Large Mart - Case Study

Q1.

Large Mart has decided to use the exemption rules outlined in AASB 16, paragraphs 5-8 for all leased items to which these exemptions apply, paragraph 5 describes the following:

A lessee may not elect not to apply in requirements according to paragraphs 22-49 to:

(a) Short term leases; and

(b) Leases for which the underlying asset is of low value

Lease payments are acknowledged as a cost over the lease period for short-term leases or leases of low-value products to which this exemption is applicable. A lease containing an option for purchase can not be categorized as a short-term lease. If a lessee chooses to apply the exemption in IFRS 16:5 to either short-term leases or low-value leases, the lease payments associated with those leases should be recognized as an expense over the lease term, either straight-line. Renting Contract would not require any entry, as there is no transaction no asset/liability created normal accounting standard will be followed for rent. 

Q2.

The Large mart employee, Morgan is signed up for the new store and he will manage the iSLEEP fan-site on facebook, where he will work 2 hours every day starting from 1st of May at an hourly rate of $30. In terms of monthly wage calculated on per hour basis, Morgan has 62 hours in total for the month of may where his wage is $1,860. He received a flat-screen tv worth $1,000 from the inventory of the store and was paid cash $860 as the difference in price from TV and his wage. Large mart is giving off the TV on cost as no revenue is incurred from the transaction below.

Q3.

The vital trip to Melbourne by the director to China which costed the company $12,000 for the sole purpose of approving the bed where customers can lay down to test their product iSLEEP keeping in mind its design, as this cost incurred before the manufacturing it will be added to the cost of the bed which is invoiced by the manufacturer in Melbourne. If the director had made any other stops during his trip to China to meet the manufacturer and designer of the bed it would not have been recorded in the cost of the bed therefore, the cost of traveling is a direct cost as it can be easily linked to a cost object the traveling cost of $2000 will be treated as an expense due to it ensuring indirectly further sales but for the manufacturing and will be added to the cost of the asset. The cost of the bed will be 40,000 + 2,000 = 42,000. Traveling expenses which is incurred after the development of the product will be treated as an expense and will not be directly associated with the product and shall be recorded and treated as a separate expense.