Assignment:
The trial balance for Eureka Ltd as at 30 June 2012 (before calculation of income tax) is as follows:
Note: this is the first year of operation of Eureka 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
Depreciation Plant and Equipment 96
Doubtful Debts Expense 14
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 Rydell 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) Sales revenue includes $40,000 received under a contract to provide management services to another organisation. The contract covers the period 1 July 2011 to 30 June 2013.
b) Included in auditor fees is $6,000 in fees for various management consulting services.
c) The gain on sale of plant and equipment arose from sale of equipment with a carrying amount of $77,000
d) Directors have declared a final dividend of 5 cents per share at 30 June 2012. This dividend is not subject to any further approval.
e) Bad debts of $8,000 were written off during the year against the Allowance for Doubtful Debts
f) On 30 June 2012 the company revised the 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
g) All assets other than accounts receivable, cash on hand and inventories are non-current. All liabilities other than accounts payable, bank overdraft, current tax liability, provision for dividend and unearned revenue are non-current.
h) Share capital comprises 400,000 fully paid ordinary shares issued on 1 July 2011.
i) Income tax rate is 30%. The company complies with Accounting Standard AASB112 Income Taxes and the only temporary differences relate to doubtful debts expense, depreciation of Plant and Equipment (the depreciation allowable for tax purposes for the year ended 30 June 2012 was $80,000) and revaluation of Land.
j) Land was purchased on 1 July 2011 for $50,000. At 30 June 2012 the directors wish to revalue the land to $100,000.
k) On 1 August 2012 the company discovers that inventory valued at $30,000 at 30 June 2012 has no value due to flood damage. All inventory is valued at the lower of cost and net realisable value.
l) At 30 June 2012 the company has signed a contract for the construction of a warehouse to the value of $250,000. All amounts under the contract are due before 30 June 2013.
m) At 30 June 2012 Eureka Ltd purchased all the assets and liabilities of a competitor Hockey Ltd. The details of the 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 Eureka Ltd's Bank Loan)
Legal fees $7,000 (to be paid 31/7/2012)
The directors of Eureka Ltd require this acquisition to be included in the financial statements at 30 June 2012
n) At 30 June 2012 directors confirm that the asset Debentures in Rydell Ltd is impaired and will realise only $120,000 due to the liquidation of Rydell Ltd. An adjustment is required for the 2012 financial statements.
o) Any goodwill arising on business combinations is included in intangible assets and tested annually for impairment.
Required
i) Prepare the required adjustments to the trial balance data at 30 June 2012 (in journal entry form)
ii) Prepare a statement of comprehensive income (using classification of expenses by function method), a statement of financial position and a 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, AASB112, AASB116, AASB118 and AASB136.
Note: round all calculations to the nearest thousand dollars
PART B
With reference to Accounting Standard AASB1053 Application of Tiers of Australian Accounting Standards:
a) Explain the operation of the two tier system of financial reporting in Australia.
b) Discuss whether the Tiers system represents a better approach to differential reporting as compared to the international IFRS for SMEs reporting framework
Maximum 500 words