Question

ABC Ltd, a manufacturing company, commenced operations on 20 September 2016 by issuing 350 000 $5.00 shares, payable in full on application on a first-come, first-served basis. By 30 November 2016 the shares were fully subscribed and duly allotted. There were share issue costs of $10 000. No additional shares were issued during the year ending 30 June 2017.

For the year ending 30 June 2018, the company recorded the following aggregate transactions:

	$
Sales	5 120 000
Interest income	34 000
Sundry income	25 000
Cost of Sales	2 465 000
Employee benefit expenses	856 000
Depreciation expense	244 000
Amortisation - franchise	25 000
Rental expense	120 000
Advertising expense	147 000
Insurance expense	48 000
Freight out expense	110 000
Doubtful debts expense	16 000
Interest expense	36 000
Borrowing Costs	9 000
Other expenses	8 000
Income tax expense	320 000

The following additional information was noted during the preparation of financial statements for the year ended 30 June 2018:

75 000 fully paid ordinary shares have been issued on 1 October 2017 at the price of $4.00.

$135 000 dividends (31.76 cents per share) were declared and paid during the 2018 financial year. A final dividend for 2018 of $51 850 was proposed but not recognised in the financial statements.

There was a gain of $20 000 from the cash flow hedge arrangement during the 2018 financial year. Any gain or loss associated with the cash flow hedge is directly recognised in equity. There was no previously recognised cash flow hedge reserve before the 2018 financial year.

$25 000 of bank loans is repayable within 1 year.

$90 000 of other loans is repayable within 1 year.

The employee benefits of $32 000 are expected to be settled wholly within 12 months.

ABC Ltd measures inventory at the lower of cost and net realizable value and property, plant and equipment using a cost model.

The summarised balances are provided below:

Year-end balances, 30 June 2018	$
Cash on hand	960 000
Cash on deposit, at call	82 000
Accounts Receivables	665 000
Allowance for doubtful debts/ Impairments	24 000
Other debtors	27 000
Finished goods inventories, 30 June 2018	600 000
Work in Progress inventories 30 June 2018	105 000
Land	94 000
Buildings	230 000
Accumulated depreciation – buildings	60 000
Plant and equipment	1 385 000
Accumulated depreciation – plant and equipment	330 000
Franchises	140 000
Accumulated amortisation of franchise	50 000
Goodwill	620 000
Bank loans	92 000
Other loans	440 000
Accounts payable	696 000
Provision for employee benefits	116 000
Income tax payable	35 000
Deferred tax liability	140 000
Retained earnings, 30 June 2017	225 000
Dividends paid	135 000
Cash flow hedge reserve (equity)	20 000

I need to make Trial Balance, Comprehensive Income Statement, and Change in equity statement and Balance Sheet out of the above information

Please help me in understanding following points if I am understanding them right or not :

For the share capital do I need to put 35000x5.00=1750000 +75000x4=2050000- share issue cost= 2040000

Gain on cash flow hedge of 20,000 will go as credit in Trial balance as Cash flow hedge reserve and then it will go in Other Comprehensive income statement ?

Dividend which is declared and paid of $135000 will be debit in Trial balance and then we will deduct it in Change of Equity Statement?

What will be the treatment of Final Dividend of 51,850 which was proposed but not recognised in the Financial Statements? It will go in which statement?

Retain earnings of 2017 will also add in Change of Equity Statement with initial share capital and this year profit?

Bank Loan of 25,000 , Other loans of 90,000 and employee benefits of 32000 will go as current or short term liability in the balance sheet or not?

Answer 1

Yes the share issue costs should be recognised in equity instead of being expensed in profit and loss statement.

Yes, The gain should be accounted for in other comprehensive income.

Yes, Dividend declared and paid will be accounted under changes in equity statement

Proposed dividend will not be recorded till is approved ny shareholder's AGM and declared.

It will not form part of either statements.

Beginning Retained earning will be shown under share holders equity.

Format for preparing statement of change in shareholder's equity is below

ABC Ltd
Statement of changes in Equity for the year ended 30th June, 2018
	Share Capital	Retained earning
	USD	USD
Balance as 1st July,2017	xxx	xxx
Changes in Equity for the year
Issue of share capital	xxx
Income for the year		xxx
Dividends		xxx
Balance as at 30th June,2018	xxx	xxx

A short-term liability is a financial obligation that is to be paid within one year. This type of liability is classified within the current liabilitiessection of an entity’s balance sheet.

Yes all three will be part of current liability/short term liability in balance sheet.