08 Tutorial Questions - ACCTN202 PDF

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Tutorial Questions for 6 May 2019 Tutorial Q17 Country Trading Limited deals with farm equipment and machines throughout New Zealand. It is registered under the Companies Act 1993 with contributed equity comprising of 12,000,000 ordinary shares. Set out below is a list of balances extracted from the accounts of the company as at financial year end date 31st December 2013: Debit $ Sales Purchases Inventory as at 1st January 2013 Rental Income Dividend Income Salaries and Wages Other Expenses Interest Expense on Long Term Loan Audit Fees Donation Directors’ Fees Bank Buildings at cost Accumulated Depreciation – Building Plant & Equipment at cost Accumulated Depreciation – Plant & Equipment Vehicles at cost Accumulated Depreciation – Vehicles Land at fair value Revaluation Reserve – 1st January 2013 Investment in Shares at cost Accounts Receivable Allowance for Doubtful Debts Accounts Payable Long Term Loan Contributed Equity Treasury Stock Dividends paid Retained Earnings—1st January 2013

Credit $ 46,400,000

34,600,000 500,000 480,000 400,000 3,640,000 860,000 150,000 80,000 70,000 740,000 60,000 6,000,000 1,600,000 4,800,000 1,000,000 1,000,000 340,000 12,000,000 2,000,000 4,800,000 4,040,000 60,000 2,000,000 3,000,000 16,580,000 560,000 600,000 _________ 74,500,000

640,000 74,500,000

The following additional information is relevant for preparing financial statements for the year ended 31st December 2013: 

Allowance for doubtful debts is to be made at a rate of 2% on the balance of accounts receivable outstanding as at 31st December 2013. Bad debts of $40,000 are to be written off.



Depreciation for the year ended 31 st December 2013 is to be provided on the following basis: o Land: No depreciation is to be provided.

o Buildings: 2% on cost. o Plant and equipment: 10% reducing balance basis. o Vehicles: Based on mileage. The total mileage expected from the vehicles is 1,800,000 kilometres. For the year ended 31 st December 2013 the mileage used was 270,000 kilometres. 

Long term loan of $3,000,000 was outstanding as at 1 st January 2013. Interest on the loan is payable at 10% per annum. An amount of $400,000 representing the principal component of the long term loan is due for repayment on 20th January 2014.



Investment in shares comprises of shares available-for-sale $2,800,000 and shares held for trading $2,000,000. As at 31 st December 2013, the market value of shares availablefor-sale is $3,800,000 and market value of the shares held for trading is $3,200,000. These market values are considered to be the fair value of the shares.



The cost of inventory as at 31 st December 2013 is $400,000 and the net realisable value is $450,000



A professional valuation consultant re-valued land on 31st December 2013 at $10,200,000 using fair value. The revaluation reserve as at 1 st January 2013 was in respect of revaluation on land in previous years.



Building was re-valued for the first time. The new market value of the building as at 31 st December 2013 is $4,000,000.



An examination of the ledger account, shows that other expenses comprises of the following: $ Accounting fee Bank service charges Fines and penalties Entertainment expenses Distribution expenses Insurance Advertising and sales promotion



The values of other non-current assets are as follows:

Vehicles Plant and Equipment





80,000 20,000 22,000 50,000 490,000 80,000 118,000 860,000

As at 31st December 2013 Value In Use Net Selling price $400,000 $350,000 $4,400,000 $3,600,000

The Inland Revenue Department will only tax the gains on the financial assets when realised. Fines, penalties and entertainment expenses are not deductible for tax purposes. Dividend income received is net of taxes. Assume a tax rate of 28%.

Expenses are classified in the Statement of Comprehensive Income by nature.

 

The contributed equity as at 31 December 2013 includes 1,000,000 ordinary shares issued in September 2013 at $3 per ordinary share. In the statement of comprehensive income the company classifies the following as other expenses: o Bank service charges o Fines and penalties o Entertainment expenses Required: Prepare the following for Country Trading Limited: (a)

Balance day journal adjustments (without narrations) in general journal form for the year ended 31st December 2013.

(b)

A Statement of Comprehensive Income for the year ended 31st December 2013.

(a) Date

Details Bad Debts A/C receivable Doubtful Debts Provision for Doubtful Debts (4,040,000 -40,000) x 2% 60,000 Depreciation – Building 6,000,000 x 2% = 120,000 Accumulated Depreciation – Building Depreciation Building Depreciation P&E (4.8 m – 1 m ) x 10% Accumulated Depreciation – P&E Depreciation PE Depreciation – vehicles 270000 /1800000 x 1m Accumulated Depreciation – Vehicles Interest 3m x 10% - 150,000 Accrued Interest Long Term Loan Long term Loan Due Within 1 year Long term loan due 1 year Investment 2.8m – 3.8m = 1m Gain from investment available for sale Investment 2m – 3.2m = 1.2m Gains from financial assets held for trading Revaluation Reserve= 12,000,000 – 10,200,000 =1,800,000 Land Accumulated Depreciation 1.6m + 120,000 Building Revaluation Loss = 6,000,000 – 1,720,000 – 4,000,000 Building Impairment of Vehicles 1,000,000 – 340,000 -150,000 – 400,000 = 110,000 Accumulated impairment No Impairment of P&E 4.8m – 1m – 380k – 4.4m Taxation Expense 6,990,000 - 400,000 – 1,200,000 + 280,000 + 22,000 + 50,000 + 110,000 x 28% = 5,852,000 x 28% =

Dr. 40,000

Cr. 40,000

20,000 20,000 120,000 120,000 380,000 380,000 150,000 150,000 150,000 150,000 400,000 400,000 1,000,000 1,000,000 1,200,000 1,200,000 1,800,000 1,800,000 1,720,000 1,720,000 280,000 280,000 110,000 110,000 1,638,560

1,638,560 Tax Payable

1,638,560

(b) Country Trading Limited Statement of Comprehensive Income for the year ending 31/12/2013

Revenue Other Income and Gains (Div. 400,000 + Rental 480,000 + Gain investment 1,200,000)

$ 46,400,000 2,080,000 48,480,000

Purchases Changes inventory Revaluation loss Directors fees Doubtful debts and bad debts Audit fees Donations Salaries and wages Accounting fee Distribution expenses Insurance Advertising and promotion Depreciation (120 + 380 + 150) Impairment loss Other expenses (22 + 50 + 20 ) Operating profit Finance cost 150,000 +150,000 Profit before tax Taxation 6,990,000 - 400,000 – 1,200,000 + 280,000 + 22,000 + 50,000 + 110,000 x 28% = 5,852,000 x 28% = 1,638,560 Profit for the year Other Comprehensive income Revaluation decrease land Gain on revaluation of investment Total comprehensive income EPS 5,351,440/ 12m

34,600,000 100,000 280,000 740,000 60,000 80,000 70,000 3,640,000 80,000 490,000 80,000 118,000 650,000 110,000 92,000 7,290,000 300,000 6,990,000 1,638,560 5,351,440 1,800,000 1,000,000 4,551,440 45cents

Tutorial Q18 Refer to the facts in Tutorial Q17 and prepare the following for Country Trading limited: (a)

A Balance Sheet as at 31st December 2013.

(b)

Supplementary note for property, plant and equipment reported in the Balance Sheet as at 31st December 2013. (c) Supplementary note for shareholders’ equity reported in the Balance Sheet as at 31st December 2013.

(a) Country Trading Limited Balance Sheet as at 31/12/2013

Assets Non-current assets PPE Financial assets available for sale Total non-current assets Current assets A/C Rec. (4,040,000 – 40,000 – 80,000) Inventories Bank overdraft Financial assets held for trading Total current assets Total assets Liabilities Non-current liabilities Long Term Loan Total non-current liabilities Current liabilities Accounts Payable Tax payable Accrued interest Long term loan due within 12 months Total current liabilities Total liabilities Net Assets Equity (CE 16,580,000 + RE 640,000 + 5,351,440 + RR 2,000,000 – 1,800,000 + FV Res 1,000,000 – Div. 600,000 – TS 560.000)

18,020,000 3,800,000 21,820,000 3,920,000 400,000 60,000 3,200,000 7,580,000 29,400,000 2,600,000 2,600,000 2,000,000 1,638,560 150,000 400,000 4,188,560 6,788,560 22,611,440 22,611,440

(b) Supplementary note for Property, Plant and Equipment Land Buildings At 1 Jan 2013 Cost or valuation Accumulated depreciation Net book value Year ending 31 Dec 2013 Opening net book value Revaluation Impairment Depreciation expense Net book value

12,000,000

Plant and Equipment

Vehicles

Total

12,000,000

6,000,000 -1,600,000 4,400,000

4,800,000 -1,000,000 3,800,000

1,000,000 -340,000 660,000

23,800,000 -2,940,000 20,860,000

12,000,000 -1,800,000

4,400,000 -280,000

3,800,000

660,000

10,200,000

-120,000 4,000,000

-380,000 3,420,000

-110,000 -150,000 400,000

20,860,000 -2,080,000 -110,000 -650,000 18,020,000

At 31 Dec 2013 Cost or valuation 10,200,000 4,000,000 4,800,000 1,000,000 Accumulated depreciation and -1,380,000 -600,000 impairment Net book value/carrying amount 10,200,000 4,000,000 3,420,000 400,000 The land was re-valued on 31/12/2010 The surplus on revaluation has been credited to the asset revaluation reserve in equity. If land was stated at historical cost the amount would be $12,000,000 Depreciation is calculated on the straight-line basis at the following rates: Land No Depreciation Buildings 2% per annum Plant and equipment 10% reducing balance Motor vehicles mileage used method

20,000,000 -1,980,000 18,020,000

(d)

Equity Contributed equity Comprises 12 000 000 ordinary shares fully paid Treasury Stock

16,580,000 -560,000 16,020,000

Included in the contributed equity is an amount of $3,000,000 representing capital contribution of 1,000,000 ordinary shares that were issued during the year ended 31 December 2013. The company has only one class of share. Reserves Retained earnings Balance 1 January 2013 Revaluation during the current year Earnings for the year Distributions Balance at 31 Dec. 2013

640,000 5,351,440 -600,000 5,391,440

Asset revaluation reserve 2,000,000 -1,800,000

Fair value reserve

200,000

1,000,000

1,000,000

Total

2,640,000 -800,000 5,351,440 -600,000 6,591,440...