Prepare a statement of comprehensive income, Cost Accounting

Assignment Help:

Good Food Company is a local manufacturer of instant noodles. Established in 2005, their business has been growing steadily. Their products, which are available in 3 flavors, are sold in Singapore under the "Good Food" brand. However, since the start of 2010, their sales began to slow down. One key reason is the entry of new competitors who are able to provide new products at lower prices. The new competitors provide a wider range of instant noodles with unique flavors to suit the different tastes and preferences of the Singapore market. During 2010, the company's costs also increased quite significantly driven by the higher cost of raw materials and staff costs. To save costs, the company switched to hiring a part-time accountant, Andrew, in November 2010. Andrew was happy in the beginning as he enjoyed working part-time and spending more time with his family. However, after some weeks with the company, he was having sleepless nights. He thus requested for a meeting with Grace, the CEO of the company. Below is an extract of the conversation between Andrew and Grace on 30 December 2010: Andrew: "I understand that the company has a tradition of paying its employees a 13th month bonus. The bonus will be paid in January the following year." Grace: "Yes, that's right." Andrew: "We should record the bonus. The bonus amount for all eligible employees is $30,000." Grace: "No, we should not. The employment contracts with the employees do not cover bonus. Hence, there was no need to provide for the bonus."

Andrew: "In October 2010, the company advertised in major newspapers and magazines. The entire amount of $25,000 was recorded as prepaid advertising."  

Grace: "That's correct. We are seeing some signs of better business due to advertising. We expect the benefits of advertising to continue and sustain through next year."   

Andrew: "On 1 April 2010, the company bought and paid $10,000 for a 2-year fire insurance. Thus was recorded as prepaid insurance and there were no further entries."  

Grace: "There was no need for further entries because the fire insurance is still in force."  

Andrew: "On 31 March 2010, the company purchased a new machine, which has a useful life of 5 years and a residual value of $20,000."  

The following information relates to purchase and installation of the machine:

List price                     $90,000

Discount given            $10,000

Delivery charge           $7,000

Installation cost           $5,000

Repair cost*                $2,000

* One of the Good Food Company employees accidentally damaged the machine during installation.  

The former accountant has recorded all the above expenditures as capital expenditures. No depreciation was provided for this machine.   

Andrew went on to examine the trial balance:

After examining the trial balance, Andrew discovered the following additional information:  

  • On 29 October 2010, one of the customers ordered $80,000 worth of instant noodles to be delivered in January 2011. No down-payment was made. Grace has requested the former accountant (before he left the company) to record as:

  Dr Accounts receivable                         $80,000

    Cr Sales                                           $80,000

 

  • The net realisable value of the ending inventories is $100,000.

 

Question 1  

Discuss the accounting principles and concepts that were violated in the case. Explain the appropriate accounting treatments that should be used.

Question 2  

From the violations identified in Question 1 and the additional information gathered, prepare all the necessary adjusting journal entries.  

Question 3  

(a)  Prepare a statement of comprehensive income for the year ended 31 December 2010.

(b)  Prepare a statement of financial position as at 31 December 2010.  

Question 4  

Critically discuss the ethical behaviour of Grace.


Related Discussions:- Prepare a statement of comprehensive income

Calculate the amount of gross profit, Samuel Construction Company engaged i...

Samuel Construction Company engaged in a contract to construct a building on 1 July 2011 with completion of the contract by the 30 June 2014.  The contract price amounted to a tota

Assignment, what are the three of product costs in manufacturing company,di...

what are the three of product costs in manufacturing company,discuss in detail each and supporting with examples.

Gains and losses on disposal, When assets are replaced during the anticipat...

When assets are replaced during the anticipated life of the project, or at the end of the anticipated life of the project, they are sold at their pre-determined scrap values. Incom

Factors affect decision making, Factors affect Decision Making These d...

Factors affect Decision Making These decisions need consideration of factors as like A. The level of market possible to be available in future B. The strategy that compe

Calculate the amounts that will show in the statement, MX obtains 80% of th...

MX obtains 80% of the 1 million issued $1 ordinary share capital of FZ on 1 May 2009 for $1,750,000 when FZ's reserved earnings were $920,000. The carrying worth was considered

Evaluate the expected earning, During his career in the energy industry, T-...

During his career in the energy industry, T-Bone McAdams has accumulated $5,000,000 in "surplus savings" that he is planning to donate to his college alma mater, Oklahoma A&M, in

Evaluate equivalent annual cost, An industrial drill costs $60.000 to purch...

An industrial drill costs $60.000 to purchase and $10,000 to install seven years ago. The market value now is $33.000 and this will decline by 12% of current value each year for th

Activity based costing or abc, Activity Based Costing or ABC Absorptio...

Activity Based Costing or ABC Absorption costing shows to be relatively straightforward way of adding overhead costs to units of production utilizing, more often than not, a v

ASSIGNMENT ON HAMPSHIRE PROJECT, tHE FIRST SECTION ASSIGEMTN ANSWER FOR HAM...

tHE FIRST SECTION ASSIGEMTN ANSWER FOR HAMPSHIR COMPANY DECISIONS

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd