Problem # 1
The drafted trial balance of Cloudy Ltd as at 30 June 2016 is shown below.
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Debit
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Credit
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Ordinary share capital (1 500 000 shares)
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$1 062 500
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General reserve (1/7/15)
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175 000
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Revaluation surplus (1/7/15)
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60 000
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Retained earnings (1/7/15)
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104 500
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Bank loan (long-term)
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46 500
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Mortgage (long-term)
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80 000
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Accounts payable
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202 000
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Provision for employee benefits (long-term)
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5 000
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Allowance for doubtful debts
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7 500
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Accumulated depreciation:
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12 850
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Property, Plant and Equipment (at cost)
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$ 557 500
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Accounts receivable
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542 950
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Inventory
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651 100
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Goodwill
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200 000
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Cash at bank
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278 800
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Interest expense on bank loan and mortgage
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12 500
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Sales
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1 730 500
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Raw materials and consumables used
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1 083 100
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Changes in inventories of finished goods
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and
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3 100
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work in progress
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Other expenses (excluding depreciation)
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163 500
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$3 489 450
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$3 489 450
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Additional information
Details of the balances of PPE and accumulated depreciation accounts are:
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Accumulated depreciation: $12 850, including:
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Plant 9 500
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Office furniture 850
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Buildings 2 500
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PPE (at cost)
Land (at cost)
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$557 500,
211 500
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including:
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Factory buildings (at cost)
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250 000
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Plant (at cost)
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90 000
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Office furniture (at cost)
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6 000
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The accountant for the company seeks your assistance in preparing the financial statements for external reporting purposes and advises you of the following information that needs to be taken into account before finalising the financial statements.
(a) There were no additions or disposals of the property, plant and equipment (PPE) during the period. Depreciation expenses for PPE have not been recorded. The Company is using the straight-line method based on cost of the asset to depreciate all these assets (except for the land which is not depreciated). The useful lives of assets held by the Company are as the same as the previous year and are presented as follows:
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Plant
Office furniture Buildings
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10 years
10 years
50 years
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(b) The balance of allowance for doubtful debts at the beginning of the year was zero. There was no bad debt written off during the year. The ATO does not allow this to be a deductible expense for the income tax purpose.
(c) The balance of long service leave at the beginning of the year was zero. There was no long-service leave paid to employees during the year. The ATO only allows this to be a deductible expense for the income tax purpose if the leave was actually paid out to the employee.
(d) Following expert advice, the directors decided on 30 June 2016 to revalue the land and factory buildings to reflect current fair values. Consequently, directors placed a value of $200 000 on land and $320 000 on the buildings.
(e) Directors decided to transfer $10 000 from retained earnings to general reserve.
(f) Company tax rate is 30%.
Required:
Based on the ledger balances and the additional information provided, prepare a statement of profit or loss and other comprehensive income (classify expenses by nature), a statement of financial position, a statement of changes in equity and a notes to financial statements (wherever information available) for Cloudy Ltd for the year ended 30 June 2016, to comply with AASB 101.