Financial Accounting - Assignment Example

Financial Accounting 2 By: Name Course Instructor Institution City, State Date Financial Accounting 2 Case Study for Annual Report Assignment SP 2, 2012 Contents Page Statement of Comprehensive Income………………………………………………..3-5 Statement of Financial Position………………………………………………………5-6 Statement of Changes in Equity……………………………………………………..7 Notes to the Financial Statements…………………………………………………..8-10 Directors Declaration…………………………………………………………………..11 Annual Directors Report……………………………………………………………….12 Annual Auditors Report………………………………………………………………..13 Appendix and Calculations…………………………………………………………..14-15 Reference List………………………………………………………………………….16 Statement of Comprehensive Income As at 30th June 2012 $’000s $’000s Revenue 51,475 Service revenue 69,907 Sales return (980) Net revenue 120,402 Other Incomes Gain on sale of land 389 Interest earned on Cash at Bank 152 Cash payment on legal suit 648 1,189 121,591 Cost of sales (21,852) Gross profit 99,739 Expenses: Salaries and Wages 36,430.7 Annual Leave expenses 2,700 Provision for annual leave 64(note 1) Provision for long service leave 90(note 2) General operating Expenses 13,920 Advertising Expenses 1,727(note 3) Auditors Expense 940 Insurance Expense 850(note 4) Interest Expense 3,600 Application for loan 1.4 Interest on principal loan 600 Coffee mugs 0.7 Depreciation on Vehicles 156 Depreciation on Buildings 1,230 Doubtful Debts 1,430 Loss on sale of Plant 260 Extraordinary Expenses: Cost of repairing Products 4,600 Advertising and Mailing 600 56,599.8 Profit before tax 43,139.2 Tax expense (30% x 43,139.2) 12,941.76 Profit after tax 30,197.44 Statement of Financial Position For the period, ended 30th June 2012 $ 000 $ 000 Non-current Assets Plant and Equipment 14,560 Land 19,900 Buildings 17,300 Vehicles 740 52,500 Current Assets Cash at Bank 380 Prepayments 203 Account receivables 32,750 Intangibles 444 Inventory 14,510 48,287 Total Assets 100,787 Total Equity and Liabilities Current liabilities Accounts payable 28,900 Potential claim 12.5(note 6) Accrued Liabilities 4,868 33,780.5 Long term liabilities Loan from ABank 3,600 Potential claim 3,000(note 5) Shareholders’ funds Share capital 9,137 Retained Earnings 37,716.44 General Reserve 12,630 66,083.44 99,863.94 Statement of Changes in Equity For the period ,ended 30th June 2012 Share capital General reserve Retained Earnings $000 $000 $000 Balance as at July 2011 9,137 9,430 11,239 Profit for the period - - 30,197.44 Transfer from Retained Earnings - 3,200 (3,200) Interim Dividend - - (476) Final dividend - - (520) Balance As at 30th June 2012 9137 12,630 37,716.44 Notes to the financial statements Reporting Entity The company is a reporting entity. It is located in Australia, and it s main business is selling of products and services. Basis of Preparation a) Compliance Statement The financial statements i.e. statement of comprehensive income, statement of financial position and statement of changes in equity, have all been prepared in accordance to Australian Accounting standards (Financial Accounting 2). b) Measurement Basis The financial statements: statement of comprehensive income, statement of financial position and statement of changes in equity have all been prepared using information based on historical costs. However, when preparing the statement of financial position, inventory and property is measured at fair value. c) Presentation of currency All the financial statements have been prepared using Australian dollars, since that is in accordance to Australian Accounting Standards (Financial Accounting 2). d) Judgments and estimates The aim of management when preparing financial statements is to conform to the Australian Accounting Standards, and in the process they are required to make assumptions that may differ from the actual results, for example estimates of liabilities, expenses, assets and income. Important accounting policies a) Property and equipment During preparation, all the property and equipment are measured at their cost, which is the total expense incurred during acquisition, less the impairment losses and depreciation. The gains on disposal and the losses on disposal of assets is determined by getting the difference between the carrying amount of the assets and the proceeds obtained from disposal. Depreciation is determined by getting the difference between an assets cost and its residual value. b) Inventories The inventories in the financial statements are given as the lower of their net realizable value and their cost. Cost of inventories includes all expenses incurred in bringing them to their present condition, while the net realizable value is the value at which the inventories are estimated to be sold. 1. Provision for annual leave expense for financial year ending 30th June 2012 Provision for Annual leave as at June 2012 562,000 Less: Provision as at July 2011 498,000 Provision for annual leave expense 64,000 2. Provision for long service leave expense for financial year ending 30th June 2012. Provision for long service leave as at June 2012 430,000 Provision for annual leave Expense as at July 2011 340,000 Provision for long service expense 90,000 3. Advertising expense Advertising 1,760,000 Less: Prepayments 33,000 Net advertising Expense 1,727,000 4. Insurance 1,020,000 Less prepayments 170,000 .Net Insurance Expense 850,000 5. Expected Customer Claims $3,000,000 the amount justified by the lawyers –Long-term Liability 6. 25/100x =.25*50,000 =12,500 –Short-term liability Director’s declaration Pursuant to the standards laid out by Australian Accounting Standards Board the directors confirm the following: a) In preparation of the financial statements, all standards have been followed specifically paying attention to AASB 101, 108, 110, 137 and 1054. b) The directors have selected and applied accounting policies consistently in order to portray the true and fair view of the state of affairs of the company. c) The directors have prepared the financial statements of the company as going concern business i.e. the business is not going to terminate its operations in foreseeable future. d) The directors also confirm that they have maintained proper books of accounts in order to safeguard the assets of the company. Annual directors’ report The directors are pleased to their report and financial statements for the year ended 30th June 2012. Transfers to Reserve During the financial year ending 30th June 2012, the directors moved a sum of $3,200,000 from retained earnings to general reserve. This can be attributed to high profits that the company has realized over the years. Dividends The board of directors has approved a dividend of 15p per share, to all shareholders in the register under the year in consideration. This is in addition to the interim dividend of 7p that the company had announced earlier. Annual auditor’s report The financial reports have been audited and they received unqualified opinion. That is to mean that the auditors did not find any material error of omission or commission in preparation of the financial statements. This shows the management commitment to maintain strong internal controls so as to safeguard the assets of the company and to ensure that operations are running on smoothly. Appendix with calculations $000 Advertising 1,760,000 Less: Prepayments 33,000 Net advertising Expense 1,727,000 Insurance 1,020,000 Less prepayments 170,000 Net Insurance Expense 850,000 Expected Customer Claims $3,000,000 the amount justified by the lawyers 25/100x =.25*50,000 =12,500 +3,000,000= 3,012,500 Total number of Shares As at May 2006 2,000,000 Issue on April 2011 1,400,000 Total number of shares 3,400,000 Provision for long service leave Bal b/f 340,000 Balance c/d 430,000 Charge for the year 90,000 430,000 430,000 Provision for annual leave a/c Bal b/f 498,000 Bal c/d 562,000 Profit and loss a/c 64,000 562,000 562,000 Calculation of final dividend Dividend-= 510,000 Number of shares 3,400,000 =15p References Financial Accounting 2. (2012). Case Study for Annual Report Assignment Read More