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Movie MatriX, a sole proprietorship owned by Mason, is a cinema complex with four screens for showing movies.
In December 2022, Movie MatriX upgraded one screen to show 3D movies. The upgraded screen opened on 1 January 2023. Customers need to wear special glasses to watch 3D movies; they can purchase them from Movie MatriX for $3 a pair or bring their own.
Ensure you state relevant account names and use accurate figures to support your answers.
Movie MatriX income information for the years ending 31 March
| 2022 $ | 2023 $ | |
|---|---|---|
| Movie ticket fees received (non-3D) | 340 000 | 304 000 |
| 3D movie ticket fees received | 0 | 46 000 |
| 3D glasses sales | 0 | 8 000 |
| Total income | 340 000 | 358 000 |
Explain how 'Movie ticket fees received (non-3D)' meets the characteristics of income for Movie MatriX.
In accordance with materiality, justify whether or not the '3D glasses sales should be reported separately in the Income Statement for Movie MatriX.
Before introducing the 3D movie option, Movie MatriX surveyed customers to see if they would pay an extra $4 to see a 3D film. 75% of customers said they would. Since January 2023, Mason has monitored the different income sources for Movie MatriX by preparing a comparative Monthly Income Summary.
Movie MatriX Monthly Income Summary 2023
| January $ | February $ | March $ | |
|---|---|---|---|
| Movie ticket fees received (non-3D) | 24 000 | 25 000 | 24 000 |
| 3D movie ticket fees received | 13 000 | 15 000 | 18 000 |
| 3D glasses sales | 3 000 | 3 000 | 2 000 |
Discuss the importance of the customer survey results and the Monthly Income Summary above for decision making regarding profitability for Movie MatriX. In your answer explain:
To introduce the 3D movies, Movie MatriX purchased a new 3D projector. The 3D projector was imported from Germany and cost 26 000 Euros, which converts to NZ$45 000 excluding GST. The delivery and installation cost NZ$4 000 making the total cost of the 3D projector NZ$49 000 excluding GST.
Explain how the 3D projector would be reported in the Statement of Financial Position for Movie MatriX as at 31 March 2023 in accordance with the concepts of monetary measurement and historical cost.
The 3D projector is expected to be used for 25 000 hours before needing to be replaced. Mason can choose to depreciate the 3D projector using either the straight line method at 8% p.a. or the unit of use method at $1.96 / hr.
Explain how the depreciation on the 3D projector meets the characteristics of an expense.
Justify why 'units of use' is the most appropriate method for Movie MatriX to depreciate the 3D projector.
Movie MatriX Note 2: Property, plant, and equipment
| As at 31 March 2023 | Projectors $ | 3D projector $ |
|---|---|---|
| Cost | 90 000 | 49 000 |
| Accumulated depreciation | 34 000 | 2 352 |
| Carrying amount | 56 000 | 46 648 |
Movie MatriX pays its insurance premium of $9 000 excluding GST every quarter (three months). On balance day, 31 March 2023, $39 000 excluding GST has been paid for insurance, which includes one month's insurance paid in advance.
How should the prepaid insurance be reported in the Statement of Financial Position for Movie MatriX as at 31 March 2023? Justify why this is the case. In your answer, explain:
The Statement of Cash Flows for Movie MatriX for the year ended 31 March 2023 shows the closing bank balance overdraft is $4 100.
Justify why the Statement of Cash Flows will be important for decision making by a potential lender to Movie MatriX. In your answer, explain: