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PART A

Trial balance for Commotion Ltd as at 30 June 2012 (before calculation of income tax)  is as follows:

Note: this is first year of operation of Commotion Ltd.
                                                                       DR              CR
                                                                     $000            $000
Sales Revenue                                                                   1235
Cost of Sales                                                   540
Interest revenue                                                                  19
Gain on Sale of Equipment                                                    10
Admin and Selling Expenses                              153
Auditor Fees                                                     18
Bad Debts Expense                                            8
Depreciation Plant and Equipment                       96           
Doubtful Debts Expense                                     6
Interest Expense                                                21
Miscellaneous Expense                                       28
Rent Expense                                                    17
Salaries                                                            187
Proceeds from Insurance Claim                                             25
Accounts Receivable                                           118
Allowance for Doubtful Debts                                                6
Cash on Hand                                                     5
Inventories                                                       145
Deposits                                                           130
Debentures in Ryco Ltd                                      220
Plant and Equipment                                          472
Accumulated Depreciation Plant and Equip.                             96
Land                                                                50
Accounts Payable                                                                 235
Bank Overdraft                                                                    13
Bank Loan                                                                          175
Share Capital                                                                      400

                                                                       2214         2214                                                         
Additional information:

a) Included in auditor remuneration is $6,000 in fees for various management consulting services.

b) The gain on sale of plant and equipment amounted to $10,000. The carrying amount of the item sold was $77,000

c) Directors have declared the final dividend of 5 cents per share) at 30 June 2012

d) On 30 June 2012 the company revised useful life of one of its plant and equipment assets from 5 years to 3 years. The asset had been purchased on 1 July 2011 at a cost of $75,000

e) All assets other than accounts receivable, cash on hand and inventories are non-current. All liabilities other than accounts payable, bank overdraft, present tax liability and provision for dividend are non-current.

f) Share capital comprises 400,000 fully paid ordinary shares issued on 1 July 2011.

g) Income tax rate is 30% only temporary differences relate to doubtful debts expense and depreciation of Plant and Equipment (the depreciation allowable for tax purposes for the year ended 30 June 2012 was $80,000

h) Land was purchased on 1 July 2011 for $50,000. At 30 June 2012 the directors desire to revalue the land to $100,000.

i) On 1 August 2012 the company discovers that inventory valued at $30,000 at 30 June 2012 has no value due to flood damage.

j) At 30 June 2012 the company has signed the contract for construction of a warehouse to the value of $250,000. All amounts under contract are due before 30 June 2013.

k) At 30 June 2012 Commotion Ltd purchased all assets and liabilities of a competitor Exco Ltd. Details of acquisition are as follows:
Assets acquired:

Inventories   $44,000  (fair value $38,000)
Building       200,000  (fair value $170,000)
Liability Assumed:
Bank Loan  $10,000   (fair value $10,000)
Cost of acquisition:
Cash       $250,000   (to be paid 30/9/2012 – funded by increasing Commotion Ltd’s Bank Loan)
Legal fees  $7,000    (to be paid 31/7/2012.
Directors of Commotion Ltd require this acquisition to be included in financial statements at 30 June 2012

l) At 30 June 2012 directors confirm that asset Debentures in Ryco Ltd is impaired and would realise only $120,000 due to liquidation of Ryco Ltd. Adjustment is needed for the 2012 financial statements.

Required

i) Create required adjustments to trial balance data at 30 June 2012 (in journal entry form)

ii) Create a statement of comprehensive income ( using classification of expenses by function method), a statement of financial position and the statement of changes in equity, including any required notes for the year ended 30 June 2012. These statements are to comply with Australian accounting standards AASB3, AASB101, AASB108, AASB110 and AASB116

Note: round all calculations to nearest thousand dollars

PART B

With reference to Accounting Standard AASB110 ‘Events After the Reporting Period’:

a) Describe distinction between adjusting and non-adjusting events

b) describe requirements under standard for the disclosure of events after reporting period

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M92847

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