of 3.5 percent to customers who will make cash purchases or pay by credit card and remainder will obtain credit through Easy Money. The business has following hypothetical figures available for the year:
Projected credit sales $245,000; projected new staff salary if the business wants to follow up the collection $55,000; 30 percent of customers will pay cash. The business has following return policy:
All purchase orders cancelled 7 before shipment will get full refund. Custom purchase orders are not refundable in any circumstances.
To place an order a customer’s online account needs to be created so that a customer can track and see the progress of his/her order and delivery status. The business stores customer’s credit card detail (if paid by credit card) and a customer’s credit card is charged when the order is ready for shipment. The customers who do not pay by credit card have to upload the payment receipt within 3 days of placing the order.
Requirement 1: What option the business should choose (show your calculation)? Are there any other factors that need to be considered while making a credit sales decision? (6 Marks)
Requirement 2: If the business decides to follow up the credit by the business itself and appoints a clerk to follow up the collection, is there any issue to consider as part of internal control? (4 Marks)
The partners are all aware that simply extending credits by firm itself will lead to some bad debt expenses and they are in dilemma as which accounting method to follow to record the bad debts. All the partners have studied a basic accounting course at a university. Tania argued that the business should follow the ‘Direct Write Off’ method as it allows the recording of the ‘Bad Debt’ as and when it occurs.
Requirement 3: Do you agree with Tania? Why or why not? (4 Marks)
On their discussion about bad debt recording Tony argues that the ‘Allowance Method’ is problematic as it requires the making of estimates and estimates are different under different estimation techniques.
Requirement 4: Please provide explanations as how these estimates may not result in any undue bias in accounting record. (4 Marks)
On their discussion about bad debt recording Tony further argues that if the business follows the ‘Allowance Method’, the business should produce a “Retrospective Statement” to show the difference in estimation of bad debt.
Requirement 5: Please explain whether a “Retrospective Statement” will be required following AASB 108. (6 Marks)
Requirement 6: To mediate, Sonia argues that the business should be able to use both ‘Direct Write Off’ and the “Allowance Method” to record the bad debt. Discuss if it is true. (2 Marks)
Requirement 7: Customer Harry placed a custom order for a notebook and his credit card is charged as his order is ready for shipment. He cancelled the order and lodged a dispute with his credit card issuing bank. Please judge if his act is correct or ethical and what advice would you provide him if you were the banks customer service officer? (4 Marks).
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