Question

Emerald Ltd, a manufacturing company, commenced operations on 1 July 2016 by issuing 350 000 $5.00 shares, payable in full on application on a first-come, first-served basis. By 31 July 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.

Emerald 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

Required:

For the year ending 30 June, 2018,

Using the pro forma table supplied in appendix B, prepare a preliminary trial balance for Emerald Ltd;   (5 Marks)

APPENDIX B

Emerald Ltd - Trial Balance as at 30 June 2018	DR	CR
Sales	$’000	$’000
Interest income
Sundry income
Cost of sales
Employee benefit expenses
Depreciation expense
Amortisation - franchise
Rental expense
Advertising expense (selling)
Insurance expense
Freight out expense
Doubtful debts expense
Interest expense
Borrowing costs
Other expenses
Income tax expense
Cash on hand
Cash on deposit, at call
Accounts Receivables
Allowance for doubtful debts/ Impairments
Other debtors
Finished goods inventories, 30 June 2018
Work in Progress inventories 30 June 2018
Land
Buildings
Accumulated depreciation – buildings
Plant and equipment
Accumulated depreciation – plant and equipment
Franchise
Accumulated amortisation of franchise
Goodwill
Bank loans
Other loans
Accounts payable
Provision for employee benefits
Income tax payable
Deferred tax liability
Retained earnings, 30 June 2017
Dividends paid
Cash flow hedge reserve
Share capital
Totals

Answer 1

Emerald Ltd - Trial Balance as at 30 June 2018	DR	CR
	$’000	$’000
Sales		5120000.00
Interest income		34000.00
Sundry income		25000.00
Cost of sales	2465000.00
Employee benefit expenses	856000.00
Depreciation expense	244000.00
Amortisation - franchise	25000.00
Rental expense	120000.00
Advertising expense (selling)	147000.00
Insurance expense	48000.00
Freight out expense	110000.00
Doubtful debts expense	16000.00
Interest expense	36000.00
Borrowing costs	9000.00
Other expenses	8000.00
Income tax expense	320000.00
Cash on hand	960000.00
Cash on deposit, at call	82000.00
Accounts Receivables	665000.00
Allowance for doubtful debts/ Impairments		24000.00
Other debtors	27000.00
Finished goods inventories, 30 June 2018	600000.00
Work in Progress inventories 30 June 2018	105000.00
Land	94000.00
Buildings	230000.00
Accumulated depreciation – buildings		60000.00
Plant and equipment	1385000.00
Accumulated depreciation – plant and equipment		330000.00
Franchise	140000.00
Accumulated amortisation of franchise		50000.00
Goodwill	620000.00
Bank loans		92000.00
Other loans		440000.00
Accounts payable		696000.00
Provision for employee benefits		116000.00
Income tax payable		35000.00
Deferred tax liability		140000.00
Retained earnings, 30 June 2017		225000.00
Dividends paid	135000.00	0.00
Cash flow hedge reserve		20000.00
Share capital		2050000.00
Share Cost Expense	10000.00
Totals	9457000.00	9457000.00
Workings :
Share Capital
350000 Shares at $ 5 each		1750000.00
75000 Shares at $ 4 each		300000.00
		2050000.00