ACCTN202-22A

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ACCTN202-22A

Question 1

King Trading Limited deals with farm equipment and machines throughout New Zealand. The primary operating activities of the company include sales, services and consultation in relation to farm equipment. The company is registered under the Companies Act 1993 with contributed equity comprising of 12,000,000 ordinary shares.  Set out below is a list of balances in the unadjusted trail balance of the company as at financial year ended 31March 2022:


The following additional information is relevant for preparing financial statements for the year ended 31 March 2022:

· On 1 April 2021 a vehicle (Book value $100,000; accumulated depreciation $40,000 and accumulated impairment $10,000) was sold for $60,000.

·  Depreciation for the year ended 31 March 2022 is to be provided on the following basis:

o Land: No depreciation is to be provided.

o Buildings: 2% on cost.

o Plant and equipment:  10% reducing balance basis.

o Vehicles: Based on mileage. The total mileage expected from the remaining vehicles is 1,800,000 kilometres. For the year, ended 31 March 2021 the mileage used was 270,000 kilometres.

· A professional valuation consultant re-valued Head Office Land on 31 March 2022 at $10,200,000 using fair value. The market value of Head Office Building as at 31 March 2022 is $5,500,000.

· The balance of $8,560,000 in the property development account is in relation to amount spent on the acquisition and clearing of land and the construction of a building to locate a Branch Office in Cambridge. Construction of the building was completed on 31 March 2022. Details of the expenditure are as follows:

Purchase price of land

2,700,000

Stamp duty and legal fees

216,000

Removal of buildings not required

243,000

Sale of demolished building

(54,000)

Application to local government bodies for building plan approval

27,000

Architects fees

270,000

Construction of buildings

4,610,000

Salary of manager overseeing construction of building

324,000

Borrowing costs

224,000

Total

8,560,000

The borrowing cost was incurred on a loan used for the construction of the building. Funds for the purchase of the Branch Office Land in Cambridge were mainly sourced from issue of ordinary shares. The market value of the land on 31 March 2022 was $3,000,000 and that of the building was $5,755,000.

· Investment in shares comprises of shares available-for-sale $2,800,000 and shares held for trading $2,000,000. As at 31 March 2022, the market value of shares available-for-sale is $3,800,000 and market value of the shares held for trading is $3,200,000. These market values are considered to be the fair value of the shares.

· The cost of inventory as at 31 March 2022 is $400,000 and the net realisable value is $450,000

· Long term loan of $3,000,000 was outstanding as at 1 April 2021. Interest on the loan is payable at 10% per annum. An amount of $400,000 representing the principal component of the long term loan is due for repayment on 20 April 2022.

· Allowance for doubtful debts is to be made at a rate of 2% on the balance of accounts receivable outstanding as at 31 March 2022. Bad debts of $40,000 are to be written off.

· An examination of the ledger account, shows that other expenses comprises of the following:

$

Accounting fee

80,000

Bank service charges

20,000

Fines and penalties

22,000

Entertainment expenses

50,000

Distribution expenses

490,000

Insurance

80,000

Advertising and sales promotion

118,000

860,000

· The values of other non-current assets are as follows:

As at 31 March 2022

Value In Use

Net Selling price

Vehicles

$400,000

$350,000

Plant and Equipment

$3,700,000

$3,600,000

· The Inland Revenue Department will only tax the gains on the financial assets when realised. Fines, penalties and entertainment expenses are not deductible for tax purposes. Dividend income received is net of taxes. Assume a tax rate of 28%.

· According to company policy, accounting fees, fines and penalty and entertainment expenses are classified as other expenses.

· During the year ended 31 March 2022, operations of the electric lawn mower trading segment of the company were terminated and classified as discontinued operations.

· Preference shares issued and paid-up are redeemable, do not have a conversion clause, with cumulative interest and non-participating.

· Included in the ordinary shares contributed equity is an amount of $2,000,000 representing issue of ordinary shares, during the year ended 31 March 2022, as part settlement of Branch Office land in Cambridge.

· The cancelled share reserve is in relation to repurchase of 1 million ordinary shares during the year ended 31 March 2022. The repurchased shares were originally issued at a price of $2 per ordinary share.

· During the year ended 31 March 2022 the company paid $400,000 of dividends to ordinary shareholders and $200,000 to preference shareholders.

· According to the company’s accounting policy expenses in the Statement of Comprehensive Income are to be classified by nature.

Required:

Prepare the following for King Trading Limited:

(a) Balance day journal adjustments in general journal form for the year ended 31 March 2022. Narrations are required.

(b) A Statement of Comprehensive Income for the year ended 31 March 2022.

(c) Balance Sheet as at 31 March 2022.

(d) Supplementary note for:

· Property plant and equipment shown in the Balance Sheet

· Revenue shown in the Statement of Comprehensive Income

· Taxation shown in the Statement of Comprehensive Income

(e) A Statement of Changes in Equity for the year ended 31 March 2022

(Note: Only information that can reasonably be determined from information provided in the question should be disclosed. The financial statements must comply with the requirements of the Companies Act 1993 and generally accepted accounting practice.)

Question 2

On 25 March 2019, Sun Store Limited acquired a hundred percent of the share capital of Moon Store Limited. On the day of acquisition the shareholder equity of Moon Store Limited consists of: Contributed Capital of $3,240,000; Retained Earnings of $1,980,000 and Revaluation Reserve of $270,000. Sun Store Limited remained the sole owner of Moon Store Limited as at 31st March 2022.

During the financial year ended 31st March 2022, Moon Store Limited sold inventory to Sun Store Limited for $540,000. Moon Store Limited had always sold goods to Sun Store Limited at 25% on cost. The inventory of Sun Store Limited as at 31st March 2022 consists of inventory amounting to $435,600 that was purchased from Moon Store Limited. Of the inventory Sun Store Limited had on hand at 1st April 2021, $118,800 was purchased from Moon Store Limited.

During the financial year ended 31st March 2022, Sun Store Limited sold inventory to Moon Store Limited for $342,000. Sun Store Limited had always sold goods to Moon Store Limited at 19% on cost. The inventory of Moon Store Limited as at 31st March 2022 consists of inventory amounting to $238,000 that was purchased from Sun Store Limited. Of the inventory Moon Store Limited had on hand at 1st April 2021, $57,120 was purchased from Sun Store Limited.

Interim dividends paid by Moon Store Limited for year ended 31st March 2022 amounted to $180,000. On 31st March 2022 the directors of Moon Store Limited declared a final dividend of $108,000. The final dividend has been accounted for in the books of Sun Store Limited and Moon Store Limited. Assume tax rate of 28 per cent. The financial statements of Sun Store Limited and Moon Store Limited for the year ended and as at 31st March 2022 are provided below:


Additional Notes:

I. Included in other incomes and gains of Sun Store Limited are management fees of $100,800 received from Moon Store Limited

II. Included in the Administration expenses of Moon Store limited is management fees of $100,800 paid to Sun Store Limited

III. Included in the accounts receivable of Moon Store Limited is an amount of $45,000 due from Sun Store Limited.

IV. Included in the accounts payable of Sun Store Limited is an amount of $45,000 due to Moon Store Limited

V. Included in the accounts receivable of Sun Store Limited is an amount of $80,000 due from Moon Store Limited.

VI. Included in the accounts payable of Moon Store Limited is an amount of $80,000 due to Sun Store Limited

VII. During the year ended 31March 2022, Sun Store Limited paid interim dividend of $270,000 and declared final dividend of $270,000.

Required:

(a) Prepare notional journal entries to consolidate the financial statements of Sun Store Limited and its wholly owned subsidiary Moon Store Limited (with narrations) for the year ended 31 March 2022

(b) b) Prepare a work sheet to show the consolidation of the statements of comprehensive income for the year ended 31 March 2022 and the Balance Sheets as at 31 March 2022 of Sun Store Limited and its wholly owned subsidiary Moon Store Limited

Question 3

The balance sheets of Supermart Limited for the years ended 31/3/2022 and 31/3/2021 are given below:


The Statement of Comprehensive Income of Supermart Limited for the year ended 31/3/2022 is given below:


Additional Information for year ended 31st March 2022:

· Other Income and gains includes the following:

Ø Dividend Income $312,500

Ø Some items of plant and equipment were disposed on 1 April 2021.  Gains from Disposal of Plant and equipment (Carrying Value = 112,500; Accumulated Depreciation $50,000) is $25,000.

Ø Gains from Revaluation of financial assets held for trading $250,000

Ø Interest Revenue $62,500

· The balance in the Asset Revaluation Reserve Account is in relation to revaluation of land.

· Land was acquired for cash considerations. There was no disposal of land during the year.

· Building was revalued for the first time in 2022 and revaluation loss of $125,000 was included in operating expenses. Depreciation of building for the year ended 31st March 2022 is $75,000

· Financial assets held for trading were acquired for cash considerations.

· The company issued new shares for cash considerations.

· Included in other income and gains is an amount $250,000 related to gain from revaluation of financial assets held for trading.

· Included in operating expenses are accrued expenses of $437,500 and depreciation charges for building and plant and equipment.

· Dividends were paid in July 2021.


Required

Prepare a Statement of Cash Flows for Supermart Limited. for the year ended 31st March 2022.





















2022-06-22