Tarrant Woods Vine Preventing Spray - Case Study Example

Event One: Tarrant Woods purchased spray for their vines for $11,000 and paid cash (GST inclusive) and used 75% of this chemical on 13th February 2011. Assumption Spray purchased is consumable used in the vines regularly and also 25% is left at the end thereby treating it as an asset. Date: 1 February 2011 Effect on elements: Vine Spray (CA) increased by $10,000 Future Benefit: the spray will help in preventing the vines from getting destroyed from Downy Mildew thereby reducing chances of losses. Control: TW can use this sprays whenever they notice Downy Mildew on their properties and they do not have to wait for the external sprayers and increase the chances of vines getting destroyed. Reliably measured: agreed value at purchase date or supplier invoice price, $10k Probable: the benefits of the spray can be expected to flow to TW Bank (CA) decreases by $10,000 Future benefit of cash which could have generated higher returns used on the purchase of the spray. GST Receivable (CA) increased by $1,000 Future Benefit: can be offset against GST liabilities within the next 12 months Control – TW are the only ones that can utilize this benefit Reliably measured – 10% of the agreed purchase price value i.e. $1, 000. Probable – TW will receive this from the government Cash Flow Operating outflow: payments to suppliers, $11,000 Date: 13 February 2011 Vine Spray (CA) decreases by $7,500 Future Benefit: the spray will help in preventing the vines from getting destroyed from Downy Mildew thereby reducing chances of losses. Control: TW used sprays as per the requirement and saved 25% of the chemical for the future. Cash Flow No effect as the spray was purchased on 1 February 2011 by cash. Event Two: Tarrant Woods sold 75 picnic baskets at $27.50 per person for the basket on 13 March 2011 (GST inclusive) Assumption 1 Picnic basket was sold to per person and 75 baskets were available for sale Date: 6 March 2011 Effect on elements: Baskets (CA) increased by the cost of 75 baskets Future Benefit: the baskets will help in catering purpose for the vine event and generate revenue in the terms of picnic basket Control: TW own the baskets and can use it for other purpose as well if unsold during the vines event. Reliably measured: agreed value at purchase date or supplier invoice price Bank (CA) decreases by the cost of 75 baskets Future benefit of cash which could have generated higher returns used on the purchase of the baskets. GST Receivable (CA) increased by 10% of cost of 75 baskets Future Benefit: can be offset against GST liabilities within the next 12 months Control – TW are the only ones that can utilize this benefit Reliably measured – 10% of the agreed purchase price value Probable – TW will receive this from the government Cash Flow Operating outflow: payments to suppliers for the cost of 75 baskets Date: 13 March 2011 Baskets (CA) decreased by the cost of 75 baskets. Future Benefit: the cash generated out of the sale can be used in other productive assets which would reap further cash flow. Control: TW sold all the picnic baskets and benefited with the inflow. Reliably Measured: the cost is bundled in $27.50 price per picnic basket Revenue increased by $1875 (($27.50 X 75) minus 10% GST) GST Payable (CL) increased by $187.50 Offset against GST receivables within the next 12 months Control – TW are the only ones that can utilize this benefit Reliably measured – 10% of the cost price value Probable – TW will offset this from the government Cash Flow Operating inflow: receipts from sale, $2062.50 Event Three: Shortest day working bee on 22 June 2011 Assumption: Director’s fees were donated by Tarrant Woods and adjustment were made in the consulting fees of the directors There is no tax rebate on the donations made by Tarrant Woods Date: 22 June 2011 Effect on elements: Bank (CA) decreases by $2200 ($550X4) This cash would have been paid to the director’s in any case as their fees, therefore there are no future benefits of this cash if it were not paid to flood affected winery Salary account Respective director’s consulting fees decreases by $550 each as donation paid by the director for the flood affected winery. Cash Flow Operating outflow: payment of directors fees, $2200 With respect to the 100 vine cuttings from their own vines, the cost attached is $0. However, the TW was planning to sell these 100 vines cuttings for $11 each. This will not affect any elements for the following reasons: Individual vine cuttings are not accounted for and the cost attached to each cutting is $0 as they are produced in house. There is no outflow or inflow of cash in this transaction as it is donated i.e. no cash was received for the 100 vine cuttings. TW has foregone $11 for each vine cutting which is an opportunity cost to the company but this opportunity cost cannot be accounted for in the financial statements as this is implicit in nature. The 100 vine cuttings due to favourable weather conditions all the cuttings taken propagated and resulting in 50% excess. Therefore, TW indirectly donated 150 vine cuttings for which the total opportunity cost is $1650 ($11X 150) Event Four: Tarrant Woods leased a new tractor worth $66,000 on 1st July 2011 (GST inclusive) Assumptions: This is a financial lease in nature as TW is responsible for the upkeep of the tractor for the entire lease term. The GST is accounted on a cash basis. The tractor used in its winery for internal use. The financial year end is 31 December 2011. Depreciation on tractor @ 20% Date: 1 July 2011 Effect on the elements: Tractor (NCA) increased by $60,000 Future Benefit: the tractor is expected to contribute to the earning by providing TW with a means of faster transport of raw materials in its winery. Control: TW will be using the tractor for its entire expected life of 8 years as per the lease terms, thereby ensuring the efficient transportation of raw materials for the next 8 years and adding to the cause of maximizing profit. Reliably measured: agreed value at lease date, $60k Lease Liability (NCL) increased by $60,000 Since the tractor is obtained on lease a subsequent lease liability should be accounted for in the balance sheet. Control: TW will be making equal lease payments every six months and subsequently crediting the lease liability with the paid amounts. Reliably measured: agreed value at lease date, $60k Cash Flow First lease payment is due on 31 December 2011 and no payment is made on 1July 2011, therefore, there is no inflow or outflow of cash. Date: 31 December 2011 Effect on the elements: Depreciation of $6,000 (20% of $60,000 for six months) Under finance lease TW can claim depreciation every year. Tractor (NCA) decreases by $6,000 The asset value reduces by $6,000 on account of depreciation Lease Liability (NCL) decreases by $4,125 (16 equal lease payments paid half yearly for the next 8 years) First installment is paid thereby reducing the liability by that extent. Bank (CA) decreases by $4,125 Future benefit of cash which could have generated higher returns used on the payment of the lease. GST receivable (CA) increased by $375 (1/11 of $4125) Future Benefit: can be offset against GST liabilities within the next 12 months Control – TW are the only ones that can utilize this benefit Reliably measured – as per regulations TW can claim 1/11 of the lease payment as GST on cash basis Probable – TW will receive this from the government Cash Flow Operating outflow: payment of lease, $4125 Event 5 Grass fire ignited by the sparks from a power tool destroyed a shed at the Tarrant Woods Winery with a replacement value of $26,400 (GST inclusive) Assumptions Loss due to fire is same to that of replacement value of $24,000. Equity share of the company are @$10 per share Date: 28 September 2011 Effect on the elements: Loss due to fire (P/L A/c) of $24,000 Destroyed shed at the Winery because of fire is a loss as it needs to be repaired or rebuilt leading to utilization of funds from business and affecting the income. Reliably measurable: the replacement value of the shed is $24,000 Building decreased by $24,000 Destroyed shed at the Winery because of fire decreases the value of the asset at least to the extent lost in fire. Reliably measurable: the replacement value of the shed is $24,000 Cash flow There is no inflow or outflow of cash in this event. Date: 2 November 2011 Shareholder’s Equity increased by $26,400 Future Benefit: TW did not have to use its cash resources to rebuild the shed but had to give away some control of the company. Reliably measured: the replacement value is $26,400 and TW issued 264 shares @$10 per share Building increased by $24,000 Future Benefit: TW uses the shed for primary storage for many of the vineyard supplies thereby reducing the storage cost which would have affected the supplies if the shed was not prepared on time. Control: TW owns the entire building, therefore can use the building as per its requirements and drive cash flows out of it. Reliably measured: the replacement value is $24,000 GST receivable (CA) increased by $2400 Future Benefit: can be offset against GST liabilities within the next 12 months Control – TW are the only ones that can utilize this benefit Reliably measured – 10% of the replacement value, $2400 Probable – TW will receive this from the government Cash Flow There is no outflow or inflow of cash as Benn Hu, the power tool operator is paid in terms of shares of the company and not cash. The insurance claim also did not materialize until 2 November 2011, hence there is no cash based activity in this event. Read More