Chocolate Delights is a growing 'Dessert Shop' operating in New Zealand. They

specialise in producing chocolate desserts for the local communities in Palmerston

North. Paul Henderson, the owner, has operated the shop from his personal name as

a sole trader for many years.

In the past, Paul had inherited patented recipes for desserts. This patent stops

anyone from producing the exact same dessert, which increases the amount of

goodwill for the business.

He was halfway through the 2022 financial year and was nearing the GST turnover

threshold. Before he registered for GST, his accountant suggested creating a new

company that would shift his GST and other liability obligations from his personal

debt to a company debt.

On the 1. September 2021, based on the accountants advice, Paul decided to create

a company called Chocolate Delights Ltd. The company is currently registered for six

(6) monthly GST filing on a Payments Basis, and files financial statements on the 31

March. The company's IRD number is 111-111-111.

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Events during Summer

Paul had employed a barista to offer warm and cold beverages during the summer

seasons. He was anxious about the idea as he marketed the business on just

desserts. After doing some market research, he found that beverages could be a

great side income to compliment the deserts.

At the end of the first season, sales doubled compared to before. Paul was so

impressed with the results that he wanted to establish new operation later in the

year with a similar business model.

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Events during June 2022

In the three (3) months following March, Chocolate Delights Ltd encountered

significant growth in the warm and cold beverage market. Paul has already hired two

additional baristas to help with demand, while the other crew continues creating

desserts. His assumption was correct as people were buying both beverages and

desserts.

Due to the growth, Paul decided to expand operations into Lower Hutt on the 1st of

May. Paul managed to sub-lease a big restaurant and moved there temporary to

build up operations. Paul plans to use a similar business model, and this business

will have access to the same patented recipes.

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The Issue

Despite all this growth, on 20 June 2022, Paul requires additional funding to maintain

operations for his new shop. However, the local banks in the Greater Wellington

Region have requested to see last year's Special Purpose Financial Reports with an

inclusion of a Statement of Cash Flows. Your job will be to prepare these financial

statements for Chocolate Delights Ltd as of 31 Marc

Footer (Default Page Style) +/nInstructions

This will cover the compilation of Special Purpose Financial Reports using Xero and

Excel. Paul has provided you with a Trial Balance from a specialised POS/Accounting

system as at 31 March.

You are required to import this Trial Balance into Xero and prepare balance day

adjustments to generate the Special Purpose Financial Reports.

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Adjustments required:

More information will be available in the following chapter. Here is the summary of

adjustments you will need to make:

Received Aged Accounts Receivable and Payables Reports as at 31 March

to record into Xero. No Debtors and Creditors values are recorded in the

Trial Balance.

The Annual Loan Summary for the Motor Vehicle Finance is provided to

prepare your Loan Adjustments.

Received details regarding Payroll and GST to help you record any

adjustments into Xero.

The stocktake for ingredients at year-end was $5,650.00. Chocolate

Delights is running a periodic inventory system. A closing inventory journal

is required.

Received details on a couple of accruals and deferrals and extra

information of any bad and doubtful debts.

You have obtained the list of assets currently being used or disposed of in

the business. Use this information and Xero's inbuild asset register to

prepare the adjustments for non-current assets.

• During May 2022, Paul received the opportunity to refit all the kitchen

appliances for $10,000, worth $25,000.00 due to a competition he won!

Conduct an impairment review of the older kitchen appliances.

After providing warm and cold refreshments to customers, Paul had a

disagreement with a local barista across the road. They are currently suing

for damages for the loss of goodwill of $50,000. The lawyer stated that

there is a 50% chance of Paul losing this case in light of current

information. A provision is required for 50% of the damages.

Using your taxation understanding, prepare the tax calculation and record/n1

Related Parties

Apart from the Current Account, Paul indicated a few related party transactions he

would like to be fully disclosed in the notes for the financial statements: (Note: these

have already been accounted for in the trial balance)

1. Paul reimbursed the company the cost price totalling $500.00 excluding

GST for treats used personally

2. Paul has exclusive deals from a local store, and they weren't very

impressed with the new company formation. So instead, he was

reimbursed by the company for purchases of $20,000.00 excluding GST of

supplies under his personal name.