ABC Ltd is a software producing entity, it recorded a software license in its books $5.65 million on 1 January 2017, it represented the development cost of software owned by it and generated revenue correspondingly. The price $3.5 million offered by interested buyer of the license is regarded as valid market price. Owing to the loss of customers and upgrading the software, it needs to prepare the cash flow projection for the software license in coming 4 years and calculate the recoverable amount at discount rate of 8%, the forecasted net cash inflows for the year ended 31 December 2017 up to 31 December 2020 were formulated as follows:

2

Question 1 part b (continued)

Year 2017 2018 2019 2020

Net cash inflow (in $000) 250
750
1,500
1,750

The expected disposal value of the software license is $800,000 as at 31 December 2020

Required
With reference to above information, determine whether the impairment losses were required to the software license on 1 January 2017 in accordance with HKAS 36. Prepare relevant journal entries if necessary.

Part c

GHI Ltd owned a building worth $1,386,000 purchased at 1 January 2016, estimated useful life for 30 years, and using straight line method for depreciation. After the usage of 4 years, at the beginning of 1 January 2020, GHI Ltd re-assessed the useful life of the building, after the professional valuer advise, the remaining useful life available should be 48 years.

Required
Calculate the depreciation expenses of above building as at 31 December 2020 and show the relevant journal entry. All workings must be shown

Exercise 18-13

The condensed financial statements of Ness Company for the years 2019 and 2020 are presented below.

Compute the following ratios for 2020 and 2019. Inventory on December 31, 2018, was $310. Assets on December 31, 2018, were $1,900. Equity on December 31, 2018, was $870.

Emanuel Products produces coat racks in Toronto, Canada. The accountant has presented you the following budgeted data for the third quarter of 2020. Sales are forecasted to be 70,000 units at a price per unit of $35. The budgeted beginning and ending finished goods inventories are 6,000 and 12,000 units respectively. It is estimated that each rack requires five kilograms of metal at a budgeted price of $3 per kg. The beginning raw materials inventory is estimated as 3,500 kilograms. George Products wants to keep ending raw materials inventory of 5,500 due to fluctuations in demand. Each rack requires 1.4 hours of direct labour and the standard hourly pay rate is $18.

Required: (please show all steps of your computation in proper format)

1. Prepare a sales budget for the third quarter of 2020.

2. Prepare a production budget for the third quarter of 2020. (1.5 marks)

3. Prepare a direct materials purchases budget for the third quarter of 2020. (1.5 marks)

4. Prepare a direct labour budget for the third quarter of 2020. (1 mark)

5. Mr Peter started a business by acquiring a medium sized manufacturing firm. He hired you to work in the accounting department. You are in charge of providing management accounting reports to aid him in the planning and control of operations and make sure that everything the company does is consistent to the plan. He advised you not to implement a standard costing system as he does not see any purpose in doing that. What is your reaction to his advice? If you don’t agree on his idea, how do you convince him to accept the importance of standard costing? (1 mark)

(Total 6 Marks)

Comparative statements of shareholders’ equity for Anaconda International Corporation were reported as follows for the fiscal years ending December 31, 2018, 2019, and 2020.

Required:
1. Infer from the statements the events and transactions that affected Anaconda International Corporation’s shareholders’ equity during 2018, 2019, and 2020. Prepare the journal entries that reflect those events and transactions.
2. Prepare the shareholders’ equity section of Anaconda’s comparative balance sheets at December 31, 2020 and 2019.

Bridgeport Inc., a greeting card company that follows ASPE, had the following statements prepared as at December 31, 2020:

Additional information:

Prepare a statement of cash flows FOR YEAR END DECEMBER 31,2020 using the INDIRECT method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Martinez Inc., a greeting card company that follows ASPE, had the following statements prepared as at December 31, 2020:

Additional information:

Prepare a statement of cash flows using the DIRECT method. (Show amounts that decrease cash flow with either a - sign e.g. -10,000 or in parenthesis e.g. (10,000).)

Pop Inc. reported income from continuing operations before taxes during 2020 of $463,000.

Additional transactions occurring in 2020 follows:

1. The corporation experienced an uninsured hurricane loss in the amount of $130,000 during the year.

2. At the beginning of 2018, the corporation purchased equipment for $62,000 (salvage value of $6,000) that had a useful life of 10 years. The bookkeeper used straight-line depreciation for 2018, 2019, and 2020 but incorrectly used a 7 year useful life in determining the deprecation amount. (treat this error as a prior period adjustment)

3. Sale of securities held as a part of its portfolio resulted in a gain of $40,000 (pretax).

4. When its chairman of the board died, the corporation realized $500,000 from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amount of $410,000 (the gain is nontaxable).

5. The corporation disposed of its consumer division at a loss of $210,000 before taxes. Assume that this transaction meets the criteria for discontinued operations.

6. The corporation decided to change its method of inventory pricing from average cost to the FIFO method. The effect of this change on prior years is to increase 2018 income by $86,000 and increase 2019 income by $43,000 before taxes. The FIFO method has been used for 2020. The tax rate on these items is 30%.

Instructions: Prepare an income statement in good form for the year 2020, starting with income from continuing operations before taxes.

Compute earnings per share as it should be shown on the face of the income statement.

Common shares outstanding for the year are 200,000 shares. (Assume a tax rate of 30% on all items, unless indicated otherwise.)

Culver Inc., a greeting card company that follows ASPE, had the following statements prepared as at December 31, 2020:

CULVER INC.
Comparative Statement of Financial Position
December 31
2020      2019
Cash     $47,775         $25,090     
Accounts receivable   57,930         51,030     
Inventory      39,990         60,070     
Prepaid rent      5,210         4,100     
Equipment      161,990         130,120     
Accumulated depreciation–equipment      (35,210   )      (25,100   )
Goodwill      28,000         68,000     
    Total assets      $305,685         $313,310     
                        
Accounts payable      $46,190         $40,120     
Income tax payable      3,990         6,070     
Salaries and wages payable      8,090         4,090     
Short–term loans payable      7,930         10,030     
Long–term loans payable      68,000         87,000     
Common shares      130,000         130,000     
Retained earnings      41,485         36,000     
    Total liabilities and shareholders’ equity      $305,685         313,310     

CULVER INC.
Income Statement
Year Ending December 31, 2020
Sales revenue               $348,490
Cost of goods sold               165,000
Gross margin               183,490
Operating expenses               120,000
Operating income               63,490
Interest expense      $12,100           
Impairment loss–goodwill      40,000           
Gain on disposal of equipment      (2,400   )      49,700
Income before income tax               13,790
Income tax expense               4,105
Net income               $9,685

Additional information:

1.      Dividends on common shares in the amount of $4,200 were declared and paid during 2020.
2.      Depreciation expense is included in operating expenses, as is salaries and wages expense of $70,000.
3.      Equipment with a cost of $36,000 that was 70% depreciated was sold during 2020.

Prepare a statement of cash flows using the direct method. (Show amounts that decrease cash flow with either a - sign e.g. -10,000 or in parenthesis e.g. (10,000).)

Pro forma income statement   The marketing department of Metroline Manufacturing estimates that its sales in 2020 will be $1.53 million. Interest expense is expected to remain unchanged at $34,000, and the firm plans to pay $74,000 in cash dividends during 2020. Metroline Manufacturing's income statement for the year ended December31, 2019i is given (See belong Graph) ,along with a breakdown of the firm's cost of goods sold and operating expenses into their fixed and variable components. a. Use the percent-of-sales method to prepare a pro forma income statement for the year ended December 31, 2020 b. Use fixed and variable cost data to develop a pro forma income statement for the year ended December 31, 2020. c. Compare and contrast the statements developed in parts a. and b. Which statement probably provides the better estimate of 2020 income? Explain why.

Metroline Manufacturing Breakdown of Costs and Expenses into Fixed and Variable Components for the Year Ended December 31, 2019

Cost of goods sold:

Fixed cost $202,000

Variable cost 700000

Total cost $902,000

Operating expenses Fixed expenses $39,000

Variable expenses 80000

Total expenses $119,000

Metroline Manufacturing Income Statement for the Year Ended December 31, 2019

Sales revenue $1,396,000

Less: Cost of goods sold 902000

Gross profits $494,000

Less: Operating expenses 119000

Operating profits $375,000

Less: Interest expense 34000

Net profits before taxes $341,000

Less: Taxes (rate = 40%) 136400

Net profits after taxes $204,600

Less: Cash dividends 63000

To retained earnings $141,600