Question

EcoTop Bhd was incorporated with an authorized capital of RM60,000,000 consisting of RM40,000,000 ordinary shares and RM20,000,000 10% preference shares. The following is the trial balance of the company as at 31 December 2019.

	Debit		Credit
	RM		RM
Retained profit as at 1 January 2019			12,640,000
Ordinary share capital			8,400,000
10% preference shares			4,800,000
Freehold land	8,400,000
Building (at valuation)	6,880,000
Plant and machinery (at cost)	8,400,000
Motor vehicle (at cost)	6,720,000
Accumulated depreciation as at 1 January 2019:
- Building			4,520,000
- Plant and machinery			2,720,000
- Motor vehicles			960,000
Cost of sales	5,440,000
Sales			15,800,000
Administrative expenses	3,600,000
Distribution expenses	2,640,000
10% bond			3,200,000
General reserve			2,560,000
Revaluation reserve			2,240,000
Interest on bond	160,000
Trade receivables	2,160,000
Trade payables			4,384,000
Long term investments	4,040,000
Income on investments			384,000
Interim dividends:
- Ordinary dividends	680,000
- 10% preference dividends	240,000
Inventories	1,680,000
Tax paid	2,400,000
Cash at bank	9,168,000
	62,608,000		62,608,000

Additional information:

1. The net realizable value of the inventories as at 15 February 2020 is RM1,500,000.
2. Freehold land consists of Land Jelebu and Land Kemaman with carrying value of RM4,000,000 and RM4,400,000 respectively. The agent convinces that the Land Jelebu is appraised to RM5,000,000, whereas, Land Kemaman is decreased by RM1,500,000. The company adopts the revaluation model.
3. A machine costing RM250,000 was disposed on 1 October 2019 for RM100,000 at a gain of RM50,000. This transaction has not yet been recorded.
4. Depreciation is to be treated as administrative expenses except for motor vehicles to be treated as distribution costs. The depreciation charged as follows:

Building	Useful life of 50 years
Plant and machinery	Straight-line method at 10% yearly basis
Motor vehicles	Reducing balance method at 20% yearly basis

5. A provision is to be made for:

Directors’ emoluments	RM400,000
Auditors’ fees	RM480,000

6. The board of directors declared a final dividend for ordinary shares of RM1,000,000 and 10% preference shares.
7. An amount of RM1,000,000 of a 10% bond is to be paid next year. The interest is yet to be paid.
8. The tax expense for the year was RM800,000.

Required:

A Statement of Changes in Equity for EcoTop Bhd for the year ended 31 December 2019

Answer 1

Let us see the picture of trail balance first and then make the adjustments:

Below is the extract of Balance Sheet and Profit and Loss A/C before any adjustments:

Liabilities

Particulars	Amount	Amount
Share Capital		13,200,000
Equity Share Capital	8,400,000
Preference Share Capital	4,800,000
Other Equity		18,464,000
Retained Profit	12,640,000
Current year Profit	2,624,000
General reserve	2,560,000
Revaluation reserve	2,240,000
10% Bond		3,200,000
Trade Payables		4,384,000
Total Liabilities		40,848,000

Particulars	Amount	Amount
Fixed Assets		22,200,000
Freehold land	8,400,000
Building (at valuation)	6,880,000
Less: Depreciation	(4,520,000)
Plant and machinery (at cost)	8,400,000
Less: Depreciation	(2,720,000)
Motor vehicle (at cost)	6,720,000
Less: Depreciation	(960,000)
Long term Investments		4,040,000
Trade Receivables		2,160,000
Inventories		1,680,000
Cash at Bank		9,168,000
Advance tax ( Net of Tax expense)		1,600,000
Total Assets		40,848,000

Income Statment - Before Adjustment

Particulars	Amount	Amount
Sales		15,800,000
Other Income		384,000
Total Income		16,184,000
Cost of Sales		(5,440,000)
Other Expenses		(6,400,000)
Administrative expenses	(3,600,000)
Distribution expenses	(2,640,000)
Interest Expense	(160,000)
Total Expenses		(11,840,000)
Profit for the period		4,344,000
Tax Expense		(800,000)
Dividends
Interim Dividends		(920,000)
Profit transferred to Balance Sheet		2,624,000

Now, Let us see the adjustments one by one:

(a) Inventories

Inventory as of 31st December	1,680,000
Net realisable value	1,500,000
Loss to be recognised	180,000

(b) Land Values. Please note there is revaluation reserve in the Balance Sheet. Hence we can adjust the Gain / Loss to that.

Land Value in Balance Sheet	8,400,000
Net Appreciation
Land Jelebu	1,000,000
Land Kemaman	(1,500,000)
To be Adjusted with Revaluation reserve	(500,000)
Closing Land Value	7,900,000

(c) Plant and Machinery

Net Plant and Machinery balance as of BS	5,680,000
Disposal Value	(50,000)
Net Closing Balance before depreciation	5,630,000
Gain to be recorded	(50,000)

(d) Depreciation

Depreciation for the year
Building ( Gross Value / 50 Yrs)	137,600
Plant and Machinery ( Gross value -Sales) * 10%	815,000
Motor Vehicles ( WDV *20%)	1,152,000
Total Depreciation to be recorded	2,104,600

(e) Expense to be recorded

Directors Fees	400,000
Audit Fee	480,000
Expenses to be recorded	880,000

(f) Dividend

Final dividend ( On Equity Shares)	1,000,000
Preference Dividend ( Assuming not to deduct Interim dividend)	480,000
Total Dividend	1,480,000

Below is the revised Statment of Profit and Loss and Balance Sheet:

Particulars	Amount	Amount
Share Capital		13,200,000
Equity Share Capital	8,400,000
Preference Share Capital	4,800,000
Other Equity		14,869,400
Retained Profit	12,640,000
Current year Profit	(2,070,600)
General reserve	2,560,000
Revaluation reserve	1,740,000
10% Bond		3,200,000
Trade Payables		4,384,000
Other Accrued Expenses		980,000
Dividends Payable		1,480,000
Total Liabilities		38,113,400

Particulars	Amount	Amount
Fixed Assets		19,545,400
Freehold land	7,900,000
Building (at valuation)	6,880,000
Less: Depreciation	(4,657,600)
Plant and machinery (at cost)	8,150,000
Less: Depreciation	(3,335,000)
Motor vehicle (at cost)	6,720,000
Less: Depreciation	(2,112,000)
Long term Investments		4,040,000
Trade Receivables		2,160,000
Inventories		1,500,000
Cash at Bank		9,168,000
Advance tax ( Net of Tax expense)	1,600,000
Other Receivable		100,000
Total Assets		38,113,400

Particulars	Amount	Amount
Sales		15,800,000
Other Income		434,000
Total Income		16,234,000
Cost of Sales		(5,440,000)
Other Expenses		(9,664,600)
Administrative expenses	(4,552,600)
Distribution expenses	(3,792,000)
Interest Expense	(260,000)
Loss on Inventory	(180,000)
Other Expenses	(880,000)
Total Expenses		(15,104,600)
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