Financial statement presentation
Appliances Ltd, a manufacturing company, commenced operations on1 July 2017. The draft trial balance for the year ended 30 June2018 has been prepared as follows:
Appliances Ltd | | |
Draft trial balance as at 30 June 2018 | | |
DATA | | | |
| | DR ($) | CR ($) |
Sales of goods | | 12,230,000 |
Interest income | | 7,000 |
Cost of sales | | 4,685,000 | |
Marketing expense | 623,000 | |
Salaries and wages | 2,740,000 | |
Administration expenses | 143,000 | |
Annual leave expense | 210,000 | |
Doubtful debts expense | 62,000 | |
Depreciation expense | 0 | |
Interest expense | 64,000 | |
Other borrowing expenses | 6,000 | |
Other expenses | 95,000 | |
Warranty expense | 64,000 | |
Income tax expense | 0 | |
Cash on hand | 41,000 | |
Cash management account | 193,000 | |
Trade debtors | 3,276,000 | |
Allowance for doubtful debts | | 219,000 |
Raw material inventory | 624,000 | |
Finished goods inventory | 1,250,000 | |
Land | | 500,000 | |
Buildings | | 900,000 | |
Accumulated depreciation - buildings | | 0 |
Plant and equipment | 2,600,000 | |
Accumulated depreciation - plant and equipment | | 0 |
Patents | | 150,000 | |
Deferred tax asset | 0 | |
Bank loan | | | 400,000 |
Trade creditors | | 615,000 |
Provision for annual leave | | 200,000 |
Provision for warranty | | 55,000 |
Current tax liability | | 0 |
Dividends paid | 500,000 | |
Share capital | | | 5,000,000 |
| | 18,726,000 | 18,726,000 |
Additional information:
The bank loan is repayable in 5 years.
The provision for annual leave is payable within 1 year.
The provision for warranty is in respect of a 12-month warrantygiven on certain goods sold.
Share capital consists of 1,000,000 ordinary shares, fully paidto $5.00 each.
Appliances Ltd is a reporting entity.
Appliances Ltd uses the single statement format for thestatement of profit or loss and other comprehensive income andpresents an analysis of expenses by nature on the statement.
In relation to the statement of financial position, where AASB101 requires entities to disclose further sub-classifications ofthe minimum line items on the face of the statement or in thenotes, the directors of Appliances Ltd want to report only theminimum line items on the face of the statement, and leave thesub-classifications to be disclosed in the notes.
Whilst reviewing the draft trial balance, you notice thatdepreciation and income tax have not been recognised as yet. Thefollowing information is available for these items:
The buildings were purchased on 1 July 2017, and have a usefullife of 30 years and estimated residual value of nil. The plant andequipment was also purchased on 1 July 2017, and has a useful lifeof 10 years and estimated residual value of $50,000. Depreciationis to be recognised on a straight-line basis.
Income tax expense needs to be calculated at 30% of theaccounting profit (you will need to prepare the statement of profitor loss and other comprehensive income after accounting fordepreciation above to determine income tax expense). The deferredtax asset to be recognised as at 30 June 2018 is $142,200. Thecurrent tax liability to be recognised will be the sum of incometax expense and the deferred tax asset.
Required:
i) Prepare the journal entries to recognise depreciation andincome tax in Appliances Ltd’s accounting records as at 30 June2018. After preparing the journal entries, enter the amounts fromyour journal entries into the draft trial balance.
ii) Prepare the statement of profit or loss and othercomprehensive income, statement of financial position, andstatement of changes in equity of Appliances Ltd for the year ended30 June 2018 in accordance with AASB 101. Notes and comparativefigures are not required.
