Question 1. Alkal Co. is a publicly traded production entity. The Company stores finished products in a warehouse until customer orders are processed. Alkail Co. has been facing some financial difficulties lately and has embarked on reorganization in order to improve their results.
The Company trial balance as at 31 December 2010 was as follows:
|
|
$'000
|
$'000
|
|
Sales
|
|
124,900
|
|
Cost of goods manufactured in 2010
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|
|
|
(without depreciation)
|
94,000
|
|
|
Distribution costs
|
9,060
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|
|
Administration costs
|
16,020
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|
|
Restructuring costs
|
121
|
|
|
Interest received
|
|
1,200
|
|
Loan note interest paid
|
639
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|
|
Land and buildings (including land $20,000,000)
|
50,300
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|
|
Plant and equipment
|
3,720
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|
|
Accumulated depreciation at 31 December 2009:
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|
|
|
Buildings
|
|
6,060
|
|
Plant and equipment
|
|
1,670
|
|
Investment properties (at market value)
|
24,000
|
|
|
Inventories at 31 December 2009
|
4,852
|
|
|
Trade receivables
|
9,330
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|
|
Cash
|
1,190
|
|
|
Ordinary shares of $1 each, fully paid
|
|
20,000
|
|
Share premium
|
|
430
|
|
Revaluation surplus
|
|
3,125
|
|
Retained earnings at 31 December 2009
|
|
28,077
|
|
Ordinary dividends paid
|
1,000
|
|
|
7% loan notes 2014
|
|
18,250
|
|
Trade payables
|
|
8,120
|
|
Proceeds of share issue
|
|
2,400
|
|
|
214,232
|
214,232
|
The following notes are relevant:
(i) Property, plant and equipment are depreciated in the following manner:
- Buildings 5% per annum straight line.
- Plant and equipment 25% per annum reducing balance.
Depreciation of buildings is part of administration costs whereas depreciation of plant and equipment should be treated as a cost of sale.
(ii) The land was revalued to$24,000,000 on 31 December 2010.
(iii) Projected income tax for the year ending 31 December 2010 is $976,000.
(iv) The inventories at 31 December 2010 were valued at $5,180,000. Finished goods tests found that a manufacturing machine had not been properly calibrated and that several production lots, which had cost $50,000 to produce, had been defectively processed. The goods cannot be sold under these terms and need to be amended at an additional cost of $20,000. Following the additional intervention, these items could then be sold at a price of $55,000. The defectively processed goods were part of closing inventories at their cost of $50,000.
(v) The 7% loan notes are 10-year loans due for repayment by 31 December 2014. Loan interest needs to be accrued for the second ½ year to 31 December 2010.
(vi) The restructuring costs provided in the trial balance represent the cost of a large restructuring of Alkal Co. to recover financial performance and future market positioning.
(vii) During the period, the fair value of investment properties did not have to be adjusted.
(viii) In the course of the year the company issued 2m new ordinary shares for cash at $1.20 per share. The proceeds have been recorded as 'Proceeds of share issue'.
Required
Prepare for Alcal Co.:
a) Statement of profit or loss and other comprehensive income for the year ended 31 December 2010,
b) Statement of changes in equity for Alkal Co. for the year ended 31 December 2010, and
c) Statement of financial position as at 31 December 2010.
Notes to the financial statements are not required. All calculations must be clearly shown.
Question 2. Shown below are the statements of financial position for Trade Incorporated at 31 December 2000 and 31 December 2001 and the statement of profit or loss and other comprehensive income for the year ended 31 December 2001.
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Statements of financial position
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2001
|
|
2000
|
|
|
$'000
|
|
$'000
|
|
ASSETS
|
|
|
|
|
Non-current assets
|
|
|
|
|
Property, plant and equipment
|
798
|
|
638
|
|
Development costs
|
110
|
|
92
|
|
|
908
|
|
730
|
|
Current assets
Inventories
|
313
|
|
280
|
|
Trade receivables
|
208
|
|
186
|
|
Cash and cash equivalents
|
111
|
|
4
|
|
|
632
|
|
470
|
|
Total assets
|
1,540
|
|
1,200
|
|
EQUITY AND LIABILITIES
|
|
|
|
|
Equity
|
|
|
|
|
Ordinary shares of $1 each
|
220
|
|
200
|
|
Share premium
|
140
|
|
80
|
|
Revaluation surplus
|
42
|
|
-
|
|
Retained earnings
|
599
|
|
570
|
|
|
1,001
|
|
850
|
|
Non-current liabilities
|
|
|
|
|
4% loan notes
|
250
|
|
100
|
|
Provision for warranties
|
30
|
|
26
|
|
|
280
|
|
126
|
|
Current liabilities
Trade payables
|
152
|
|
146
|
|
Current tax payable
|
102
|
|
78
|
|
Interest payable
|
5
|
|
-
|
|
|
259
|
|
224
|
|
Total equity and liabilities
|
1,540
|
|
1,200
|
The following information is relevant:
(1) Depreciation of property, plant and equipment for 2001 was in amount of $54,000. Amortization of deferred development expenditure was$25,000.
(2) Proceeds from the sale of equipment were $58,000, with sales profit of $7,000. There were no other property, plant and equipment disposals during the year.
(3) Finance costs represent interest paid on the loan notes. New loan notes were issued on 1 January 2001.
(4) Trade Incorporated revalued its property at year end. Company policy is to treat revaluations as realised profits when the asset is retired or disposedof (i.e. derecognized).
(5) The Expenses item includes salaries paid in amount of $44,000 and$12,000 of bad debts.
Required
Prepare the statement of cash flows for Trade Incorporated for the year ended 31 December 2001, applying the indirect method in accordance with IAS 7.
Interpret the Statements of Cash Flows, wrapping up with Conlusions and Recommendations sections, for the Management Board of the company using the complete set of Financial Statements provided/calculated.