Question

In: Accounting

The trial balance of Padma Ltd at 31 December 20X2 was as follows: Sales revenue $1,600,650...

The trial balance of Padma Ltd at 31 December 20X2 was as follows:

Sales revenue	$1,600,650
Interest income	35,450
Loss on sale of plant	7,600
Fair value loss on equity investments in other companies (to be taken to profit or loss)	50,670
Dividend revenue	6,500
Cost of sales	850,670
Finance expenses	35,600
Selling and distribution expenses	90,270
Administrative expenses	336,790

Additional information

• A loss of $67,870 was recognised on the revaluation of land during 20X2.

• Padma Ltd uses the single statement format for the statement of profit or loss and other comprehensive income.

• Padma Ltd classifies expenses by function.

• Income tax rate is 30%.

• Padma Ltd had the following equity account balances as at 1 January 20X2:

Share capital	$750,000
Retained earnings	345,650
Revaluation reserve - land	60,000

• Padma Ltd issued shares for $150,000 on 20 October 20X2 and paid an interim dividend of $54,000 to shareholders.

Required: i) Prepare the statement of profit or loss and other comprehensive income of Padma Ltd for the year ended 30 June 20X2, showing the analysis of expenses in the statement.

ii) Prepare the statement of changes in equity of Padma Ltd for the year ended 30 June 20X2.

iii) Briefly explain whether a separate presentation of the fair value loss on equity investments in other companies in the statement of comprehensive income is useful to investors.

Solutions

Expert Solution

(i) Statement of profit or loss and other comprehensive income of Padma Ltd for the year ended 30 June 20X2

Revenue from operations $1,600,650

Other Revenues $35,450

Total revenues $1,636,100

Less: Cost of sales 850,670

Loss on sale of plant 7,600

Fair value loss on equity investments in other companies 50,670

Finace Expense 35,600

Selling and distribution expense 90,270

administrartive expenses 336,790

loss on revaluation of land 7,870

Profit $256,630

Other Comprehensive Income

Dividend Income 6,500

Total $263,130

(ii) statement of changes in equity of Padma Ltd for the year ended 30 June 20X2

Share Capital $900,000 ($750,000 + $ 150,000)

Retained Earnings $554,780 ($ 345,650 - 54000 + 263,130)

Revaluation reserve - land $0 ($60,000 - $60,000)

(iii) Other Comprehensive Income refers to items of income and expenses that are not recognized as a part of the profit and loss account. A company’s performance can be viewed by its Profit and Loss statement. While the items reported in profit and loss account throw light on the company’s operations, looking at the unrealized profit or loss can prepare investors for the future and also help the to take decisions accordingly. Separate presentation of the fair value loss on equity investments in other companies in the statement of comprehensive income is useful to investors. Such loss has not been incurred due to the corporation's operation or managerial inefficiency.

ekkarill92 answered 1 year ago

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