ACFI2011 TRIMESTER 2, 2022 ASSESSMENT 3
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ASSESSMENT 3: INDIVIDUAL ASSIGNMENT
ACFI2011 TRIMESTER 2, 2022 (PSB)
Question 1 (2 marks)
Ocean Limited had a foreign (US dollars) long-term liability not covered by a foreign exchange contract on its Balance Sheet. The foreign currency amount was converted at the closing rate on December 31, 2021 and is shown in the accounting records at the Australian Dollars (AUD) 3.0 million. The local currency sharply had decreased against the US dollar on February 27, 2022. On this date, the management decided to decrease further risk by using a foreign exchange contract, because of which the debt was limited to AUD 6.0 million. If this situation were to apply at the balance sheet date, it would result in the corporation’s liabilities exceeding the fair value of its assets.
Required:
Explain how the above event should be disclosed in the face and/or in the note of the December 31, 2021 financial statements. (2 marks)
Hint: To explain if this is an after-balance sheet event and also if there is a need for adjustments to the financial statements
and also discuss if there is any necessary disclosure in the notes to the accounts, if necessary.
Question 2 (5 marks)
The following is a summary of the annual financial statements of Setron Ltd.
|
Setron Ltd. Income Statement For the Year Ending 31 December, 2021 |
|
|
|
$ |
|
Revenue |
850,000 |
|
Cost of sales |
(637,500) |
|
Cross profit |
212,500 |
|
Administrative expenses |
(28,100) |
|
Operating expenses |
(73,600) |
|
Profit from operations |
110,800 |
|
Finance cost |
(15,800) |
|
Profit before tax |
95,000 |
|
Income tax expense |
(44,000) |
|
Profit for the period |
51,000 |
|
Setron Ltd. Statement of Changes in Equity For the Year Ending 31 December, 2021 |
||||
|
|
Share capital ($) |
Revaluation reserve ($) |
Accumulated profit ($) |
Total ($) |
|
Beginning balance of the year |
120,000 |
|
121,000 |
241,000 |
|
Revaluation of buildings |
|
20,000 |
|
20,000 |
|
Profit for the period |
|
|
51,000 |
51,000 |
|
Dividends paid |
|
|
(25,000) |
(25,000) |
|
Repayment of share capital |
(20,000) |
|
|
(20,000) |
|
Ending balance of the year |
100,000 |
20,000 |
147,000 |
267,000 |
|
Setron Ltd. Balance Sheet As at 31 December 2021 |
|
|
|
|
2021 ($) |
2020 ($) |
|
Noncurrent Assets Property, plant and equipment |
|
|
|
Office buildings |
250,000 |
220,000 |
|
Motor vehicles |
35,000 |
20,000 |
|
Machinery |
6,000 |
4,000 |
|
Long-term loans to directors |
64,000 |
60,000 |
|
|
355,000 |
304,000 |
|
Current Assets |
||
|
Inventories |
82,000 |
42,000 |
|
Debtors |
63,000 |
43,000 |
|
Prepaid Expenses |
21,000 |
16,000 |
|
Bank |
- |
6,000 |
|
|
166,000 |
107,000 |
|
Total Assets |
521,000 |
411,000 |
|
Equity and Liabilities Capital and Reserves |
||
|
Share Capital |
100,000 |
120,000 |
|
Revaluation Reserve |
20,000 |
- |
|
Accumulated Profits |
147,000 |
121,000 |
|
|
267,000 |
241,000 |
|
Noncurrent Liabilities |
||
|
Long-Term Borrowings |
99,000 |
125,000 |
|
Current Liabilities |
||
|
Creditors |
72,000 |
35,000 |
|
Bank overdraft |
43,000 |
- |
|
Taxation Due |
40,000 |
10,000 |
|
|
155,000 |
45,000 |
|
Total Equity and Liabilities |
521,000 |
411,000 |
Additional information
1. The depreciation charges included in operating expenses are as follows: Motor vehicles $25,000
Machinery $ 2,000
2. Fully depreciated Motor vehicles with an original cost price of $15,000 was sold for $5,000 during the year. The profit is included in operating expenses.
3. The chief accountant claims that the company is heading for a potential liquidity crisis. According to him, the company struggled to meet its short-term obligations during the current year.
Required:
a) Prepare the cash flow statement using the direct method. (4 marks)
b) Comment on the Chief accountant’s claim in point No.3 (1 marks)
Question 3 (4 marks)
PoIindon Inc. is a manufacturer of suitcases that are sold at shopping retail outlets. The following transactions and events occurred during the year under review:
a. From the beginning of the year, the remaining useful life of the plant and equipment was estimated at 4 years instead of 7 years.
b. Bonuses of $12 million, compared with $2.3 million in the previous year, had been paid to employees. The CFO explained that a new incentive scheme has been approved since all employees are involved in increasing sales.
c. There was a $1.25 million profit on the nationalization of land.
d. During the year the company was responsible for establishing the ECA Foundation, which provided funding to welfare organizations. This foundation is part of the company's social investment program. The company contributed $7 million to the fund.
Required:
Explain how each of the transactions and events mentioned above would be treated in the current year statement of profit and loss. (4 marks)
Hint: To explain if there is a need for adjustments to the Income statement and also discuss if there is any necessary disclosures in the notes to the accounts, if necessary.
2022-06-06