Reference no: EM13163384

Question 1

Preparation of a statement of profit or loss and comprehensive income and a statement of financial position

The summarised trial balance of Amanah Ltd, a manufacturing company, for the year ended 31 December 2013 is provided below:

 DR ($) CR ($)

Sales of goods 4,469,000

Interest income 6,000

Cost of sales 2,987,000

Distribution expenses 86,000

Sales and marketing expenses 820,000

Administration expenses 252,000

Interest expense 44,000

Other borrowing expenses 4,000

Income tax expense 85,000

Cash on hand 4,000

Cash on deposit, at call 100,000

Trade debtors 450,000

Allowance for doubtful debts 14,000

Other debtors 93,000

Raw material inventory 188,000

Finished goods inventory 714,000

Land and buildings 257,000

Accumulated depreciation - buildings 36,000

Plant and equipment 1,260,000

Accumulated depreciation - plant and equipment 564,000

Patents 48,000

Amortisation of patents 3,000

Goodwill 870,000

Bank loans 66,000

Other loans 570,000

Trade creditors 510,000

Provision for employee benefits 93,000

Warranty provision 37,000

Current tax payable 25,000

Deferred tax payable 135,000

Retained earnings, 31 December 2012 326,000

Dividends paid 150,000

Land revaluation surplus 50,000

Share capital 1,508,000

 8,412,000 8,412,000 Page 2 of 6

Additional information:

(a) Shares were issued during 2013 for $120,000.

(b) Share capital was $1,358,000 at 31 December 2012.

(c) Of the $150,000 dividend, $30,000 was reinvested as part of a dividend reinvestment plan.

(d) The balance of land revaluation surplus at 31 December 2012 was $15,000 credit.

(e) During the year ended 31 December 2013, land was revalued upward by $50,000, with related tax of $15,000.

(f) $30,000 of bank loans is repayable within 1 year.

(g) $110,000 of other loans is repayable within 1 year.

(h) The provision for employee benefits includes $62,000 payable within 1 year.

(i) The warranty provision is in respect of a 12-month warranty given on certain goods sold.

(j) Amanah Ltd uses the single statement format for the statement of profit or loss and other comprehensive income and classifies expenses by function within the statement.

Required:

Prepare the statement of financial position, statement of profit or loss and other comprehensive income and statement of changes in equity of Amanah Ltd for the year ended 31 December 2013 in accordance with the requirements of AASB101.

In preparing the above statements, use captions that a listed company is likely to use and provide any relevant workings and/or explanations where appropriate. Notes to the accounts are not required.

Question 1

SPLOCI

Line items provided on face of statement and title 4.5

Explanation 1

SFP

Line items provided on face of statement and title 9

Explanation/workings 6

SCE

Items provided on statement and title 4.5

Total 25

Question 2

Company formation - Issue by instalments, oversubscription, forfeiture and reissue In 2013, City Ltd offered 10,000,000 shares to the public at an issue price of $2 per share, payable as follows:

$1 on application (application close 15 July)

$1 on allotment (payable within one month of allotment)

By 15 July, applications had been received for 11,000,000 shares. The directors decided to allot shares on a pro-rata basis, with any excess paid on application to be offset against the amount due on allotment. The shares were allotted on 20 July.

By 20 August, all money was received except for the holder of 1,000,000 shares who failed to make the payment. On 31 August, as provided for in the constitution, the directors decided to forfeit these shares. The forfeited shares were auctioned on 15 September as fully paid. An amount of $1.50 is received for each share sold. The constitution states that any balance in the forfeited shares account is to be returned to the former shareholder.

Required:

Provide the journal entries to account for the above events. Show all relevant dates and narrations.

Question 2 Max. marks awarded

Journal entries 10

Dates 4

Narrations 1

Total 15

Question 3

Recognition and measurement for intangible assets

Science Ltd incurred expenditure researching and developing a cure for a common disease in beet root. At the end of 2013, the management decided that the project was unlikely to succeed because trials of the prototype had failed.

During 2014, a breakthrough in agricultural science improved changes of the product succeeding and development resumed. The project was completed in 2014. At the end of that year, costs incurred on the project were expected to be recoverable. Science Ltd estimated the following pattern of returns for the project:

Year Returns

2015 10%

2016 20%

2017 30%

2018 30%

2019 10%

At the end of 2019, the product will be at the end of its useful life because the disease found in beet root would have been eradicated. Cost incurred were summarised below:

 Research Development

 $'000 $'000

2013 40,000 10,000

2014 12,000 60,000

Required:

(1) How much research and development expenditure should be recognised as an expense in 2013 and 2014? Explain your answer.

(2) How much expenditure should be carried forward (deferred) and reported in the statement of financial position at the end of 2013 and 2014?

(3) Prepare journal entries for the amortisation of deferred costs in 2015 and 2016, assuming that actual revenues are as expected. State the amount of deferred expenditure carried forward in the statement of financial position in relation to the deferred costs.

Question 3

Part (1) 4

Part (2) 2

Part (3) 4

Total 10 

Question 4

Revaluation and de-recognition of depreciable assets

Sasimi Ltd acquired a machine on 1 July 2011 at a cost of $300,000. At the date of acquisition, Sasimi Ltd's directors determine to depreciate the machine on a straight-line basis over a period of six (6) years, with no residual value. The company elects to adopt the revaluation model subsequent to acquisition.

On 1 July 2013, the directors estimated the fair value for the machine is $250,000. At that date, it is determined that the machine will have remaining useful life of five (5) years. On 1 July 2014, the machine is unexpectedly sold for $220,000.

Assume a tax rate of 30%.

Required:

Prepare journal entries to record the revaluation on 1 July 2013 and the subsequent sale on 1 July 2014.