Question

HK Ltd has prepared its draft trial balance to 30 June 2011, which is shown below.

	$	$
Freehold land	2,100,000
Freehold buildings	5,500,000
Plant and machinery (cost   $3,096,000)	1,268,122
Fixtures and fittings (cost   $864,000)	518,400
Trade receivables	7,263,000
Allowance for receivables		123,600
Trade payables		2,591,000
Inventory (1 July 2010)	11,794,000
Bank balance	10,968,578
8% Long term investment	100,000,000
Development cost capitalised	140,000,000
Sales		381,600,000
Purchases	102,310,000
Administration expenses	14,000,000
Distribution costs	30,100,000
Directors’ emoluments	562,000
Irrecoverable debt	157,000
Tax payable (1 July 2010)	141300
Revaluation surplus		2,200,800
Loan interest	324,000
Dividends paid – preference	162,000
Dividends paid – ordinary	426,000
9% loan (Long term)		7,200,000
Share capital – irredeemable preference   shares -  ordinary shares		3,600,000 5,400,000
Retained earnings		12,364,000
Share premium		11,520,000
Suspense		995,000
Total	427,594,400	427,594,400

Further information:

1.        Closing inventory is amounted $12,560,000. During the year a fire took place at one of the company’s depots, involving losses of $200,000 and it had been included in calculating the closing inventory. Since the end of the financial year a settlement of $150,000 has been agreed with the company’s insurers.

Dr Inv 12560K

Cr COS 12560K

 

Dr Insurance Recievable 150000

Dr Administration Exp        50000

      Cr COS                                     200000

 

2.        $500,000 of the inventory is obsolete. This is expected to be sold at $470,000.

 

3.        Freehold building had been revaluated on 30 June 2010. The cost for freehold buildings was $4,680,000. The useful life of the buildings is 50 years and the accumulated depreciation at the time of revaluation is $280,800. The policy of the company is to transfer the excess amount of depreciation to Retained every year.

4.        A plant of $100,000 which bought on January 2007 was sold and exchange to the new plant at cost $120,000. No entry was done except the amount paid of $85,000 credited into bank account. The policy of the company is to charge the depreciation in full in the year of acquisition and none in the year of disposal.

 

5.        Provide for depreciation at the following rates:

●    Plant and machinery 20% on carrying amount. ●    Fixtures and fittings 10% on cost ●    Buildings 2% on cost Charge all depreciation 30% to cost of sales, 50% to   Administration cost and 20% to distribution cost.

 

6.        Development cost was capitalized on 30 June 2010. It need to be amortised for five years and charge into cost of sales.

 

7.        Trade receivables include a debt of $10,000 which is to be written off. Irrecoverable debts are to be classified as administrative expenses. Allowance for receivable of $145,000 is to be accounted at the year end.

 

8.        On April 2010 a customer had filed legal action claiming damages at $240,000. The company solicitor indicates that there is 60% of the customer to win the case with the claim of $20,000. Expense on provision is classify under administration expense.

 

9.        The loan was raised on 1 September 2010. The interest paid half yearly on 1 March and 1 September.

 

10.     8% Long term investment was made on 1 January 2011. The interest will be credited into company on 1 January each year.

 

11.     Provision for the company tax for the year is $5,348,000.

 

12.     Land, which is not depreciated, is included in the trial balance at a value of $2,100,000. It is to be revalued at $3,500,000 and this revaluation is to be included in the financial statements for the year ended 30 June 2011.

 

13.     The authorised share capital is 4,000,000 9% preference shares of $1 each and 18,000,000 ordinary shares of 50¢ each.

 

14.     On 1 January 2011, a rights issue of shares was made. The shares were issued on the basis of one new share for every 10 existing shares at the issue price of $1 per share. The issue was fully subscribed. The transaction was debited into bank account and no credit entry was made.

 

15.     A final ordinary dividend of 3¢ per share is declared for existing shareholder and was an obligation before the year-end, together with the balance of the preference dividend. Neither dividend was paid at the year-end.

 

Required:

a)       Prepare journal entries for the above adjustment and show all workings. (45 marks)

b)       Prepare the statement of profit or loss and other comprehensive income for HK Ltd for the year ended 31 June 2011. (20 marks)

c)        Prepare the statement of changes in equity for HK Ltd for the year ended 31 June 2011. (15 marks)

d)       Prepare the statement of financial position for HK Ltd as at 31 June 2011 (20 marks)