Question

In preparing the financial statements for the year ended 30 June 2018 the accountant of Windsor Ltd, a tobacco manufacturer and wholesaler, has come to you with the following information and request your advice on the appropriate accounting treatment in light of Framework 2014. Justify your answers

(a) The company's plant requires a major overhaul every five years. It has a five-year contract with Zappa Ltd to undertake these overhauls. The next overhaul, which is expected to cost $500000, will take place during 2019. To recognise the cost of the overhaul, Windsor provides for deferred maintenance of $100000 in each reporting period.

(b) In February 2018 the state government announced that it would increase its Tobacco Licence Fee (TLF) for the July 2018 licence (payable in June 2018) from 50% to 75%. The TLF is collected by tobacco wholesalers, including Windsor, from tobacco retailers in the month preceding the month in which the TLF has to be paid. In Windsor's case the TLF is based on total sales of $1 million in each month

c) The board of directors of Windsor has decided to reduce staffing levels, and therefore staffing costs, by providing early retirement incentives to 500 of its employees. The union representing the employees has agreed to the terms of the package, which involve the payment of one month's salary for each year of employment. The company wrote to employees outlining the details of the package before the end of the reporting period. Employees have 30 days in which to accept the offer. By 30 June 2018, no acceptances has been received.

Answer 1