In its ongoing efforts to make a teacher’s life easier, Large Mart is currently attempting to design and develop an interactive screen called “Collaborate”. The interactive screen will allow teachers to present interactively with sound, touch and animation. However, Large Mart has recently discovered that an Italian company called Milano already holds a patent for this type of device. As a result, Large Mart has given up on its development attempts and decided to sell the Milano product, which is called “Interrativo”. In order to sell Interrativo, Large Mart has rented a second store in Albury. On 1st June 201x Large Mart signs 12 months renting contract. The rent for the store will be $2,580 per month, and the renting contract requires Large Mart to prepay all the rent for the 12-month duration on 1st June 201x. On 1st June 201x once the renting contract for the new store is signed, Large Mart employs a Game Designer Educator (John) to manage the store in Albury. John is employed for 5 hours per day everyday (7 days a week). He begins his jobs on the same day and will be paid $60 per hour. John’s wage for June will be paid on the 5th July 201x. An important part of the new store design is a collaborative hub which staff can use for training and demonstration purposes before customers can purchase the product. The collaborative hub in the new store is designed in Shenzhen and can be manufactured in Sydney. The collaborative hub is delivered on 2nd June 201x. On that day, Large Mart also receives an invoice for $45,000 from the Sydney manufacturer of the collaborative hub, as well as an invoice for $25,000 from the designers in Shenzhen. The director of the Large Mart engineering department visited the manufacturing team in Sydney to approve the final production stage of the collaborative hub before the start of the manufacturing process as the manufacturing process could not have started without this approval. The director did not make this trip for the specific purpose of visiting the manufacturing team. Instead, the director traveled to Sydney to attend a meeting with Online Edu Services a business partner and visited the manufacturing team for only a couple of hours. The costs of the director’s trip to Sydney are $2,000 for flights and accommodation and $300 for a return Uber fare to the manufacturer of the collaborative hub. This additional Uber fare would not have been incurred if the director would only have visited Online Edu Services the business partner, and not the manufacturer of the collaborative hub. All costs of this trip were incurred on credit and will be paid on 5th July 201x. On 3rd of June after the new store is completed, Large Mart orders 25 interactive screens from Milano for a price of $5000 per interactive screen. The interactive screens arrive on 4th of June 201x, and are paid via electronic funds transfer (EFT) on 21th June. On 6th June 201x, UNE purchases 8 interactive screens from Large Mart on credit for $21,000 per interactive screen for the business department. On 11th June 201x UNE pays the interactive screens after deducting an early payment discount of 10%. On 8th June 201x, the UNE business department returns three damaged interactive screens that were purchased on 6th June 201x. Large Mart accepts the return and updates the invoice for UNE by deducting the full price of the interactive screens. Large Mart destroys the three damaged interactive screens as they are not in a condition that would allow them to be re-sold. Large Mart does not receive any compensation from Milano for the damaged interactive screens. On 9th June 201x, Large Mart purchases another 70 interactive screens from Milano at a special price of $4,900 per interactive screen. Normally the interactive screens would cost $5,000 each, but Large Mart was able to receive a volume discount of $100 for each interactive screen. The interactive screens arrive on the same day, and Large Mart pays this new delivery of interactive screens three days later. On 13th June 201x, Large Mart sells 15 interactive screens to La Trobe University (LTU) for $16,000 per interactive screen. LTU pays via EFT on the next day. On 1st July 201x, Large Mart required specialized equipment to manufacture Interrativo2 and the purchase price is $269,000. However as Large Mart did not have sufficient cash resources at that time it decided to enter into a lease agreement with Ascot Ltd. The duration of the lease is 4 years, and the equipment has an expected useful life of 5 years. The lease contract requires Large Mart to pay $73,000 (via EFT) on 30th June of each year during the lease period starting 30 June 201x +1. The annual payment includes $3,000 to reimburse the lessor for costs associated with the equipment. The lease contract states that Large Mart can cancel the agreement at any time during the lease period, but Large Mart must pay an exit fee equal to 55% of the remaining lease liability if the lease contract is cancelled. The interest rate implicit in the lease is 8%. It is expected that the equipment has a residual value of $30,000 at the end of its useful life. At the end of the lease period, Large Mart will be able to purchase the equipment for a payment of $50,000. It is expected that the equipment has a fair value of $65,000 at the time Large Mart is able to exercise the purchase option. IMPORTANT NOTE: Large Mart has decided to use the exemption rules outlined in AASB 16, paragraphs 5-8 for all leased items to which these exemptions apply.
Question 3) Provide a detailed explanation whether or not the expenditures associated with the director’s trip to Sydney are part of the cost of the collaborative hub (1 mark), and calculate the cost of the collaborative hub
