Question

Question 4

HK Ltd has prepared its draft trial balance to 30 June 20X1, which is shown below.

Trial balance at 30 June 20X1
$000	$000
Freehold land	2,100
Freehold buildings (cost $4,680,000)	4,126
Plant and machinery (cost $3,096,000)	1,858
Fixtures and fittings (cost $864,000)	691
Goodwill	480
Trade receivables	7,263
Trade payables		2,591
Inventory	11,794
Bank balance	11,561
Development grant received		85
Profit on sale of freehold land		536
Sales		381,600
Cost of sales	318,979
Administration expenses	900
Distribution costs	35,100
Directors' emoluments	562
Bad debts	157
Auditors' remuneration	112
Hire of plant and machinery	2400
Loan interest	605
Dividends paid during the year-preference Dividends	162
paid during the year- ordinary	426
9% loan		7,200
Share capital - preference shares (treated as equity)		3,600
Share capital-ordinary shares		5,400
Retained earnings		6,364
	407,376	407,376

The following information is available:

(a) The authorised share capital is 4,000,000 9% preference shares of $1 each and 18,000,000 ordinary shares of 50c each.

(b) Provide for depreciation at the following rates:

(i) Plant and machinery 20% on cost

(ii) Fixtures and fittings 10% on cost

(iii) Buildings 2% on cost

Charge all depreciation to cost of sales.

(c) Provide $5,348,000 for income tax.

(d) The loan was raised during the year and there is no outstanding interest accrued at the year-end.

(e) Government grants of $85,000 have been received in respect of plant purchased during the year and are shown in the trial balance. One-fifth is to be taken into profit in the current year.

(f) During the year a fire took place at one of the company's depots, involving losses of $200,000. These losses have already been written off to cost of sales shown in the trial balance. Since the end of financial year a settlement of $150,000 has been agreed with the company's insurers.

(g) $500,000 of the inventory is obsolete. This has a realisable value of $250,000.

(h) Acquisitions of property, plant and equipment during the year were:

                Plant     $173,000         Fixtures $144,000

(i) During the year freehold land which cost $720,000 was sold for $1,316.000

(j)A final ordinary dividend of 3c per share is declared and was an obligation before the year-end, together with the balance of the preference dividend. Neither dividend was paid at the year-end.

(k) The goodwill has not been impaired.

(l) The land was revalued at the year-end at $2,500,000.

Required:

(a) Prepare the company's statement of comprehensive income for the year to 30 June 20XI and a statement of financial position as at that date, complying with the relevant accounting standards in so far as the information given permits. (All calculations to nearest $000.)

(b) Explain the usefulness of the schedule prepared in (a).

Answer 1

Refer the below images for the above asked questions, in a detailed way of solution.

Solution : income for year ouirement @: Statement of comprehensive ended 30 Jone 20x1 : ('000) Amount (2000) Amount particolars $381600 9318979 Fornover cost of sales per trial balance + lise 2400 + depreuation 7997 - Insurance 150*** t inventory loss 250 3299 322278 59322 Gross profit Administration expenses : per trial balance 9000+ directors 562 Bad debt 157 + Qoditor remuneration 112 Distribution costs 9831 35100 4493 assess 14391 . 536 14927 profit on disposal of non-corrent profit before tax & interest Interest payable [454 + 151 on tax ko interest 14322 17 14339 8348 8991 other operating income Ak profit before tax Income tax profit for the year other comprehensive income - Revaluation gain Total comprehensive income 400 9391 for the year Note Depreciation Buildings 94+ plant 619 + consists of Fixtures 86

** Development grant Transfer o income Statement (20t of 85) To Statement of financial son bb posikon *** Insurance is treated as an adjusting event. Jone 30 20x1 Statement of financial as at positions Amount Amant particulars $480 $ 2500 $ 4680 4032 Intangible non-corrent assets - Good will Tangible non-corrent assets - Freehold land - Freehold boildings Aggregate deprecaton - plant y Machinery Aggregate depreciation - Fixtures & fittings Aggregate depreciation 1239 3096 1857 464 259 605 8376 8856 ] 11544 Current Assets - Inventory to read [11794-250 obsolescence - Receivables [7263+ 150 insurance] - Cash y cash equivalents 4413 156 30518 current liabilities - payably 2591 .648 - Dividends (pref. 324 + ordinary 324) Tax 3348 8587 21931 Net corrent assets

Amount Amount liabilities Non-current - qui loan 7o.ee 7200 [8856 +2 1931-7200 - grant (see notes 23587 (68) 23519 - Deferred income -gout 23621 Equity 3 600 400 400 ] 14119 ordinary Shares 500 each 9.1. pref. Shares of $ each Revaluation Reserve Retained earnings (636448990-1236 dividends Total changes from 23681 to 23519 23681 from the cost of Note: The grant could be the plant under deducted IAS 20. asset Th schedule : : tement : of the non-corrent The usettness Requirement The column headings allow the user to see the type of non-corrent assets owned by the bosiness. This can give helpful initial indications for example: Realisability - intangible assers might be more diffient to sen than property Appreciation - land is more likely to appreciate than office equipment Deprecation licenses are subject to amortization and possible fall in value due to competition, Security - to be overdrafts fund & buildings are more likely accepted as Security for loans & than intangible assets.

ii) The carrying values may be at cost (or) revaluation - If at cost, it may be that the statement of financial position gives too low an indication of corrent market values - this is often an important consideration at existing Shareholders are assessing a takeover offer. in The accomulated depreciation figure when related to the cost gives an indication of the age of the assets and possible need for capital outlays to replace with cash flow implications Disposals may be an indication of the occurrence of replacement, which could indicate grouth cors maintenance of existing capacity. If there is no replacement, then consider implications for fotore capacity cor) other reasons; For example Change of direction, and disposal of non-profit -making parts of the business.