acc1006 eoy essay drill

ACC1002 AY2013-14 SEM 1 ESSAY DRILL 1

NUS Business School 2013 Page 1

Question 1

The financial statements of XYZ Corporation are given below. These are taken from the

2012 annual report. Based on the information given, prepare the Statement of Cash

Flows in good form as required by FRS 7. For interest and dividend receipts and

payments, the company records interest paid in the Cash Flow from Operating Activities

section. It does not record any other dividend and interest cash flows in this section.

The company uses the direct method for cash flow from operating activities [you can

also try the indirect method for practice].

XYZ Corporation Statement of Comprehensive Income for the year ended December

31, 2012) (Numbers in S$)

Sales 32,000

Fees earned 3,000

Cost of goods sold (11,000)

GROSS PROFIT 24,000

Operating expenses:

Miscellaneous expenses 11,000

Insurance expense 1,000

Bad debt expense 1,100

Depreciation expense (machinery) 1,000

Depreciation expense (building) 1,500

Amortization expense (customer relationship) 2,000 17,600

OPERATING PROFIT 6,400

Non-operating revenue and expenses:

Loss on sale of machinery 100

Interest expense 2,000 2,100

PROFIT BEFORE TAX 4,300

Less: Income tax expense (all current) 1,200

NET PROFITS 3,100

OTHER COMPREHENSIVE INCOME 0

COMPREHENSIVE INCOME 3,100



XYZ Corporation Balance sheets for December 31, 2011 and December 31, 2012

(numbers in S$)

2012 2011

Assets

Cash at hand 1,000 1,000

Cash at bank 5,000 8,000

Trade Debtors 23,200 12,000

Less: Allowance for bad debts (1,300) (1,000)

Inventory 4,000 3,000

Prepaid insurance 1,000 2,000

Land 30,000 20,000

Machinery 6,000 8,000

Less: Accumulated depreciation (2,500) (2,000)

Building 30,000 --

Less: Accumulated depreciation (1500) --

Customer relationship (net of accumulated amortization) 6,000 8,000

TOTAL ASSETS 100,900 59,000

Liabilities and Equity

Trade Creditors 9,000 12,000

Miscellaneous Expenses Payable 3,000 1,500

Bank overdraft 100 1,000

Interest payable 200 0

Income Taxes Payable 200 500

Advance Fee Receipts - 3,000

Dividends payable 3,000 1,000

Notes payable 22,000 23,000

Issued Share Capital (no-par shares) 61,300 12,000

Less: Treasury shares -- (1,000)

Revenue Reserves 2,100 6,000

TOTAL LIABILITIES AND EQUITY 100,900 59,000



XYZ Corporation Statement of Changes in Equity for the year ended December 31,

2012 (Numbers in S$)

Share Capital

Treasury Shares

Revenue Reserves1

Total

Beginning balance 12,000 (1,000) 6,000 17,000

Shares issued in exchange for a building

30,000 -- -- 30,000

Shares issued in exchange for cash 15,000 -- -- 15,000

Comprehensive income for 2012 -- -- 3,100 3,100

Dividends declared

Cash Dividend -- -- (3,000) (3,000)

Scrip Dividend 4,000 -- (4,000) 0

Treasury shares reissued (Share capital includes Premium on Treasury Shares Reissued)

300 1,000 -- 1,300

Ending balance 61,300 0 2,100 63,400

Required: Based on the information given above, prepare the Statement of Cash Flows in good form as required by FRS 7 and in accordance with the companys reporting policy. Include the proof and the list of significant noncash transactions in your answer.

1 Revenue Reserves is an alternative term for Retained Earnings



Question 2

(a) Chng Corporation had the following balances in its shareholders' equity

accounts at December 31, 2010 (numbers in S$):

Issued share capital (20,000 shares) 450,000

Treasury shares (1,000 shares) (20,000)

Retained Earnings 500,000

The following transactions occurred during 2011:

February 3 Issued 3,000 ordinary shares for S$22 per share.

May 10 Declared a cash dividend of S$0.50 per share on ordinary shares.

July 5 Issued 1 for 1 bonus shares at an issue price of S$1 per share by

capitalizing retained earnings. Treasury shares were included in the

bonus issue.

October 12 Reissued 500 treasury shares at a price of S$11 per share

December 31 Net income for the year was determined to be S$75,000.

December 31 Other comprehensive income was S$1,000 consisting entirely of foreign

currency translation gains.

Required:

Present the Statement of Changes in Equity for Chng Corporation in column form. Show

the Premium on Treasury Shares as a separate column.



Question 2 (continued) Parts (b) to (d) are based on the following exhibit. This is the cash flows from operating activities section of the consolidated statement of cash flows for Kyocera Corporation.

Consolidated Statements of Cash Flows Kyocera Corporation and Consolidated Subsidiaries

For the three years ended March 31, 2012 2010 2011 2012 (Yen in millions) Cash flows from operating activities:

Net income 45,433 130,118 84,758 Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation and amortization 72,829 71,544 73,120

Provision for doubtful accounts and loss on bad debts (Note 7) 9,389 2,039 370 Write-down of inventories 9,207 5,291 11,486 Deferred income taxes (Note 16) (9,080 ) 6,470 (4,064 ) Equity in losses of affiliates and unconsolidated subsidiaries

(Notes 4, 7

and 13) 18,297 160 36 Foreign currency adjustments 1,100 506 (759 ) Change in assets and liabilities:

Increase in receivables (38,823 ) (38,043 ) (3,803 ) (Increase) decrease in inventories 10,416 (69,368 ) (39,762 ) (Increase) decrease in advance payment (22,734 ) (20,008 ) 3,507 Increase in other current assets (174 ) (616 ) (1,094 ) Increase (decrease) in notes and accounts payable 40,400 29,422 (10,092 ) Increase (decrease) in accrued income taxes 6,152 2,039 (6,680 ) Increase in other current liabilities 4,420 3,033 4,411 Decrease in other non-current liabilities (5,724 ) (2,871 ) (5,287 )

Other, net (3,525 ) (29 ) 2,918

Net cash provided by operating activities 137,583 119,687 109,065

Required:

(b) Calculate the change in net accounts receivable in 2011. Show working.

(c) Kyoceras cash flow statement above is prepared using U.S. listing requirements

which are not the same as IAS 7. Spot one way in which Kyoceras cash flow

from operating activities deviates from IAS 7 requirements.

(d) Explain in 5 lines or less how the company can include write-down of

inventories as a non-cash adjustment without double counting when it subtracts

the increase in inventories.



(e) The following is a summary of information from Singtels 2012 footnote on PPE.

Numbers are in S$ million. The information given covers all PPE transactions

except disposals.

PPE at cost:

Balance at 1/4/2011 29,144.2

Additions 2,396.9

Foreign currency changes and other adjustments 73.1

Balance at 31/3/2012 31,142.9

Accumulated Depreciation and Impairment:

Balance at 1/4/2011 18,031.7

Foreign currency effects 50.0

Depreciation expense 1875.4

Balance at 31/3/2012 19,562.9

From the cash flow statement, proceeds from sale of PPE were S$14.6 million.

Required for part e):

Show a single summary journal entry for the PP&E disposals. That is, give a

single journal entry that shows all the PP&E disposals as if they were a single

transaction. Assume that the disposals were all for cash. Narration is not

required.

Question 3

The following transactions take place for Kwok Corporation in 2012:

(i) Kwok Corporation is incorporated on January 1, 2012. On that date, 10 million

shares are issued, and the total proceeds of the share issue are

S$10,000,000.

(ii) On January 2, 2012, the company buys landed property for S$1,500,000. The

purchase includes land, buildings and installed equipment. The appraised

value of the land is S$550,000, the building has an appraised value of

S$500,000 and the equipment has an appraised value of S$50,000. The



building is depreciated straight line over 20 years with a residual value of

S$100,000. The equipment is depreciated over 3 years using the DDB

method and has a residual value of S$1,000.

(iii) The company purchases merchandise inventory in three batches on credit

with terms of 1/5 net 30. Batch 1 is on January 3: 1000 items at a cost price of

S$100 per item. Batch 2 is on July 1: 9000 items at a cost price of S$90 per

item. Batch 3 is on October 1: 10000 items at a cost price of S$50 per item.

The company uses FIFO and the perpetual method to record inventory. All

payments to suppliers are made 3 days after the purchase date, except for

Batch 1. In the case of Batch 1, payment is made in full on January 31.

(iv) The only sale transaction was on July 3: 9,000 units were sold for S$2.7

million. The sale was on a cash basis.

(v) The company offered a one year embedded warranty. During this time, items

are replaced for free if they are defective. Warranty expense is estimated at 3

percent of sales. On September 20, 400 items were replaced under the

warranty. On November 3, 300 items were replaced under the warranty.

(vi) On January 6, the company purchased shares (of other companies) at a cost

of S$5 million. These shares were not held for trading, and in fact the

company did not sell any of them. At December 31, these shares had a

market value of S$8 million.

(vii) The company incurred miscellaneous expenses of S$1.5 million during the

year. These were all paid in cash when incurred.

(viii) On November 1, the company borrows S$1,000,000 for 120 days at an

interest rate of 10 percent per year.

(ix) On December 31, the equipment had a value in use of S$10,000. It could be

sold on that date for S$20,000, but would require a cost of S$11,000 to

dismantle it and ship it to the buyer.

(x) Kwok Corporation has a policy of taking all purchase discounts. To encourage

this, it records all inventory purchases using the discounted price when the

purchase is recorded. If it later misses a discount, it records a separate



expense called discount lost expense that equals the lost discount. It does

not add the lost discount to the value of the inventory.

Required:

(a) Prepare an adjusted trial balance for Kwok Corporation at December 31, 2012.

(b) Prepare a statement of comprehensive income for Kwok Corporation for the year

ended December 31, 2012.

(c) Prepare a classified balance sheet for Kwok Corporation at December 31, 2012.

SOLUTION

Question 1 (adapted from Pratt, Financial Accounting 8th edition)

XYZ Company Statement of Cash Flows Year Ended 31/12/2012

Numbers in S$

Cash flows from operating activities

Cash collected from sales 20,000

Cash paid to suppliers (15,000)

Cash paid for miscellaneous expenses (9,500)

Interest paid (1,800)

Tax paid (1,500)

Cash flows from operating activities (7,800)

Cash flows from investing activities

Purchase of land (10,000)

Sale of machinery 1,400

Cash flows from investing activities (8,600)

Cash flows from financing activities

Issue of new shares 15,000

Reissue of treasury shares 1,300

Repayment of debt (1,000)

Dividend paid (1,000)

Cash flows from financing activities 14,300

Net change in cash and cash equivalents (2,100)

Cash and cash equivalents at 31/12/2012 (cash at hand 1000, cash at bank 5000, bank overdraft 100)

5,900

Cash and cash equivalents at 31/12/2011 (cash at hand 1000, cash at bank 8000, bank overdraft 1000)

8,000

Significant non-cash transactions

1. A building with fair value S$30,000 was purchased by issuing new shares. 2. A scrip dividend was paid worth S$4,000.

Question 2 (a)

Chng Corporation Statement of Changes in Equity

December 31, 2011

Numbers in S$ Shares issued

Treasury shares

Premium on treasury shares

Retained earnings

Foreign currency translation reserves

Total

Balance at 31/12/2010

450,000 (20,000) -- 500,000 -- 930,000

Comprehensive income for 2011

-- -- -- 75,000 1,000 76,000

Ordinary shares issued

66,000 -- -- -- -- 66,000

Bonus share issue

23,000 -- -- (23,000) -- 0

Dividends -- -- -- (11,000) -- (11,000)

Treasury shares

-- 5,000 500 -- -- 5,500

Balance at 31/12/2011

539,000 (15,000) 500 541,000 1,000 1,066,500

(b) Change in net A/R = 36,004 [Working: 38,043-2,039] (c)

Tax paid is not shown as a separate item. (d) The increase in inventory shown is the increase that would be recorded if there were no impairment. (e) Dr. Cash 14.6m Dr. Accumulated depreciation 394.2m Dr. Loss on disposal 62.5m Cr. PP&E at cost 471.3m

Question 3 (a) Kwok Corporation

Adjusted trial balance As at December 31, 2012 (Numbers in S$)

Dr. Cr.

Cash 4,303,100

Inventory 521,730

Land 750,000

Building 681,818

Accumulated depreciationBuilding

29,091

Equipment 68,182

Accumulated depreciation and impairmentequipment

58,182

AFS investments 8,000,000

Note payable 1,000,000

Warranty liability 18,630

Interest payable 16,667

Shares issued 10,000,000

Retained Earnings 0

Fair value adjustment reserves 3,000,000

Sales 2,700,000

COGS 811,800

Depreciation expensebuilding 29,091

Depreciation expenseequipment

45,455

Impairment expenseequipment

12,727

Warranty expense 81,000

Discount lost expense 1,000

Miscellaneous expense 1,500,000

Interest expense 16,667

TOTALS 16,822,570 16,822,570

(b) Kwok Corporation Statement of Comprehensive Income (numbers in S$) Year ended 31/12/2012

Sales 2,700,000

Less: COGS 811,800

Gross margin 1,888,200

Less: other operating expenses

Depreciation (74,546)

Impairment of equipment (12,727)

Warranty expense (81,000)

Discount lost expense (1,000)

Miscellaneous expense (1,500,000)

Operating profit 218,927

Less: interest expense (16,667)

Net profit 202,260

Other comprehensive income:

Gains on AFS portfolio 3,000,000

Comprehensive income 3,202,260

Kwok Corporation Statement of Financial Position (numbers in S$) 31/12/2012

ASSETS

Current assets

Cash 4,303,100

Inventory 521,730

Current assets total 4,824,830

Non-current assets

AFS investments 8,000,000

Land 750,000

Building 681,818

Less: accumulated depreciation (29,091)

Net Building 652,727

Equipment 68,182

Less: accumulated depreciation and impairment (58,182)

Net Equipment 10,000

Non-current assets total 9,412,727

TOTAL ASSETS 14,237,557

LIABILITIES AND EQUITY

Current liabilities

Note payable 1,000,000

Interest payable 16,667

Warranty liability 18,630

Current liabilities total 1,035,297

Equity

Shares issued 10,000,000

Retained earnings 202,260

Fair value adjustment reserve 3,000,000

TOTAL EQUITY 13,202,260

TOTAL LIABILITIES AND EQUITY 14,237,557

essay_drill_1_QUESTIONSessay_drill_1_SOLUTION

acc1006 eoy essay drill

Documents

cash dividend

assets cash

statement of cash flows

income tax expense

depreciation expense

insurance expense

operating expenses

operating profit