Park Ltd & Copper Inc. essay on financials & cashflow.

1.Preparation of statement of profit and loss and other comprehensive income; statement of changes in equity and statement of financial position

A summarised general ledger for Park Ltd is presented below for the year ended 31 December 2017.

	DR	CR
Sale of goods		4 469 000
Interest Income		6 000
Cost of sales	2 987 000
Distribution expenses	86 000
Sales and marketing expenses	820 000
Administration expenses	252 000
Interest expense	44 000
Other borrowing expenses	4 000
Income tax expense	85 000
Cash at hand	4 000
Deposits, at call	100 000
Trade debtors	450 000
Allowance for doubtful debts		14 000
Other debtors	93 000
Raw Materials Inventory	188 000
Finished Goods Inventory	714 000
Listed investments	225 000
Investment in Associates
Land and Buildings	257 000
Accumulated depreciation – buildings		36 000
Plant and equipment	1 260 000
Accumulated depreciation – plant and equipment		564 000
Patents	48 000
Accumulated amortization of patent		3 000
Goodwill	870 000
Bank loans		66 000
Other loans		570 000
Trade creditors		510 000
Provision for employee benefits		93 000
Warranty provision		37 000
Current tax payable		25 000
Deferred tax liability		135 000
Retained earnings, 1 January 2016		326 000
Dividends paid	150 000
Land revaluation surplus		50 000
Investments revaluation surplus		42 000
Share Capital		1 691 000
	$8 637 000	$8 637 000

Additional information

Shares were issued during 2017 for $120 000.
Share capital was $1 541 000 at 31 December 2016.
Of the $150 000 dividend, $30 000 was reinvested as part of a dividend reinvestment plan.
The balances of the Land Revaluation Surplus and the Investment Revaluation Surplus at 31 December 2016 were $15 000 credit and $35 000 credit, respectively.
The following revaluations were recognized during the year ended 31 December 2017: Land revalued upward by $50 000 (related income tax $15 000) and investments were revalued upward by $10 000 (related income tax $3 000).
The investments are held as part of a long-term investment strategy.
$30 000 of bank loans is repayable within 1 year.
$110 000 of other loans is repayable within 1 year.
The provision for employee benefits includes $62 000 payable within 1 year.
The warranty provision is in respect of a 12 month warranty given on certain goods sold.
Park Ltd uses the single statement format of profit and loss and other comprehensive income and classifies expenses by function within the statement.

Required

Prepare the statement of profit and loss and other comprehensive income; statement of changes in equity and statement of financial position for Park Ltd for the year ended 31 December 2017 in accordance with IAS 1, using statement captions that a listed company is likely to use.
Show IAS 1 references as margin notes in your statements.
Include as notes any explanations needed to justify items included in financial statements. Place these after the financial statements.
Students are permitted to use a spreadsheet tool such as excel.
Comparative figures are not required.

2.Preparation of a Statement of Cash flows

A summarized comparative statement of financial position for Copper Inc. is presented below, together with a statement of profit and loss and other comprehensive income for the year ended 31 December 2017.

	31 Dec 2016 $	31 Dec 2017 $
Cash	45 000	35 000
Trade receivables	69 000	105 000
Allowance for doubtful debts	(3 000)	(6 000)
Inventory	45 000	67 000
Property, plant and equipment
Investments	53 000	60 000
Plant	187 000	225 000
Accumulated depreciation - plant	(35 000)	(53 000)
	$361 000	$433 000


Accounts payable	65 000	75 000
Accrued interest	5 000	7 000
Current tax payable	15 000	18 000
Deferred Tax	30 000	37 000
Borrowings	80 000	100 000
Share Capital	100 000	100 000
Investment Revaluation Reserve	2 000	7 000
Retained Earnings	64 000	89 000
	$361 000	$433 000

Statement of Profit and Loss and Other Comprehensive Income For the year ended 31 December 2017
Sales	$1 035 000
Cost of sales	(774 000)
Gross profit	261 000
Distribution expenses	(76 000)
Administrative expenses	(96 000)
Interest expense	(7 000)
Profit before tax	82 000
Income tax expense	(24 000)
Profit for the year	58 000
Other comprehensive income
Gain on revaluation of investments (net of tax)	5 000
Total comprehensive income	$ 63 000

Additional information

The movement in the allowance for doubtful debts for the year comprises:

Balance at 31 December 2016	$ 3 000
Charge for the year	5 000
Bad debts written off	(2 000)
Balance at 31 December 2017	6 000

1.The investments are measured at fair value, with gains and losses recognized in other comprehensive income, and accumulated in the investment revaluation reserve

2.There were no disposals of plant during the year.

3.A dividend of $33 000 was paid during the year.

4.There were no acquisitions or disposals of investments during the year.

5.Copper Inc. classifies interest as an operating expense.

Required:

Using the direct method of presenting cashflows from operating activities, prepare a statement of cash flow for the year ended 31 December 2017 in accordance with IAS 1 and IAS 7.
Prepare the operating activities section of the statement of cashflows using the indirect method of presentation
Show IAS 7 references as margin notes in your statements.
Include as notes any explanations needed to justify items included in financial statements. Place these after the financial statements.
Students are permitted to use a spreadsheet tool such as excel.
Comparative figures are not required.

Summary of General Ledger and Additional Information for Park Ltd

According to IAS 1 all entities must prepare and present its financial statements as per this Internal Accounting Standard as well as per the International Financial Reporting Standards.

In both questions 1&2 IAS 1 paragraph 9 is applicable whereby it outlines how profit and loss and comprehensive income statement Gazzola(2015.Pg 7) is to be prepared and presented as well as statement of changes in equity and cash flow as well.

1.(a)

Park Ltd (Note 2)

Consolidated Statement of Profit or Loss and Other Comprehensive Income

For The Year Ended 31^st December 2017.

Notes; Amount

Revenue (sales of goods) 3 4469000

Less Cost Of Good Sold;

Cost of Sales 3 (2987000)

Gross Profit 1482000

Add Other Incomes;

Interest Income 6000

Total Income 1488000

Less Expenses;

Distribution Expenses 86000 3

Administration Expenses 252000 3

Other Expenses; 3

Sales and Marketing Expense 820000 3

Employee benefit 62000 3

Warrant expense 37000 3

Finance Cost;

Other Borrowing Expenses 4000 4

Interest Expense 44000 4

Total Expense (1305000)

Profit Before Tax 183000

Less Tax;

Income Tax Expense Note 3 (85000)

Year After Tax Profit From continuing operation 98,000

Add Profit from the Period 0

Profit for the Year 98,000

Other Comprehensive Income 0

Gain on land and investment revaluation (note 7) 42000

Total Comprehensive Income 14000

Park Ltd

Statement of Changes in Equity

For Year Ended 31^st Dec 2017

Retained Asset Revaluation Equity/Capital

Earnings Reserve/Surplus Contributed Total Equity

Ball b/f (Note2) 326000 50000 1541000 1917000

Profit For

Period 98000 0 0 98000

Other

Comprehensive

Income/loss (Note 7)

For Period 0 0 0 0

Issue of Share

Capital/Right Issue 0 0 120000 120000

Dividend Reinvest (Note 5)

0 0 30000 30000

Revaluation Surplus (Note 6)

0 92000 0 92000

Less;

Dividend paid (Note 5)

(150000) 0 0 (150000)

Income tax on (Note 6)

Revaluation 0 (18000) 0 0

Closing Balance As

At 31^st Dec 2017

Attributable To Shareholder 274000 124000 1691000 2089000

Park Ltd

Statement of Financial Position as At 31^st Dec 2017

Assets;

Current Asset’

Cash & Cash Equivalent 4000

Deposits at Call 100000

Trade and Other Receivables 436000

Other Debtors 93000

Finished Goods Inventory 714000

Raw Materials Inventory 188000

Current Assets 1535000

Non-Current Assets’

Good will (IFRS3.64) 870000

Patent (note 11) 45000

Property Plant & Equipment (note 8) 952000

List Investment (note 9) 232000

2099000

Total Assets 3634000

Liabilities;

Current Liability

Bank Loan (note10) 36000

Other loan (note10) 460000

Trade Creditors 510000

Preparation of the Statement of Profit and Loss and Other Comprehensive Income for Park Ltd

Provision for Employee Benefit (note12) 31000

Current Tax Payable (note13) 19000

Differed Tax Liability 135000

Current Liability 1191000

Amount Attributable To Shareholders 2089000

3280000

Just as it is stipulated by AASB 101 that there only ways of presenting statement of profit or loss and other comprehensive income is as single statement or two statements is exactly what has been done in this question. Whereby the use of single statements format is what has been applied as it was the specification given in the question that is to prepare one statement covering both profit or loss and other comprehensive income part Maynard (2017.Pg 4)

The below note numbers illustrate the accounting concept and regulations used preparation and presentation of the profit or loss and other comprehensive income statements.

Note 1;

Although it is not outline what kind of business Pak Ltd is engaged with we are aware that it operates a business of selling products and possibly products that it has manufactured itself this is as per the info in the trial balance where we are told that the company has finished and raw material products then we are further informed that it has cost of sales Akhmetshin(2015.Pg 900).

Note 2;

This note outlines that every statement in financial reporting has to have an heading or rather a title and period of reporting as stipulated in AASB 101.85.Whereby the face of operations should be presented via outline the company name, the item being presented and the period that is being presented for. This cuts across all other statements not just this of profit, loss and other income.

This note further stand to defend the fact that all financial and corporate regulations have been applied the likes of IFRS and Australian 2001 corporation act. This note likewise outline that the financial year of reporting is 31^st December 2017 but with of course subsequence balances brought forward for financial year 2016.

Note 3;

Revenue is reported as it is in the trial balance reporting period together with cost of sales too which do not have any item in the additional information affecting it. Expenses have been factored in but on functional basis as stipulated in AASB 101.99.Expenses are factored depending on the proximity it has towards revenue generation. Employee and warranty expenses are factored in because they were paid in that year as part of the respective provisions set in place. For Income tax expense is treated as a different component since this is the share of the state over the income made. Robinson (2015.Pg 27).

Preparation of a Statement of Cash Flows for Copper Inc.

Note 4;

This note is on finance cost whereby have include interest expense as part of finance cost because have assumed this expense is on the interest on the loan facility given to the company whereas other borrowing expense is too include because it is expensed under the borrowings made Henderson(2015.Pg 38)

The law as per AASB 134.10 expects that all preparation of statements of changes in equity be done with a title heading and total, sub-totals with them. At the left side of the statement of changes in equity it is expected to see all the items referenced there with their top equivalent representation and the amount at their right side.

Note 5;

All the items appearing in this platform are mostly the item that has changes in equity part of the financial position. Dividend reinvested portion involves that part of paid dividend whose owners have agreed to reinvest this amount so as part of their shareholding portion. Dividend paid of 150000 likewise forms part of this because it reduces the retained earnings

Note 6;

The revaluation surpluses figure in the statement of changes of equity is a sum up of both land and investment i.e. 50000+42000.The income tax on this revaluation surplus is likewise required to be factored in so as to recognize the net effect.

Note 7;

Other comprehensive income Bradbury (2016.Pg 50) in this platform is not directly recognized since they are not presented, for example items like foreign exchange rate gain or loss there is no information relating to it, gain or loss sale of financial instruments, gain or loss of fair value cash flow hedges, income on associate investment share, income from gain or loss of defined benefit plans.

Ideally all these components appear but there is no income, gain or loss from it is recognized.

Guidance notes Statement of Financial Position;

Financial position declares the real picture, face and position of a firm, it shows and items that are actual i.e. they are always at net book value and in good condition.

Note 8,

Land & Building Plant & Equipment

Bal b/d 257000 1260000

Revaluation 35000 0

Less accumulated depreciation (36000) (564000)

256000 696000=952000

Note 9,

List Investment

Bal b/d 225000

Revaluation 7000

232000

Note 10,

Bank loan=66000-30000=36000

Other loans=570000-110000=460000

Note 11,

Patent value is less the amortization figure of 3000 hence =48000-3000=45000

Note 12,

Provision For employee benefit was 93000 but out of it they paid 62000 thus the balance=93000-62000=31000

Note 13,

Current tax payable=25000-6000=19000

2.Use of direct Method Reid (2017, Pg 11)

Cooper Incl

Statement of Cash-flow

For The Year Ended December 31^st 2017

Cash-flow From Operating Activities (IAS7.10)

Trade receivable (sales on credit) increase (30000)

Allowance for doubtful debt increase (3000)

Increase in inventory (22000)

Increase in accounts payable 10000

Accrued interest increase 2000

Income tax paid (IAS7.35) (24000)

Net cash operated by operating activities (67000)

Cash flow from investing activities (IAS7.10)

Purchase of PPE (20000)

Investment (7000)

Net cash from investing activities (27000)

Cash flow from financing activities (IAS7.10)

Increase in borrowings 20000

Deferred tax 7000

Interest expense (IAS7.31) (7000)

Retained Earnings increase 25000

Profit for the year 58000

Dividend (IAS 7.31) (33000)

Current investment revaluation (7000)

Accrued interest expense (7000)

Investment revaluation reserve (5000)

Net Cash flow from financing activities 13000

Net increase/decrease in cash =79000-67000-27000= (15000)

Cash balance brought down (IAS7.45) 4500

Ending Cash Balance 35000

Use of indirect method; Bradbury (2011.Pg 130)

Cooper Inch

Statement of Cash-flow

For The Year Ended December 31^st 201

Operating activities ;( IAS7.10)

Profit before tax 82000

Add Non cash adjustment

Interest expense 7000

Net changes in working capital (note14) (45000)

Taxes reclaimed (IAS7.35) 24000

Net cash from operating activity 68000

Investing Activities

Purchase of PPE (20000)

Investment (7000)

Net cash from investing activities (27000)

Financing activities

Increase in borrowings 20000

Deferred tax 7000

Interest expense (7000)

Current tax payable (15000)

Retained earnings sent (63000)

Dividend paid (33000)

Investment revaluation reserve (5000)

Net cash from financing activities (96000)

Net cash from all activities 68000-27000-96000 (55000)

Add cash and cash equivalents b/d (IAS7.45) 45000

Cash and cash equivalent C/F (Note 15) 35000

Guidance notes on preparation of cash flow statement

Note 14;

Trade receivable (sales on credit) increase (30000)

Allowance for doubtful debt increase (3000)

Increase in inventory (22000)

Increase in accounts payable 10000

Changes in working capital (45000)

According to IAS 7 flow of cash is presented in two different methods, i.e. one is direct the other one is indirect.

Note 15,

According to IAS 7.46, cash equivalents are the end result of cash flow where it entails the cash at hand and deposits made as well as short term convertible notes that are highly liquid

References;

Akhmetshin, E.M. and Osadchy, E.A., 2015. New requirements to the control of the maintenance of accounting records of the company in the conditions of the economic insecurity. International Business Management, 9(5), pp.895-902.

Bradbury, M., 2011. Direct or indirect cash flow statements?. Australian Accounting Review, 21(2), pp.124-130.

Bradbury, M.E., 2016. Discussion of ‘other comprehensive income: a review and directions for future research’. Accounting & Finance, 56(1), pp.47-58.

Gazzola, P. and Amelio, S., 2014. Is total comprehensive income or net income better for the evaluation of companies' financial performance?.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

Maynard, J., 2017. Financial Accounting, Reporting, and Analysis. Oxford University Press.

Reid, W. and Myddelton, D.R., 2017. Cash flow statement. In The Meaning of Company Accounts (pp. 16-16). Routledge.

Robinson, T.R., Henry, E., Pirie, W.L. and Broihahn, M.A., 2015. International financial statement analysis. John Wiley & Sons.

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