Acca f3 Financial Accounting (int) Study Text
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370 21: Preparation of financial statements for companies Part F Preparing basic financial statements $'000 Wages and salaries 254 Light and heat 31 Sundry expenses 113 Suspense account 135 Trade accounts receivable 179 Trade accounts payable 195 Cash
126 Notes (a)
Sundry expenses include $9,000 paid in respect of insurance for the year ending 1 September 20X8. Light and heat does not include an invoice of $3,000 for electricity for the three months ending 2 January 20X8, which was paid in February 20X8. Light and heat also includes $20,000 relating to salesmen's commission. (b) The suspense account is in respect of the following items. $'000 Proceeds from the issue of 100,000 ordinary shares 120 Proceeds from the sale of plant 300 420
Less consideration for the acquisition of Mary & Co 285
135 (c)
The net assets of Mary & Co were purchased on 3 March 20X7. Assets were valued as follows. $'000
Investments 231
Inventory 34
265 All the inventory acquired was sold during 20X7. The investments were still held by Zabit at 31.12.X7. (d)
The property was acquired some years ago. The buildings element of the cost was estimated at $100,000 and the estimated useful life of the assets was fifty years at the time of purchase. As at 31 December 20X7 the property is to be revalued at $800,000. (e)
The plant which was sold had cost $350,000 and had a net book value of $274,000 as on 1.1.X7. $36,000 depreciation is to be charged on plant and machinery for 20X7. (f) The loan stock has been in issue for some years. The 50c ordinary shares all rank for dividends at the end of the year. (g)
The management wish to provide for: (i)
loan stock interest due (ii)
a transfer to general reserve of $16,000 (iii)
audit fees of $4,000 (h)
Inventory as at 31 December 20X7 was valued at $220,000 (cost). (i)
Taxation is to be ignored. Required Prepare the financial statements of Zabit Co as at 31 December 20X7 including the statement of changes in equity. No other notes are required.
Part F Preparing basic financial statements 21: Preparation of basic financial statements for companies 371 Answer
(a) Normal adjustments are needed for accruals and prepayments (insurance, light and heat, loan interest and audit fees). The loan interest accrued is calculated as follows. $'000
Charge needed in income statement (10% × $200,000) 20 Amount paid so far, as shown in list of account balances 10 Accrual: presumably six months' interest now payable 10 The accrued expenses shown in the statement of financial position comprise: $'000 Loan interest 10 3 Audit fee 4 17
The misposting of $20,000 to light and heat is also adjusted, by reducing the light and heat expense, but charging $20,000 to salesmen's commission. (c) Depreciation on the building is calculated as 50 $100,000
= $2,000.
The NBV of the property is then $430,000 – $20,000 – $2,000 = $408,000 at the end of the year. When the property is revalued a reserve of $800,000 – $408,000 = $392,000 is then created. (d)
The profit on disposal of plant is calculated as proceeds $300,000 (per suspense account) less NBV $274,000, ie $26,000. The cost of the remaining plant is calculated at $830,000 $350,000 = $480,000. The depreciation allowance at the year end is: $'000
Balance 1.1.X7 222
Charge for 20X7 36 Less depreciation on disposals (350 274) (76) 182
(e) Goodwill arising on the purchase of Mary & Co is: $'000 Consideration (per suspense account) 285 Assets at valuation 265 Goodwill
20 This is shown as an asset on the statement of financial position. The investments, being owned by Zabit at the year end, are also shown on the statement of financial position, whereas Mary's inventory, acquired and then sold, is added to the purchases figure for the year. (f) The other item in the suspense account is dealt with as follows. $'000 Proceeds of issue of 100,000 ordinary shares 120 Less nominal value 100,000 50c 50 Excess of consideration over par value (= share premium) 70 (g)
The transfer to general reserve increases it to $171,000 + $16,000 = $187,000. 372 21: Preparation of financial statements for companies Part F Preparing basic financial statements We can now prepare the financial statements. ZABIT CO
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 20X7 $'000
$'000 $'000
Sales 2,695
Less cost of sales Opening inventory 190 Purchases 2,186 2,376
Less closing inventory 220
2,156 Gross profit
Profit on disposal of plant
26 565
Expenses Wages, salaries and commission 274 Sundry expenses 107 Light and heat 14 Depreciation: buildings 2 plant
36 Audit fees 4 Loan interest 20 457
Profit for the year 108
Other comprehensive income: Revaluation of non-current assets 392 Total comprehensive income for the year 500 ZABIT CO STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20X7
$'000
$'000 $'000
$'000 $'000
$'000 Balance at 1.1.X7 450 -
171 242
863 Total comprehensive income
for the year - - 392 - 108 500 Issue of shares 50 70
- - 120 Dividends paid - - - - (15) (15) Transfer to general reserve - -
- 16
(16) - Balance at 1.12.X7 500 70
187 329
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