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Group Case

4 Pages

Administrative Studies
Course Code
ADMS 3585
Donna Rex

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Accounting 35852014 WinterGroup AssignmentYork UniversityYORK Limited YORK is a medium sized privately owned company located in Toronto The main focus of the business is to supply all the merchandise to its chain of 100 franchised stores All of the franchise stores are individually owned YORK is able to obtain low prices due to its significant buying power YORK receives a royalty on all sales made by the franchise stores In order to push sales YORK initiated a campaign across all its franchised stores in 2014The contest awards the store with the highest improvement in income before taxes between 2014 and 2013The formula to calculate the change is based on Income before tax in 2014Income before tax in 2013Income before tax in 2013 The winning store will get a cash prize of 100000 The contest also requires that all stores need to adopt IFRS in reporting the financial results Based on a preliminary review of the results the Calgary store appears to be the winner as they reported a percentage increase of 300 Their net income before Tax for 2013 is 100000 and their net income before Tax for 2014 is 400000 This is followed by the Vancouver store who came in a very close second with a 290 increase You have been engaged by YORK to prepare a report to determine the appropriateness of the accounting methods the Calgary store uses and ensure that the accounting methods used were fair in the context of the contestYou have gathered the following information 1 During the fiscal year ended October 31 2013 the Calgary store wrote off 75000 of inventory because management deemed that it could not be sold In February 2014 these inventories were sold for 950002 During 2014 the Calgary store changed its inventory valuation method from average cost to FIFO Calgarys store owner explained that the change was to make the stores accounting records consistent with other stores in the chain As of October 31 2014 76 of the YORK stores use FIFO The effect of the change was to increase income by 25000 in 2013 and by 37000 in 2014 versus the amount that would have been reported using average cost3 Most of the accounts receivable came from corporate accounts which bought in large quantities In 2014 this segment of the business grew by almost 40 The payment terms are usually between 6090 days Kitty the Credit Manager told the owner of the Calgary store that the analysis at the end of October 2014 showed that an appropriate balance for the allowance for doubtful accounts should be 1000000 using the accounts receivable aging method and the balance in the allowance account prior to making the adjusting entry was a 100000 credit balance As a result Kitty made an entry to debit the bad debt expense by 1000000 However the owner told Kitty to change the aging category of a large account from over 120 days to current status and prepared a new invoice to the customer with a revised date that matched the new aging category This brought the balance from 1000000 down to 400000 The owner explained that most of the corporate accounts had good payment track record4 Included in the capital assets was a patent which the Calgary Store acquired from Towers Software Company to handle special print jobs for their small print operation The Calgary Store found this acquisition strategic as it could generate a new source of revenue by offering unique printing services to local businesses The patent was purchased on November 2 2012 for 100000 At the time of purchase the Calgary Store matched the life of the patent to the
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