Question

Question 1: Preparing a Balance Sheet Convict Australia Wallet Limited is a wholesaler of luxury brand wallets and watches. The company set up an office in Perth in 2022 and have established a strong distribution network throughout the Australia and South-East Asia. The financial year of the company is from April 1 to March 31. Due to an unexpected accident involving the company’s regular accountant, you have been engaged to prepare the 2026/2027 financial year (that is, April 1, 2026 to March 31, 2027) for Convict Australia Wallet Limited. After examining the notes of the company’s regular accountant, you have discovered the following initial list of accounts and trial balance amounts have been registered. Account Name Trial Balance Value Accounts Receivable $41,000,000.00 Accumulated Depreciation $95,000,000.00 Associate Investment $111,000,000.00 Bank Loans $145,000,000.00 Cash $126,500,000.00 Copyright $2,500,000.00 Foreign Currency Reserve $50,000,000.00 Gain on Sale of Land $14,000,000.00 General Reserve $75,000,000.00 Goodwill $10,500,000.00 Income Tax Expense $12,650,000.00 Inventory $111,000,000.00 Investments Available for Sale $25,000,000.00 Land $360,000,000.00 Long-Term Bonds (Due More than 12 Months) $75,000,000.00 Long-Term Investment (Held to Maturity) $25,000,000.00 Long-Term Pension Obligations $14,000,000.00 Notes Payable (Due More than 12 Months) $39,000,000.00 Paid-Up Capital $255,000,000.00 Patents $1,500,000.00 Property, Plant and Equipment $180,000,000.00 Retained Earnings $145,000,000.00 Sales Revenue $256,000,000.00 Short-Term Marketable Securities $22,000,000.00 Wages and Salaries $42,500,000.00 The following key information has already been prepared by the regular accountant. 1. A review of the ‘Goodwill’ account indicated an amount of goodwill to the value of $1,500,000 had been impaired. This impairment had yet to be reduced from the ‘Goodwill’ account balance, or the ‘Retained Earnings’. 2. The value of ‘Property, Plant and Equipment’ is shown in the accounts at the historical value. The annual depreciation of $18,000,000 has yet to be deducted for the 2026/2027 financial year. 3. The value of ‘Inventory’ as shown in the Trial Balance is at cost. The net realizable value of inventory is indicated to be $145,000,000. 4. Expenses (e.g., insurance) for the 2027/2028 financial year to the amount of $2,200,000 were prepaid using cash 2 days prior to the end of the 2026/2027 financial year. This amount has yet to be shown in the trial balance values nor deducted from the cash account. 3 | P a g e 5. During the 2024/2025 financial year the company sold assets for a gain of $45,000,000. This was account for in the corresponding income statement and close to the balance sheet at the time. 6. Half of the value of ‘Notes Payable (Due More than 12 Months)’ shown in the ‘Trial Balance’ is incorrectly recorded and are due to be paid in the 2027/2028 financial year. 7. Records also indicate that $50,000,000 of the ‘Paid-Up Capital’ is yet unpaid and is incorrectly recorded. Cash that should have been supposedly collected should be shown as ‘Other Receivables’. 8. During the 2026/2027 financial year, the company purchased issued capital to the value of $20,000,000. These transactions have yet to be reflected in the ‘Trial Balance’ values. 9. The board of directors have determined that the balance of the ‘Foreign Currency Reserve’ account must be equal to the balance of the ‘General Reserve’ account at year end. This has yet to be accounted for. 10. On March 1, 2027 the company signed a non-binding agreement to sell all the ‘Investments Available for Sale’ that will yield a gain of $12,000,000 for the company. The sale will be completed no earlier than August 1, 2027. Required: Using the scenario information, prepare a balance sheet for Convict Australia Wallet Limited for the 2026/2027 financial year using correct form based on the specifications of International Accounting Reporting Standards IAS 1. 4 | P a g e Question 2: Preparing an Income Statement Ugly Face Surgery Australia Limited is a wholesaler of luxury facial make-up and perfumes. The company also provides consultancy services on facial plastic surgery. The company set up an office in Launceston in 2019 and have established a strong distribution network and consultancy throughout the Tasmania and mainland Australia. The financial year of the company is from July 1 to June 30. You have just been employed as the company chief financial officer, and the first task assigned to you is to prepare the income statement for the company for the 2024/2025 financial year (i.e., July 1, 2024 to June 30, 2025). The following notes have been provided to assist you in preparing the income statement. 1. Number of units sold of each main business line, and the number of consultancies performed during the 2024/2025 financial year are: (a) 1,200,000 (facial make-up); (b) 2,591,000 (perfumes); and (c) 31,580 (consultancy). 2. Average sale price and consultancy fee are: (a) $18.45 (facial make-up); (b) $21.25 (perfumes); and (c) $52.70 (consultancy). 3. Average cost of each unit sold and consultancy provided is: (a) $14.98 (facial make-up); (b) $12.65 (perfumes); and (c) $32.45 (consultancy). 4. The relevant operating expenses are defined in the following table: Operating Expense Cost Entertainment Expenses $1,450,000.00 Vehicle Expenses $2,136,000.00 Administration Salaries $3,678,400.00 Legal Service Expenses $984,000.00 Depreciation Administration Building $5,001,600.00 Insurance Expense $450,000.00 Sales Office Rental Expense $856,000.00 Marketing and Advertising Expenses $1,780,000.00 Sales Management Salaries $981,000.00 5. The company also received $4,500,000 in dividend income during the course of the year from its long-term investments. 6. The total finance interest received from cash and cash equivalent balance held during the year amounted to $11,001,100 whilst the company paid $15,024,800 on interest on interest-bearing debt issued by the company. 7. The share of net profit the company received from its associate and joint venture investments amounted to $2,250,160. 8. The company tax rate is 35%. 9. During the year the company discontinued a line of business. For the 2024/2025 financial year, the discontinued operations contributed a net profit of $2,150,124. 10. The company at the end of the 2024/2025 financial year had a total of 121,450,000 common shares outstanding. Required: Using the scenario information, prepare an income statement for Ugly Face Surgery Australia Limited for the 2024/2025 financial year using correct form based on the specifications of International Accounting Reporting Standards IAS 1. (Include a calculation for basic EPS).

Answer 1

Prepare the income statement as follows:

Ugly Face Surgary
Income Statement
For the period ending June 30, 2025
Sales Revenue:
Facial make-up	$22,140,000.00
Perfumes	$55,058,750.00
Consultancy	$1,664,266.00
Total Sales revenue		$78,863,016.00
Cost of goods sold:
Facial make-up	$17,976,000.00
Perfumes	$32,776,150.00
Consultancy	$1,024,771.00
Total Sales revenue		$51,776,921.00
Gross Profit		$27,086,095.00
Operating expenses:
Entertainment expenses	$1,450,000.00
Vehicle expenses	$2,136,000.00
Administrative salaries	$3,678,400.00
Legal service expenses	$984,000.00
Depreciaiton administration building	$5,001,600.00
Insurance expense	$450,000.00
Sales office rental expense	$856,000.00
Marketing and advertising expenses	$1,780,000.00
Sales management salaries	$981,000.00
Total operating expenses		$17,317,000.00
Operating Income		$9,769,095.00
Non-operating income/ (Expenses)
Dividend Income	$4,500,000.00
Interest income	$11,001,100.00
Share of profit from associate and joint venture	$2,250,160.00
Total non-operating income		$17,751,260.00
Interest expense		$15,024,800.00
Earnings before taxes		$12,495,555.00
Income taxes		$4,373,444.25
Operating Earnings after taxes		$8,122,110.75
Income from Discontinued operations (net of taxes)		$1,397,580.60
Earnings after taxes		$9,519,691.35
Earnings per share		$0.08