Question

Question 1 (30 marks) Alto Inc. has the following balances of selected accounts: Net sales Cost of goods sold Selling expenses Administrative expenses Loss on sale of equipment Loss on impairment of intangibles. Loss on disposal of discontinued operations Retained earnings at 1 Jan 2019 Dividends on ordinary and preference shares $640,000 $500,000 $30,000 $32,500 $17,000 $8,500 $15,000 $141,000 $12,200 Additional facts are as follows: • The accountant has included interest expense of $5,000 in the administrative expenses. • There is a change of depreciation method from straight line to double declining balance method, cumulative profits in the prior years would decrease by $17,000. • Dividend of $2,000 was paid to the preference shareholders. • Income from continuing operation for the year ended 31 December 2019 was $2 per share. • Tax rate is 30% of income. Required Prepare an income statement (22 marks) and statement of retained earnings (8 marks) for the year ended 31 December 2019 for Alto Inc. that is presented in accordance with IFRS (including format and terminology).

Answer 1

Alto Inc.

Income Statement

For the Year ending 31st December 2019

Particulars	$	$
Sales (-) Cost of goods sold               Gross Margin Operating Expenses Selling Expenses Administrative Expenses*          Operating Income Other Income & Expenses Interest Expense Extra Ordinary Items Loss of sale of asset Loss of impairment of intangibles Income Before Tax Income Tax @30% Income from continuing operation Loss from discontinued operation Net Income from Business	30,000 27,500 5,000 17,000 8,500	6,40,000 (5,00,000) 1,40,000 (57,500) 82,500 (30,500) 52,000 (15,600) 36,400 (15,000) 21,400

Note:

Administrative Expenses                              32,500

           (-) Interest Expenses                         (5,000)

                                                                    -----------

                                                                      27,500                                                              

                                                                     =======

Statement of Retained Earnings

Particulars	$
Retained Earnings at 1st January 2019 less: Prior Period Items (Decreased profits due to change in depreciation policy) Adjusted Retained Earnings Add:Net Income for 31st December 2019 Sub total Less. Dividend on ordinary and preference shares Retained Earnings on Dec 31st 2019	141000 (17000) 124000 21400 145400 (12,200) 133200