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T1 2019
Canadian Beach Pty Ltd is a business that manufactures and sells beach furniture to suppliers across Australia. The business was established in 2012 and is a large proprietary company with two directors, Ashlyn Sea and Damon Ocean. The business operates in Mornington and is registered for Goods and Services Tax (GST). The business has a financial year ending 30 June. When commencing the business on 1 January 2012, Canadian Beach Pty Ltd purchased the following assets for $2,400,000 (plus GST):
Fair value of assets
The purchase of the assets comprised $900,000 cash and a loan for the remaining amount. Canadian Beach Pty Ltd also had additional costs/discounts relating to the purchase: legal fees for the land purchase $7,500 (plus GST), installation costs of the machinery $9,900 (plus GST), renovating costs to make the building suitable for intended use $30,000 (plus GST), training of employees on how to use the machinery’s additional features $3,600 (plus GST), shipping of the machinery $2,100 (plus GST) and trade discount of 10% of the GST inclusive amount for the machine
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The building is expected to have a useful life of ten years and an estimated residual value of $150,000. Canadian Beach Pty Ltd adopted the straight-line depreciation method for the building and diminishing balance method (20%) for the machine.
Canadian Beach Pty Ltd adopted the revaluation model for both the land and building, and the cost model for the machinery. On 30 June 2015, Damon and Ashlyn obtained an independent valuation of the land and buildings as suggested by their accountants. The independent valuation indicated that the land’s fair value was $1,500,000 and the building’s fair value was $1,050,000. The valuation report stated that the residual value of the building has been revised to $250,000 and is expected to last an additional five years.
On 30 June 2017, there was a very bad storm that has damaged both the building and machinery.
They are informed that a large tree fell on the roof which caused the roof to collapse and rain to enter the building. Due to this event it has caused severe damage to the building. As a result of the damage, Damon and Ashlyn need to revise the recorded value of the building. The building is revalued downwards to $450,000.
After the storm damage in June 2017, insurance pays for the damages to the building to be repaired. As the business was not able to produce as much inventory as it normally would, many clients found another supplier. Following this, Damon and Ashlyn decide to cease Canadian Beach’s manufacturing operations due to the business’ recently poor performance and future outlook.
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The company retains the building and rents it out as the building can be used to secure a new loan for a new business venture. Rather than deregistering the company, Damon and Ashlyn decide to rebrand Canadian Beach Pty Ltd as a beach club for wealthy clients who can enjoy a club house with facilities situated on the beach with access to water activities. As the business is no longer manufacturing beach furniture, the machinery is of no use. Damon and Ashlyn decide to scrap the machinery on 1 October 2017. The proceeds of the new loan are used to open the company’s first club house in Brighton, Melbourne in June 2018.
Canadian Beach Pty Ltd offers annual club membership to members under the following terms and conditions:
 A once-off non-refundable joining fee of $1,800 (plus GST) when the member initially signs a new contract. The joining fee is used to cover the administrative costs of enrolling a new member.
 A monthly membership fee of $240 (plus GST) a month which is payable in advance.
 A maximum membership period of 24 months, after which anyone who wants to continue their membership needs to roll-over their membership and sign new contract with Canadian Beach Pty Ltd. The non-refundable joining fee is waivered for customers who have been previous members of the business.
On 1 June 2018, 120 new members sign a contract with Canadian Beach Pty Ltd for the membership.
Damon and Ashlyn have notified the consultants that they were unsure whether their treatment of non-current assets and revenue were correct. They would like guidance from Multi Premium to ensure that they have complied with the accounting standards and ensure that they do not make similar mistakes in their new business venture.

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