Question

Question 2: Preparation and Presentation of the Income Statement

SHOW YOUR WORKING FOR EACH OF THE NUMBERED QUESTIONS

In your new position as chief financial officer for Gulf Barges Limited, the first task you have been assigned to complete is to prepare the income statement for the 12-month period ended June 30, 2022.

On your desk on your first day, the previous chief financial officer has left you valuable information to complete the task.

SHOW YOUR WORKING FOR EACH OF THE NUMBERED QUESTIONS

1 -Total revenue recorded by Gulf Barges Limited during the accounting period was $185,852,000. Included in the total revenue figure is Other Revenue totalling $21,050,000 and Interest Income totalling $2,453,000.

Following is a list of expenses incurred by the company.

Expense Account	Total Incurred
Advertising and Marketing Costs	$2,512,000.00
Assigned Overhead	$15,483,000.00
Direct Labour	$47,894,000.00
Direct Material	$12,560,000.00
Entertainment	$561,000.00
Insurance and Utilities	$1,690,000.00
Office Supplies	$590,000.00
Repairs and Maintenance	$1,457,000.00
Salaries to Administrative Staff	$6,801,000.00
Sales Commissions	$21,036,000.00
Travel Costs	$1,260,000.00

2 -On January 1, 2022, the company sold a block of land held for investment and recognized a gain on the sale of $12,861,000.

3 -On April 1, 2022, the company sold equipment that resulted in a loss of $4,891,000.

4 -The company incurred finance interest charges during the accounting period of $14,890,000.

5 -The company is involved in joint venture operations. As a result of poor financial conditions, the company recorded a net loss of $15,069,000 from its share of the joint venture operations.

6 -From the operations of its associate firms, the company recorded a net gain of $4,287,000 for the financial period ended June 30, 2022.

7 -If the company reports a profit during the year, the effective corporate tax rate is 25%. If a loss is reported the effective tax rate is zero.

Required:

Using the information supplied, prepare an income statement for Gulf Barges Limited for the accounting period that conforms with IFRS IAS 1 requirements and recommendation. (Hint: Expenses should be classified by function (e.g., cost of goods sold) not nature. SHOW YOUR WORKING FOR EACH OF THE NUMBERED QUESTIONS

Answer 1

1. Income statement based on the information provided in Q1,2,3,4 &7

Gross sales revenue 162,349,000

( Total revenue-Other revenue-Interest income)

Less: Sales commissions (21,036,000)

Net sales revenue 141,313,000

Less: Direct material 12,560,000

Direct labour 47,894,000

Assigned overhead 15,483,000

(assigned overhead to each unit of production/ sale)

Repairs and maintenance 1,457,000

Cost of goods sold 77,394,000

(Cost of goods sold contains expenses that are directly attributable to production of goods sold)

Gross profit 63,919,000

Less: Salaries to administrative staff 6,801,000

Insurance and utilities 1,690,000

Office supplies 590,000

Travel costs 1,260,000

General and administrative expenses 10,341,000

(G&A expenses pertain to operating expenses that are incurred unrelated to production)

Less: Advertising and marketing costs 2,512,000

Selling expense 2,512,000

Operating profit before interest,tax 51,066,000

Interest income 2,453,000

Less: Interest expense 14,890,000

Operating profit before tax 38,629,000

Add: Other revenue 21,050,000

Gain from sale of land 12,861,000

Other non-operating revenue 33,911,000

(contains one time revenue/ gain of the company from sources not related to typical business of company)

Less: Entertainment expense 561,000

Loss from sale of equipment 4,891,000

Other non-operating expenses 5,452,000

(contains one time expense/ loss of the company from sources not related to typical business of company)

Profit before tax 67,088,000

Less: Tax expense (@25%) 16,772,000

Profit after tax 50,316,000

2. Since, gain from sale of land is a one time income not related to company's business activity, it shall go under "Other non-operating income".

3. Since, loss from sale of equipment is also a one time expense not related to company's business activity, it shall go under "Other non-opearting expense"

4. Finace charges to be classified as interest expense