ASSIGNMENT Chesterfield Pty Ltd is a resident private company established in 2005 to manufacture quality leather lounge suites. The company’s products are well regarded and sales are around 60 to 70 suites per year. Production is carried out at a workshop built by the company in 2005 at a cost of $375,000. Extensions costing $180,000 were completed in February 2012 [Note 9]. For cash flow reasons in the early years of production all plant and equipment is leased. [Disregard GST and Small Business Entity related matters.] Relevant financial information for the year ended 30 June 2012 is as follows: Income Notes Sales - 64 units @ $5,500 352,000 1 Sale of leased lathe 3, XXXXXXXXXX,400 Expenses Raw materials used 48,000 Direct labour 60,000 Light & power – manufacturing 9,000 Security 5,500 3 Doubtful debts 16,500 4 Administration wages 53,000 Legal fees 1,500 5 Equipment lease 36,000 Residual on leased lathe 1,200 2 Feasibility study 26,000 6 General administration 25,000 7 Directors fees 30, XXXXXXXXXX,700 Notes 1. Trading At 30/6/11, three finished and two half-finished lounge suites were ‘on hand’. These had been valued at cost: $6,800. During 2011/12 65 similar lounge suites were manufactured. This left a stock of four finished and two half-finished units on hand at 30 June 2012. The directors advise that closing stock at 30/6/12 be valued at cost. The directors request advice on the valuation of closing stock. 2. Sale of leased lathe On September 8, 2011 the lease on a lathe expired and the finance company agreed to sell the item for its residual value of $1,200. Chesterfield continued to use the lathe until a new lease was arranged and then sold the old lathe (2 March 2012) for $3, XXXXXXXXXXSecurity The services of a security firm are used to patrol the workshop after hours to protect the property against damage or theft of valuable materials. 4. Doubtful debts The company’s accounts show a provision for doubtful debts of $16,500. Credit collections had been a particular problem throughout the year but it is hoped to recover $8,000. An amount of $8,500 is owed by a retailer who cannot be contacted and is rumoured to have left the country. 5. Legal fees During the year it came to the directors’ attention that a rival firm was marketing a lounge suite that appeared identical to Chesterfield’s best selling line. An action to recover damages was commenced. The matter is yet to be finalised but the company’s legal advisors are confident. At June 30 only $1,500 had been paid in legal fees but estimated additional costs of $24,000 had accrued although no account had been received. 6. Feasibility study The directors commissioned consultants to assess the feasibility of Chesterfield Pty Ltd opening a retail outlet and supplying lounge suites to the public. The consultants forecast losses in the first years of operation but concluded the venture was commercially viable in the medium term. 7. General administration General expenses include the following: - Farewell dinner for a retiring employee 1,850 - Audit fees 5,000 - Taxation advice 2,500 - Directors club membership fees 6,000 - Discharge of mortgage on repaid loan 1,000 - Sundries (deductible) 8,650 8. Directors’ fees The three directors are paid $10,000 each. One of the directors has been ill for the whole year and his duties were performed by the other directors.