Page 1 of 5 ACC222 EXTERNAL REPORTING Session 201390 ASSIGNMENT 2– STUDENT COPY IT IS IMPORTANT TO SHOW NECESSARY WORKINGS IN ALL QUESTIONS BELOW WHEN APPLICABLE. Question 1 [25 marks] Preparation of a statement of profit or loss and comprehensive income and a statement of financial position The summarised trial balance of Matthew Ltd, a manufacturing company, for the year ended 30 June 2013 is provided below: DR ($) CR ($) Sales revenue 5,000,000 Interest income 22,000 Sundry income 25,000 Change in inventory of work in progress 125,000 Change in inventory of finished goods 60,000 Raw materials used 2,200,000 Employee benefit expense 950,000 Depreciation expense 226,000 Amortisation – patent 25,000 Rental expense 70,000 Advertising expense 142,000 Insurance expense 45,000 Freight out expense 133,000 Doubtful debt expense 10,000 Interest expense 30,000 Other expenses 8,000 Income tax expense 320,000 Cash 4,000 Cash on deposit, on call 80,000 Trade debtors 495,000 Allowance for doubtful debts 18,000 Other debtors 27,000 Raw materials inventory, 30 June 2013 320,000 Finished goods inventory, 30 June 2013 385,000 Land 94,000 Buildings 220,000 Accumulated depreciation – land and buildings 52,000 Plant and equipment 1,380,000 Accumulated depreciation – plant and equipment 320,000 Patents 140,000 Accumulated amortisation – patent 50,000 Goodwill 620,000 Bank loans 92,000 Other loans 450,000 Trade creditors 452,000 Provision for employee benefits 120,000 Page 2 of 5 DR ($) CR ($) Income tax payable 35,000 Deferred tax liability 140,000 Retained earnings, 30 June 2012 245,000 Dividends paid 210,000 Share capital 1,178,000 8,259,000 8,259,000 Additional information: (a) $20,000 of bank loans is repayable within 1 year. (b) $90,000 of other loans is repayable within 1 year. (c) Matthew 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 in the statement. Required: Prepare the statement of financial position, statement of profit or loss and other comprehensive income and statement of changes in equity of Matthew Ltd for the year ended 30 June 2013 in accordance with the requirements of AASB101. In preparing the above statements, use captions that a listed company is likely to use and provide any relevant workings and/or explanations where appropriate. Notes to the accounts are not required. MARKING GUIDE: Question 1 Max. marks allocated SPLOCI Line items provided on face of statement and title 8.5 Explanation 0.5 SFP Line items provided on face of statement and title 7.5 Explanation/workings 5 SCE Items provided on statement and title 2.5 Overall presentation 1 Total 25 Page 3 of 5 Question 2 [15 marks] Company formation – Issue by instalments, oversubscription, forfeiture and reissue Prime Ltd was incorporated on 28 December 2012 and the following events took place during the financial year ended 30 June 2013. 1 January Issued a prospectus inviting the public to subscribe for 1,000,000 ordinary shares of $5 each, with $3.00 is to be paid on application, $1.00 within one month of allotment and the balance is to be paid by 1 May. 1 February Applications closed with the share issue being oversubscribed by 200,000 shares. 15 February The directors allotted the 1,000,000 shares on a first come first served basis and returned the excess money to the unsuccessful applicants on the same date. 1 March All outstanding allotment monies were received. 1 May All monies were received for the final call except for the holders of 200,000 shares. 10 May The directors decided to forfeit the 200,000 shares of the defaulting shareholders. 20 May The forfeited shares were resold for $4.50 per share as fully paid. Share reissue costs amounted to $5,000. The defaulting shareholders are to bear all costs of the reissue and any surplus is to be refunded to them. Required: Provide the journal entries necessary to account for the above transactions and events for the year ended 30 June 2013. Show all relevant dates and narrations. MARKING GUIDE: Question 2 Max. marks allocated Journal entries 11.5 Dates 1.5 Narrations 1 Workings 1 Total 15 Page 4 of 5 Question 3 [20 marks] Recognition and measurement for intangible assets Optical Ltd, a diversified company, has been expanding its operations over the past decade. The company has been involved in the following activities over the past year: (a) Acquisition of a licence to import the ePhone brand of mobile phone. The licence had an acquisition cost of $250,000, and the company spent a further $20,000 for promotion of the new phone. Legal fees for acquisition of the licence amounted to $15,000. While the licence is for ten year period, the company estimates the mobile phone will produce net cash flows for a five-year period, with net cash flows decreasing steadily over that period. (b) Research and development activities for a new electronic switching gear that the company believes will be suitable for use in a wide variety of applications and products. Costs incurred during the year comprised of the following: $ Staff salaries for obtaining knowledge of possible electronic configurations for the switching gear 30,000 Design and construction of a pre-production prototype 40,000 Outside consultant’s fees: – relating to obtaining knowledge of possible configurations – relating to the pre-production prototype 14,000 16,000 General administrative overhead expenses 10,000 Legal and professional fees to register a patent over the switching gear design 25,000 The company believes the switching gear will have a potential life of ten years. (c) Development of a customer list database of the company’s customers. Due to its diversified operations, and to approaches by a number of direct marketing companies, Optical Ltd compiled a database of its own customers during the year. The database contains details such as customer banes, addresses, telephone and email contact details, and annual dollar amount and product type of sales to each customer. The company believes it could derive income from the sale of this customer list to the direct marketing companies that have already approached it and also to other marketing companies. The salary costs of the sales department staff involved in developing the database amounted to $27,500, and Optical Ltd conservatively estimates the value of the customer list at $100,000. Required: (1) Discuss which of the above costs can be recognised as intangible assets in Optical Ltd’s statement of financial position in accordance with AASB138. Provide relevant paragraph numbers from the standard to support your answer. (2) For any of the costs above that may be recognised as an intangible asset, discuss any issues of relevance to their measurement after initial recognition. MARKING GUIDE: Question 3 Max. marks allocated (a) 7 (b) 10 (c) 3 Total 20 Page 5 of 5 Question 4 [20 marks] Revaluation of depreciable assets Yoko Ltd acquired a machine on 1 July 2011 at a cost of $240,000. At the date of acquisition, Yoko Ltd’s directors determine to depreciate the machine on a straight-line basis over a period of six years. The company elects to adopt the revaluation model subsequent to acquisition. The directors estimated the fair values for the machine would be $190,000 and $165,000 for the years ended 30 June 2012 and 2013 respectively. There is no change in the originally estimated useful life for the machine. Assume a tax rate of 30%. Required: Prepare journal entries to account for the above transactions for the years ending 2012 and 2013. MARKING GUIDE: Question 4 Max. marks allocated Appropriate workings shown 4 Journal entries 15 Narrations 1 Total 20