08 Tutorial Questions Week 10,11 & 12 PDF

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Tutorial – Presentation and disclosure Metro Trading Limited is registered under the Companies Act 1993 and operates throughout New Zealand. Set out below is a list of balances extracted from the accounts of the company as at financial year end date 31st December 2011:

Bank Land at fair value Buildings at cost Accumulated Depreciation – Building Plant & Equipment at cost Accumulated Depreciation – Plant & Equipment Vehicles at cost Accumulated Depreciation – Vehicles Contributed Equity (1,000,000 ordinary shares) Preference Shares Treasury Stock Purchases Directors’ Fees Allowance for Doubtful Debts Audit Fees Donation Accounts Payable Accounts Receivable Dividend Income Dividends paid Interest Expense Rental Income Inventory as at 1st January 2011 Long Term Loan Other Expenses Retained Earnings—1st January 2011 Revaluation Reserve – 1st January 2011 Investment in Shares at Cost Sales Salaries and Wages

Debit $ 30,000 6,000,000 3,000,000

Credit $

1,000,000 2,400,000 460,000 800,000 274,000 5,000,000 5,000,000 280,000 17,200,000 270,000 50,000 40,000 30,000 1,000,000 2,600,000 200,000 300,000 154,000 240,000 250,000 2,600,000 350,000 320,000 1,000,000 2,800,000 1,840,000 38,344,000

21,200,000 _________ 38,344,000

The following additional information is relevant for preparing the financial statements for the year ended 31th December 2011:  Bad debts of $20,000 are to be written off.  Allowance for doubtful debts is to be provided at a rate of 2% on the balance of accounts receivable outstanding as at 31st December 2011, after the bad debts adjustment above.

 Depreciation for the year 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 900,000 kilometres. For the year ended 31st December 2011 the mileage used was 67,500 kilometres.  Long term loan of $2,600,000 was outstanding as at 1st January 2011. 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 20 th January 2012.  Investment in shares comprises of equity instruments $1,800,000 and shares held for trading $1,000,000. As at 31st December 2011 the market value of the equity instruments is $2,000,000 and market value of the share1s held for trading is $1,600,000. These market values are considered to be the fair value of the shares.  The value of inventory as at 31st December 2011 is as follows:  Cost $200,000  Net realisable value $160,000  A professional valuation consultant re-valued land on 31st December 2011 at $5,400,000 using fair value. The revaluation reserve as at 1 st January 2011 was in respect of a revaluation of land in previous financial reporting periods.  Building was re-valued for the first time. The new market value of the building as at 31st December 2011 is $2,600,000.  The values of other non-current assets are as follows: As at 31th December 2011 Value In Use Net Selling price Vehicles $400,000 $390,000 Plant and Equipment $1,950,000 $1,900,000  Other expenses comprises of the following: Accounting fee $40,000 Bank service charges $10,000 Fines and penalties $12,000 Entertainment expenses $24,000 Distribution expenses $160,000 Insurance $40,000 Advertising and sales promotion $64,000 $350,000 (Question 4 – continued on next page) CONTINUED

(Question 4 – continued)  The tax for the period is $ 424160  Expenses are classified in the Statement of Comprehensive Income by function.  Included in the contributed equity of $5,000,000 is an amount of $3,000,000 representing capital contribution from issue of ordinary shares during the year ended 31st December 2011.  Preference shares that were issued in 2009 are redeemable on 18th July 2019. The preference share are cumulative with fixed dividends and non participatory. Required: Prepare the following for Metro Trading Limited: (a) Balance day journal adjustments (without narrations) in general journal form for the year ended 31st December 2011. Ba dde b t s Ac c ou nt sr e c e i v a bl e Dou bt f ulDe bt s Pr o vi s i o nf o rdoub t f uld e bt s 2% x( 2, 6 00, 000–20, 0 00)–50, 0 00 De pr e c i a t i on-Bui l di n gs Ac c u mul a t e dde p r e c i a t i on–Bui l di n g 2% x3 , 000, 0 00=60, 00 0 De pr e c i a t i on-Pl a n t& Eq ui p me nt Ac c u mul a t e dde p r e c i a t i on–Pl a nt&Eq ui p me nt 10 % x( 2, 4 00, 000–460 , 000) De pr e c i a t i on–Ve hi c l e s Ac c u mul a t e dde p r e c i a t i on–Ve h i c l e s ( 67, 5 00/90, 0 00)x80 , 000

20 , 000 20 , 000 1, 6 00 1, 6 00

60 , 000 60 , 000

19 4, 000 19 4, 000

60 , 000 60, 00 0

Lo n gt e r ml oa n Cur r e ntpor t i onofl oa n

40 0, 000

I nt e r e s te xpe ns eonl oa n Ac c r ue dI nt e r e s t onl oa n ( 2, 60 0, 000x10%)-1 54, 000

10 6, 000

I n v e s t me nti ns ha r e sa tc os t Av a i l a bl ef o rs a l er e v a l ua t i on( OCI )

20 0, 000

40 0, 000

10 6, 000

200, 00 0

2, 0 00, 00 0–1, 80 0, 000 I n v e s t me nti ns ha r e sa tc os t He l df ort r a di n gr e v a l ua t i on( PL) 1, 6 00, 00 0–1, 00 0, 000

60 0, 000

COGS I n v e nt or y Ope ni n gI n v e nt o r y

250 , 000

I n v e nt or y COGS Cl o s i n gi n v e nt or y

160, 0 00

Re v a l ua t i onr e s e r v e La nd

60 0, 000

60 0, 000

25 0, 000

16 0, 000

60 0, 000

Ac c umul a t e dde pr e c i a t i on Bui l di n g Bui l di n g Re v a l ua t i onRe s e r v eBu i l di n g

1, 0 60, 00 0 1, 0 60, 00 0 66 0, 000 66 0, 000

I mpa i r me ntofVe hi c l e s Ac c umul a t e di mpa i r me ntv e hi c l e s 80 0, 000–274, 0 00–6 0, 000–40, 00 0 Ta xa t i on Ta xPa y a bl e

66 , 000 6 6, 00 0

42 4, 160 42 4, 160

(b) A Statement of Comprehensive Income for the year ended 31st December 2011. Metro Trading Ltd Statement of Comprehensive Income For the year ended 31st December 2011 Re v e nue Sa l e s Ot he rI nc omea ndGa i ns Ot he rExpe ns e s Pur c ha s e s Cha n g e si ni n v e nt o r y De pr e c i a t i on-P&E Admi ni s t r at i v eExpe ns e s

21, 2 00, 00 0 1, 0 40, 00 0 22 , 240, 0 00 17, 2 00, 000 90, 0 00 194 , 000

Di r e c t o r sf e e s Aud i tf e e s Do na t i o ns Sa l a r i e sa ndwa g e s Ac c ou nt i n gf e e I ns u r a nc e De pr e c i a t i on–Bui l d i n g Ot he re xpe ns e s Do ubt f ula ndba dde bt s Di s t r i but i onandMar ke t i ngEx pe ns e s Di s t r i bu t i one xpe ns e s Ad v e r t i s i n ga ndpr omo t i on De pr e c i a t i on–Ve hi c l e I mpa i r me ntl o s s Op e r a t i n gpr o fit Fi na nc ec os t( 1 54, 000+106, 0 00) Pr o fitbe f o r et a x Ta xa t i on Pr o fitf o rt hey e a r Ot he rc ompr e he ns i v ei nc ome Re v a l u a t i onde c r e a s eonl a nd Re v a l u a t i oni n c r e a s eonbui l di n g Ga i nonr e v a l ua t i ono fi n v e s t me nti ne qui t yi ns t r ume nt s Tot a lc ompr e he ns i v ei nc ome EPS1, 3 34, 24 0/1, 00 0, 000

270 , 000 40, 0 00 30, 000 1, 84 0, 000 40, 0 00 40, 000 60, 0 00 46, 0 00 21, 6 00 160 , 000 64, 0 00 60, 0 00 66, 0 00 2, 0 18, 40 0 260 , 000 1, 7 58, 40 0 424 , 160 1, 3 34, 24 0 600 , 000 660, 0 00 20 0, 000 1 , 594, 2 40 $1 . 33

(c) A Statement of Financial Position as at 31st December 2011. Metro Trading Ltd Statement of Financial Position As at 31st December 2011 As s e t s Nonc ur r e nta s s e t s PPE( 1, 7 46+2, 6 00+5, 400+40 0) I n v e s t me nti ne q ui t yi ns t r ume nt s Tot a lnon c ur r e nta s s e t s Cur r e nta s s e t s Ba nk Ac c ou ntRe c e i v a bl e( 2, 6 00, 000–20, 0 00–5 1, 600) I n v e nt or i e s Fi na nc i a la s s e t she l df ort r a di n g Tot a lc ur r e nta s s e t s

1 0, 146 , 000 2, 0 00, 00 0 12 , 146, 0 00 30 , 000 2, 5 28, 40 0 160 , 000 1, 6 00, 00 0 4, 3 18, 40 0

Tot a la s s e t s Li a bi l i t i e s Nonc ur r e ntl i a bi l i t i e s Lo n gt e r ml oa n Pr e f e r e nc es ha r e s Tot a lnon c ur r e ntl i a bi l i t i e s Cur r e ntl i a bi l i t i e s Ac c ou nt spa y a bl e Ta xpa y a bl e Ac c r ue di nt e r e s t Lo n gt e r ml oa ndu ewi t hi n1 2mont hs Tot a lc ur r e ntl i a bi l i t i e s Ne ta s s e t s Eq ui t y

16 , 464, 4 00

2, 2 00, 00 0 5, 0 00, 00 0 7, 2 00, 00 0 1, 0 00, 00 0 42 4, 160 10 6, 000 400 , 000 1, 9 30, 16 0 7, 3 34, 24 0 7, 3 34, 240

(d) Supplementary note for property, plant and equipment reported in the Balance Sheet as at 31st December 2011. Land

Buildings

Plant and Equipment

As at 1 Jan 2011 Cost or valuation Accumulated depreciation

6,000,000 3,000,000 -1,000,000

2,400,000 -460,000

Net book value

6,000,000

2,000,000

1,940,000

6,000,000 -600,000

3,000,000 -660,000

2,400,000

800,000

-

-1,060,000

-654,000

-66,000 -334,000

5,400,000

1,280,000

1,746,000

400,000

Year ending 31 Dec 2011 Opening net book value Revaluation Impairment Depreciation expense Carrying value 31 Dec 2011

Vehicles

Total

800,000 12,200,000 -274,000 =1,734,00 0 526,000 10,466,000

8,826,000

Land was re-valued to $5,400,000 on 31 December 2011. The revaluation reserve was credited to the revaluation surplus in other comprehensive income. The building was revalued for the first time on 31 December 2011 and the loss on revaluation was debited to profit and loss. Vehicles were impaired with the impairment loss debited to profit and loss. Depreciation on the assets are calculated as follows: Land is not depreciated Buildings 2% on cost Plant & Equipment 10% on the reducing balance method Vehicles based on the unit of production (milage use) method

(e) A Statement of Changes in Equity for the year ended 31st December 2011.

(f) Notes on five accounting policies used in the preparation of the financial statements.

(Note: Only information that can reasonably be determined from information provided in the question should be disclosed)...