Included in Sales are $28,000 for goods (cost: $18,000) shipped, terms FOB destination, to a customer on 29 December 2016. The customer received the goods on 2 January 2017 and has 30 days to settle payment.

AC 3202 Corporate Accounting I, Semester B, 2017/2018

Week 3 Presentation of financial statements assignments

Question 1

Listed below is Apple Ltd.’s unadjusted trial balance at 31 December 2016.

Dr.

Cr.

Accounts Receivables

48,000

Prepaid Insurance

10,000

Inventory

12,400

Cash

16,000

Freehold Land (at cost)

200,000

Office Building (at cost)

336,000

Purchases (net)

258,000

Advertising expenses

16,000

Operating expenses

12,000

Interest expense

1,000

Other Administrative expenses

26,000

Insurance expense

4,000

Wages expense

42,000

Accounts Payable

38,000

Loans Payable (due in 2018)

20,000

Share Capital (no par value)

280,000

Retained Profits

102,400

Sales

414,000

Accumulated depreciation – Buildings

126,000

Allowance for bad debts

1,000

$981,400

$981,400

Additional information:

  1. Included in Sales are $28,000 for goods (cost: $18,000) shipped, terms FOB destination, to a customer on 29 December 2016. The customer received the goods on 2 January 2017 and has 30 days to settle payment.

  2. Apple Ltd. decided to revalue its freehold land for the first time and to reflect the valuation in the 2016 financial statements. The land has a fair value of $235,000 at 31 December 2016.

  3. Depreciation of 10% on cost on a straight-line method is to be provided for the Office Building.

  4. It was determined that the “Allowance for bad debts” account at 31 December 2016 should be $1,200.

  5. The interest expense relates to the Loan Payable (due in 2018) obtained two years ago at interest of 10% per annum payable annually on 30 June.

  6. The Prepaid Insurance represents insurance paid for the period May 2016 to February 2017 for the Office Building.

  7. Accrue $1,500 tax payable for 2016.

  8. On December 30 2016, the board of directors declared dividends of $10,000.

  9. Inventory based on a physical count of goods in the warehouse on 31 December 2016 was determined to be $32,000. Included in the physical count were $10,000 goods on consignment from Stanley Co.

  10. The bad debt expenses should be classified as administrative expenses. The wages expense should be allocated 70% to administrative expenses and 30% to selling and distribution expenses.

Required:

a. Prepare journal entries necessary for the preparation of the 2016 financial statements.

b. Prepare the Statement of profit or loss and other comprehensive income (single statement approach) (classification of expenses by function) for the year ended 31 December 2016.

c. Prepare the Statement of changes in equity for the year ended 31 December 2016.

d. Prepare the classified Statement of financial position (format A – L = E) as at 31 December 2016.

Question 2

The ledger balances at 31 March 2017 extracted from the books of Tiger Limited are as follows:

Debit

Credit

$’000

$’000

Sales

288,522

Inventories, 31 March 2017

40,825

Cost of goods sold

184,087

Distribution costs

18,526

Administrative expenses

9,490

Other income – investment income

7,597

Finance costs

7,709

Other operating expenses

2,177

Depreciation expenses

3,470

Bank loan

100,000

Accounts and other receivables

43,319

Allowance for bad debts

2,500

Cash

60,754

Intangible assets

12,693

Property, plant and equipment, at cost

341,125

Accumulated depreciation

– Property, plant and equipment

100,028

Investment property

12,216

Retained earnings, 1 April 2016

116,971

Share capital

40,000

Short-term borrowings

57,183

Accounts and other payables

23,590

Total

736,391

736,391

Additional information:

(1) Included in item “Property, plant and equipment” was a piece of machinery, machinery A, acquired on 1 April 2016 at a cost of $40,000,000 with no estimated residual value and useful life of 5 years.

Additional information is also available:

(a) The revalued amount of machinery A as of 31 March 2017 was $34,000,000. Revalued amounts of all other items in property, plant and equipment are close to the costs.

(b) Tiger Limited uses revaluation model to measure property, plant and equipment subsequently, and there is no balance of revaluation surplus on 1 April 2016.

(c) Depreciation charge on machinery A for the year ended 31 March 2017 was not made, while depreciation charges on all other items of property, plant and equipment for the year ended 31 March 2017 were made before the extraction of ledger balances.

(2) It was determined that the “Allowance for bad debts” account at year-end should be $3,200,000.

(3) The bank loan was first obtained at 1 April 2015 with a term of twelve years. Annual repayment of principal is $10 million. Interest rate of the loan is 5% per annum calculated on 31 March each year and is payable in April of the same year.

(4) The amount of tax to be provided for the year is $12,848,000.

(5) Fair value of investment property at 31 March 2017 is estimated to be $14,500,000.

(6) Depreciation expense on machinery A should be classified as “Distribution costs” in the presentation in financial statement. The depreciation expenses of other items in property, plant and equipment should be allocated 50% to “Administrative expense” and 50% to “Distribution costs”. The bad debt expenses should be classified as “Administrative expenses”.

Required:

a. Prepare journal entries necessary for the preparation of the 2017 financial statements.

b. Prepare the Statement of profit or loss and other comprehensive income (single statement approach) (classification of expenses by function) for the year ended 31 March 2017.

c. Prepare the Statement of changes in equity for the year ended 31 March 2017.

d. Prepare the classified Statement of financial position (format A – L = E) as at 31 March 2017.

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