Question 1 - Parrotfish Limited is a company incorporated in Hong Kong. Its main business is the sales of three types of canned fish, tuna, salmon and red snapper. Parrotfish Limited allocates its resources based on the number of its product lines. Its financial year end is 31 December. It is the company policy to pay a year-end bonus of two-month salary for all staff members if the company had good corporate performance for the year.
The draft financial statements of Parrotfish Limited for the year ended 31 December 2016 are as below:
Statement of profit or loss and other comprehensive income for the year ended 31 December 2016
|
$000
|
|
Revenue
|
9,800
|
|
Cost of sales
|
(4,600)
|
|
Gross profits
|
5,200
|
|
Administration expense
|
(700)
|
|
Distribution expense
|
(800)
|
|
Profits before tax
|
3,700
|
|
Taxation
|
(500)
|
|
Profits for the year (Note 1)
|
3,200
|
|
Other comprehensive income
|
|
|
Revaluation of property, plant and equipment
|
1,600
|
|
Total comprehensive income for the year
|
4,800
|
Statement of financial position as at 31 December
|
2016
|
2015
|
|
$000
|
$000
|
|
Non-current assets
|
|
|
|
Property, plant and equipment
|
13,800
|
12,000
|
|
Intangibles assets
|
4,700
|
4,500
|
|
Investment properties
|
5,900
|
5,500
|
|
24,400
|
22,000
|
|
Current assets
|
|
|
|
Inventories
|
900
|
600
|
|
Trade receivables
|
800
|
500
|
|
Investment
|
850
|
800
|
|
Cash and bank
|
6,250
|
450
|
|
Total assets
|
33,200
|
24,350
|
|
Equity and reserves
|
|
|
|
Share capital
|
13,500
|
9,000
|
|
Retained profits
|
8,000
|
6,000
|
|
Other reserves
|
3,100
|
1,500
|
|
24,600
|
16,500
|
|
Current liabilities
|
|
|
|
Trade payables
|
650
|
800
|
|
Other payables
|
700
|
400
|
|
Interest payables
|
200
|
300
|
|
Unearned revenue
|
200
|
|
|
Tax payables
|
400
|
650
|
|
Bank overdraft
|
650
|
700
|
|
Non-current liabilities
|
|
|
|
Bank loans
|
5,800
|
5,000
|
|
Total equity and liabilities
|
33,200
|
24,350
|
The following information is available:
1. Profits for the year had been arrived at after charging (crediting):
|
$000
|
|
Depreciation charge
|
100
|
|
Impairment loss on accounts receivables recovered
|
(70)
|
|
Inventories written down
|
60
|
|
Finance cost
|
80
|
2. 250,000 ordinary shares were issued during the year at $18 per share.
3. The current assets investment was a 1-month term deposit.
4. It was Parrotfish Limited's policy to perform impairment loss test on its assets at year end. Impairment losses, if any, were written off immediately as expenses.
5. Sales (revenue) are approximately 90% credit and 10% cash.
On 1 July 2016, Parrotfish Limited acquired 100% equity interest of Sunfish Limited, which is a company incorporated in Hong Kong in 2012. The main business of Sunfish Limited is the sale of canned mackerel. Since the acquisition of Sunfish Limited, the total sales of canned fish reported by Parrotfish Limited increased by 50%, of which 40% was from the sales of canned mackerel.
Required:
a. Advise Parrotfish Limited whether year-end bonus for the year ended 2016 should be paid.
b. With reference to relevant financial reporting standards, advise Parrotfish Limited on the need to disclose the sales information of canned mackerel in the annual report.
Question 2 - Pigfish Limited is a company incorporated in Hong Kong. It has its financial year end at 31 December. Below is the trial balance of Pigfish Limited as at 31 December 2016:
|
Note
|
Debit
|
Credit
|
|
|
HK$'000
|
HK$'000
|
|
Property, plant and equipment
|
|
4,500
|
|
|
Accumulated depreciation
|
|
|
2,500
|
|
Investment in shares
|
1
|
8,000
|
|
|
Investment in share conversion option
|
|
2,000
|
|
|
Fixed deposit
|
|
3,000
|
|
|
Inventory
|
|
1,500
|
|
|
Accounts receivables
|
|
800
|
|
|
Cash
|
|
1,000
|
|
|
Accounts payable
|
|
|
1,300
|
|
Bank loans
|
|
|
1,000
|
|
Share capital
|
|
|
7,500
|
|
Retained profits - at 1 January 2016
|
|
|
8,200
|
|
Sales
|
|
|
5,000
|
|
Cost of sales
|
|
3,000
|
|
|
Depreciation expense
|
|
700
|
|
|
Operating expense
|
|
500
|
|
|
Interest expense
|
|
600
|
|
|
Dividend income
|
|
|
300
|
|
Dividend paid
|
|
200
|
|
Note 1: Investment in shares is for long-term investment purposes.
Required: With reference to the relevant financial reporting and accounting standards, discuss the appropriate accounting classifications and treatments of the following items:
i. Investment in shares
ii. Investment in share conversion options
iii. Bank loans