Acc2Cre Corporate Accounting- Financial Statements Assessment Answer
Salaries not paid at 30th June amounted to $8,000.Unpaid power account for June totalled $4,000.Prepaid insurance attributable to current year is 10,000.Star Ltd. uses the periodic inventory system. The stock-take of 30thJune shows closing inventory of $110, 000 (valued at lower of cost and market value).Interest on bank mortgage is 10% per annum and is payable twice yearly on 31stDecember and 30th June. The amount due at 30 June has not been recognised.
Plant & Machinery 10%
Furniture & Fittings 5%
Buildings 5%.
Required:
Prepare the necessary adjusting journal entries required by items 1 to 10 (narrations are not required).
Prepare a Statement of Comprehensive Income, a Statement of Financial Position and a Statement of Changes in Equity for Star Ltd for the year ended 30th June 2017 in accordance with the requirements of AASB 101.
Prepare at least fifteen (15) notes to the financial statements according to comply with relevant accounting standards.
Answer:
- SIGNIFICANT ACCOUNTING POLICIES:
- Statement of Compliance
The financial statements presented are general purpose financial statements which have been prepared in accordance with relevant accounting standards and interpretations, and comply with other requirements of law.
- Basis of Preparation
The statements have been prepared on a historical cost basis except in certain cases for which explanations have been provided.The tangible assets have been shown at there depreciated value in the final accounts. The straight line method of depreciation is used for depreciating the assets.
Investments here are long term investments which are held for a period of more than 12 months. It is the company policy to value the non current investments at lower of cost of market price, as per the relevant standards on accounting.
|
- Finished Goods |
1,10,000 |
|
Total: |
1,10,000 |
The inventories here represent the finished goods at the end of the year. The company follows a periodic system of inventory and value them at cost or market price whichever is lower.Provision for doubtful debts as per estimations based on relevant information has been made.
|
Term deposit - due 30th September,2017 |
1,66,000 |
|
Total: |
1,66,000 |
These investments are to be realised or maturated within 12 months and hence have been classified under current investments.The other current asset contain insurance paid in advance which are to be utilised in the upcoming year and hence classified under other current assets.The share capital represents the 250000 number equity shares issues issued at $1 per share fully paid.The bank mortgage are payable after 1st May 2019, hence they are classified as a long term borrowings.
|
Accounts Payable |
60,000 |
|
Total: |
60,000 |
|
Provision for Income Tax |
40,000 |
|
Total: |
40,000 |
The current tax payable represents the tax liability payable for the current year.
|
Provision for Doubtful Debts |
10,000 |
|
Total: |
10,000 |
|
Outstanding Salaries |
8,000 |
|
Outstanding Light, power & fuel |
4,000 |
|
Dividend Payable |
12,500 |
|
Outstanding Interest on Mortgage |
7,500 |
|
Total: |
32,000 |
These represent payables by the company which are to be settled within 12 months of them becoming due, and therefore they are classified under current liabilities.
|
Salaries |
88,000 |
|
Audit Fees |
10,000 |
|
Damage due to fire |
33,000 |
|
Interim Dividend |
8,000 |
|
Insurance |
10,000 |
|
Total: |
1,49,000 |
Contingent Liability
The contingent liability for the company amounted to $ 25,000 which was in connection with impending legal suit against the company for breach of contract. The case was settled after balance sheet date.
References
Epstein, Lita, Reading financial reports for dummies (John Wiley & Sons2014)
Flood, Joanne, Wiley GAAP: Financial Statement Disclosures Manual (John Wiley & Sons2016)
Fraser, Lyn M and Aileen Ormiston, Understanding financial statements (Pearson2016)
Fridson, Martin, Financial Statement Analysis Workbook: Step-by-Step Exercises and Tests to (John Wiley & Sons2009)
Piper, Mike, Accounting made simple: accounting explained in 100 pages or less (CreateSpace Pub.2015)
Schoenebeck, Karen P and Mark P Holtzman, Interpreting and analyzing financial statements: a project-Based approach (Pearson2013)
Skonieczny, Mariusz, The basics of understanding financial statements: learn how to read financial statements by understanding the balance sheet, the income statement, and the cash flow statement (Investment Publishing2012)
Tsvetanov, Georgi and Sa?nchez Carolina, Visual finance: the one page visual model to understand financial statements and make better business decisions (CreateSpace Independent Publishing Platform2015).
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