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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

  1. Shares were issued during 2017 for $120 000.
  2. Share capital was $1 541 000 at 31 December 2016.
  3. Of the $150 000 dividend, $30 000 was reinvested as part of a dividend reinvestment plan.
  4. 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.
  5. 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).
  6. The investments are held as part of a long-term investment strategy.
  7. $30 000 of bank loans is repayable within 1 year.
  8. $110 000 of other loans is repayable within 1 year.
  9. The provision for employee benefits includes $62 000 payable within 1 year.
  10. The warranty provision is in respect of a 12 month warranty given on certain goods sold.
  11. Park Ltd uses the single statement format of profit and loss and other comprehensive income and classifies expenses by function within the statement.

Required

  1. 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.  
  2. Show IAS 1 references as margin notes in your statements.
  3. Include as notes any explanations needed to justify items included in financial statements.  Place these after the financial statements.
  4. Students are permitted to use a spreadsheet tool such as excel.
  5. 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

  1. 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:

  1. 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.
  2. Prepare the operating activities section of the statement of cashflows using the indirect method of presentation
  3. Show IAS 7 references as margin notes in your statements.
  4. Include as notes any explanations needed to justify items included in financial statements.  Place these after the financial statements.
  5. Students are permitted to use a spreadsheet tool such as excel.
  6. 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 31st 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 31st 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 31st Dec 2017

Attributable To Shareholder 274000                124000                    1691000                     2089000

Park Ltd

Statement of Financial Position as At 31st 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 31st 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 31st 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 31st 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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