Question

Financial statement presentation

Appliances Ltd, a manufacturing company, commenced operations on 1 July 2017. The draft trial balance for the year ended 30 June 2018 has been prepared as follows:

Appliances Ltd

Draft trial balance as at 30 June 2018

DATA

DR ($)
CR ($)
Sales of goods

12,230,000
Interest income

7,000
Cost of sales

4,685,000

Marketing expense
623,000

Salaries and wages
2,740,000

Administration expenses
143,000

Annual leave expense
210,000

Doubtful debts expense
62,000

Depreciation expense
0

Interest expense
64,000

Other borrowing expenses
6,000

Other expenses
95,000

Warranty expense
64,000

Income tax expense
0

Cash on hand
41,000

Cash management account
193,000

Trade debtors
3,276,000

Allowance for doubtful debts

219,000
Raw material inventory
624,000

Finished goods inventory
1,250,000

Land   

500,000

Buildings

900,000

Accumulated depreciation - buildings

0
Plant and equipment
2,600,000

Accumulated depreciation - plant and equipment

0
Patents

150,000

Deferred tax asset
0

Bank loan

400,000
Trade creditors

615,000
Provision for annual leave

200,000
Provision for warranty

55,000
Current tax liability

0
Dividends paid
500,000

Share capital

5,000,000

18,726,000
18,726,000

Additional information:
The bank loan is repayable in 5 years.
The provision for annual leave is payable within 1 year.
The provision for warranty is in respect of a 12-month warranty given on certain goods sold.
Share capital consists of 1,000,000 ordinary shares, fully paid to $5.00 each.
Appliances Ltd is a reporting entity.
Appliances Ltd uses the single statement format for the statement of profit or loss and other comprehensive income and presents an analysis of expenses by nature on the statement.
In relation to the statement of financial position, where AASB 101 requires entities to disclose further sub-classifications of the minimum line items on the face of the statement or in the notes, the directors of Appliances Ltd want to report only the minimum line items on the face of the statement, and leave the sub-classifications to be disclosed in the notes.

Whilst reviewing the draft trial balance, you notice that depreciation and income tax have not been recognised as yet. The following information is available for these items:
The buildings were purchased on 1 July 2017, and have a useful life of 30 years and estimated residual value of nil. The plant and equipment was also purchased on 1 July 2017, and has a useful life of 10 years and estimated residual value of $50,000. Depreciation is to be recognised on a straight-line basis.
Income tax expense needs to be calculated at 30% of the accounting profit (you will need to prepare the statement of profit or loss and other comprehensive income after accounting for depreciation above to determine income tax expense). The deferred tax asset to be recognised as at 30 June 2018 is $142,200. The current tax liability to be recognised will be the sum of income tax expense and the deferred tax asset.

Required:

i)   Prepare the journal entries to recognise depreciation and income tax in Appliances Ltd’s accounting records as at 30 June 2018. After preparing the journal entries, enter the amounts from your journal entries into the draft trial balance.

ii) Prepare the statement of profit or loss and other comprehensive income, statement of financial position, and statement of changes in equity of Appliances Ltd for the year ended 30 June 2018 in accordance with AASB 101. Notes and comparative figures are not required.

Answer 1

GIVEN DATA:

Financial statement presentation Appliances Ltd, a manufacturing company As on 1-07-2017  The draft trial balance for the year ended 30 June 2018 has been prepared in the above table .

and additional inforamation also given .

REQUIRED:

i) Prepare the journal entries to recognise depreciation and income tax in Appliances Ltd’s accounting records as at 30 June 2018. After preparing the journal entries, enter the amounts from your journal entries into the draft trial balance.

ii) Prepare the statement of profit or loss and other comprehensive income, statement of financial position, and statement of changes in equity of Appliances Ltd for the year ended 30 June 2018 in accordance with AASB 101. Notes and comparative figures are not required.

SOLUTION:

JOURNAL ENTRIES OF APPLIANCES Ltd.,

DRAFT TRAIL BALANCE OF APPLIANCES Ltd., AS ON 30-06-2018:

DEPRECIATION CALCULATION:

cost of building = 900000

useful life = 30 years

estimated residual value = nil

depreciation = 900000 - 0 /30

= 30000 $

Therefore depreciation is 30,000$

cost of plant & euipment = 2600000

use ful life = 10 years

estimated residual value = 50000

depreciation = 2600000 - 50000 /10

= 2550000/10

= 255000$

therefore depreciation is 255,000$

STATEMENT OF FINANCIAL POSITION 30-06-2018:

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30-06-2018:

Basic earning per share profit after tax / number of ordinary share  

= 2424200 / 1000000

= 2.42$