UnderCover Ltd sells and supplies security and surveillance equipment and other spyware, and also provides related services. The accountant of UnderCover Ltd is currently preparing its financial reports for the year ended 30 June 2020. The company is a reporting entity. The reports have not been completed as at 11 August 2020. Required: Explain (with reasons) in your own words how and where (including class/category where applicable) each of the events/transactions described below would be treated, recognised and/or disclosed in the financial reports of UnderCover Ltd for the year ended 30 June 2020. Note: You need to consider whether information about the event or transaction needs to be presented separately. Journal entries and actual disclosure notes are not required. On 6 July 2020, the government announced new regulations relating to the sale and use of drones (i.e. unmanned aerial vehicles). Part of the new regulations require that from 1 September 2020, drones can only be sold to persons who have a ‘Drone Operator Permit’. A person must apply to the government for a permit and pay a fee of $100. The permit must be provided before a drone can be sold. Sales of drones have been increasing for UnderCover Ltd over the last 3 years. There is expected to be a significant increase in sales of drones until the regulations apply. Once the change in regulations apply, it is anticipated this will reduce the sale of cheaper drones by 80% and of more expensive drones by 20%. This is estimated to result in a reduction in expected profit of around 7% for the year ending 30 June 2021 but 18% in future years.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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UnderCover Ltd sells and supplies security and surveillance equipment and other spyware, and also provides related services.

The accountant of UnderCover Ltd is currently preparing its financial reports for the year ended 30 June 2020. The company is a reporting entity. The reports have not been completed as at 11 August 2020.

Required:

Explain (with reasons) in your own words how and where (including class/category where applicable) each of the events/transactions described below would be treated, recognised and/or disclosed in the financial reports of UnderCover Ltd for the year ended 30 June 2020.

Note: You need to consider whether information about the event or transaction needs to be presented separately.

Journal entries and actual disclosure notes are not required.

On 6 July 2020, the government announced new regulations relating to the sale and use of drones (i.e. unmanned aerial vehicles). Part of the new regulations require that from 1 September 2020, drones can only be sold to persons who have a ‘Drone Operator Permit’. A person must apply to the government for a permit and pay a fee of $100. The permit must be provided before a drone can be sold. Sales of drones have been increasing for UnderCover Ltd over the last 3 years. There is expected to be a significant increase in sales of drones until the regulations apply. Once the change in regulations apply, it is anticipated this will reduce the sale of cheaper drones by 80% and of more expensive drones by 20%. This is estimated to result in a reduction in expected profit of around 7% for the year ending 30 June 2021 but 18% in future years.

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