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KATHMANDU HOLDINGS LIMITED (KHL)
This assessment is based on Kathmandu Holdings Limited's Annual Report for the year ended 31 July 2020. Kathmandu Holdings Limited is a designer, retailer, and wholesaler of apparel, footwear, and equipment for surfing and the outdoors. Kathmandu Holdings Limited (The Group) consists of three iconic brands: Kathmandu, Rip Curl, and Oboz (a North American brand of handmade outdoor footwear).
You can use KHL to refer to Kathmandu Holdings Limited in your answers.
The extract below is from the notes to the consolidated financial statements in Kathmandu Holdings Limited's Annual Report for the year ended 31 July 2020.
General information
The Company is a limited liability company incorporated and domiciled in New Zealand.
What does limited liability mean? How does this apply to the shareholders of Kathmandu Holdings Limited?
In your answer, include the circumstances in which limited liability may not protect a director (who is also a shareholder) of Kathmandu Holdings Limited.
The comment below is from the Chairman and CEO's letter in Kathmandu Holdings Limited's Annual Report for the year ended 31 July 2020:
Rip Curl acquisition
We are very pleased with the successful acquisition and integration of Rip Curl over the last nine months. Rip Curl is an iconic global surf brand and action sports company, with a vision to be regarded as 'the Ultimate Surfing Company'.
Justify how this statement could be relevant to satisfying the information needs of a potential investor of Kathmandu Holdings Limited.
Justify ONE limitation of general-purpose financial statements in Kathmandu Holdings Limited's Annual Report, using a specific example in your explanation.
The extract below is from the notes to the consolidated financial statements in Kathmandu Holdings Limited's Annual Report for the year ended 31 July 2020.
Changes in accounting policies
Details about changes in accounting policies during the period are included in the Operating segments under Section 2.1 of the notes to the financial statements, following the acquisition of Rip Curl Group Pty Limited in October 2019.
How does the above information aid comparability in Kathmandu Holdings Limited's general-purpose financial statements? Justify why this is important for an interested user of the company.
Why is an auditor's report from PricewaterhouseCoopers included in Kathmandu Holdings Limited's Annual Report? Justify your answer.
Depreciation on Kathmandu Holdings Limited's property, plant, and equipment is calculated using straight-line and diminishing-value methods.
Justify how this meets the expense recognition criteria of faithful representation.
For the year ended 31 July 2020 Kathmandu Holding Limited's trade receivables are recorded at $62 143 000 (value of invoices sent out) less an allowance for expected credit losses (doubtful debts) of $10 329 000.
Identify and justify the measurement base that has been applied to the reporting of Kathmandu Holding Limited's trade receivables at an amount of $51 814 000.
The following extract shows the policy for the non-physical assets used by Kathmandu Holdings Limited to operate the business, generating revenues and profits.
Intangible assets
Software costs
Software costs have a finite useful life. Software costs are capitalised and written off over the useful economic life.
Costs associated with developing or maintaining computer software programs are recognised as an expense when incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by The Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the cost of software development employees.
Software is amortised using straight-line and diminishing-value methods at rates of 20–67%.
Justify the reporting of Kathmandu Holdings Limited’s software costs under its intangible assets policy.
In your answer: