The following details are taken from the accounting records of the company as at 30 June 2015:
Additional information: Note: Unless otherwise indicated the events and transactions outlined below have already been accounted for in the balances above if required.
(a) As at 30 June 2014 the company's share capital comprised:
- 3,000,000 ordinary shares at an issue price of $2.50 issued in April 2008. These are fully paid. In relation to this issue $40,000 share issue costs were incurred and these were paid by the company in June 2008.
- 1,600,000 ordinary shares at an issue price of $3.00 issued in February 2014. As at 30 June 2014 these were paid to $2.50 per share. In relation to this issue $23,000 share issue costs were incurred and these were paid by the company in April 2014.
On 1 October 2014 the company made a first and final call of $0.50 per share for the shares issued in February 2014. All call monies were received by 1 December 2014.
(b) Included in the amount of ‘Expenses' in the trial balance above are:
- Cost of sales of $36,206,000
- $19,650,700 for salaries and wages.
- Annual leave expense of $1,700,000. The balance of the provision for annual leave as at 30 June 2014 was $955,000.
- Long service leave expense. The balance of the provision for long service leave as at 1 July 2014 was $770,000. No employees were paid for long service leave for the year ending 30 June 2015. No employees are expected to be paid for long service leave until 2017.
- General operating expenses of $11,963,000. This includes electricity costs of $2,200,000. In July 2014 the company installed their own wind generated turbines to provide power with the cost of the installation of these added to plant & equipment. This has reduced electricity costs by nearly 65%, compared to the previous year. The total for general operating expenses also included Printing and Postage costs of 1,784,000 for direct mail out material to clients. This was a trial to see if this had any impact on sales.
- Advertising expenses of $2,340,000.
- $1,230,000 payment to auditors (this includes $580,000 for consulting work provided by the auditors)
- $1,954,000 insurance expense.
- Interest expense and loan application fee expense. On 1 October 2014 the company entered into a 4 year loan for $4,400,000 with CBank Ltd. Interest is at 8% per annum payable yearly (the first payment due on 1 October 2015). At the same time (as the interest payment) each year, $1,100,000 of the principal is to be repaid. (Use simple interest to calculate interest). In October 2014 the company also paid CBank Ltd a $2,800 application fee to apply for the loan.
- $1,450 payment for personalised business cards. The company decided that as all employees interacted with clients then all employees should be given business cards to hand out to clients. Previously, only senior managers and sales staff were supplied with business cards.
- Depreciation expenses of:
- $540,000 for vehicles
- $620,000 for buildings. In this year ending 30 June 2015 the useful life of all buildings held was reviewed by the directors and was changed from an average of 20 years to 15 years. This has increased the depreciation expense (compared to previous years)$188,000.
- $2, 150,000 for plant and equipment.
- Doubtful debts expense of $1,568,000.
(Note: This does not detail all expenses included in the total of ‘Expenses' in the trial balance above -You should classify the remaining expenses as ‘other' or ‘miscellaneous')
(c) The net gain on the sale of a non-current asset included in the trial balance above relates to the sale of a non-current asset during the current period.
The following information is provided about this transaction:
- In October 2014 the company sold an item of plant. The carrying amount of the plant sold was $920,000. This plant was sold for $1,180,000 cash.
(d) Other revenues/income is comprised of:
- Interest earned during the period on cash at bank of $102,000
- Dividend revenue from share investments of 380,000
- A cash receipt of $425,000 from a legal case found in favour of the company. The company had undertaken legal action in 2011 against another company for possible breach of copyright. Previous legal advice had indicated a very low probability of the company winning the case.
However in February 2015 both companies had agreed to settle the claim (and so avoid a court case). As a result it was agreed that the other company would pay this company $425,000. This amount was paid to the company in March 2015.
- Proceeds from the sale of excess land of 3,850,000. This had a carrying amount at the time of the sale of $2,700,000
(e) The extraordinary expense of $4,500,000 was due to a product recall. The company does provide for specific warranty on its products for 12 months, however in January 2015 a fault was found in one of the company's products that could have resulted in an injury to users of the product. The company voluntarily recalled the product as part of their Warranty obligations (i.e. advised customers to return the product and the company would repair the product so that it met the required safety standards). Due to this, the company incurred the following costs:
- Costs incurred in repairing products of $3,940,000. The company sub-contracted this work which was undertaken by another company.
- The company placed advertisements in major newspaper/media about this recall at a cost of $360,000 and also advised all customers by post. Postage and Printing costs of $200,000 were incurred.
The company has subsequently altered the design of this product and so the safety issue has been resolved.
(f) Prepayments include $1,340,000 for insurance and $865,000 advertising paid in advance. Accrued liabilities relates to interest accrued on the loan from CBank Ltd with the rest relating to payments received in advance for services to be provided by the company.
(g) Intangibles comprise a Brand (at a carrying amount of $1,640,000 as at 30 June 2015), a Trademark (at a carrying amount of 780,000 and Goodwill (at a carrying amount of $3,220,000 as at 30 June 2015). There was no amortisation expense for this current period.
(h) On 1 September 2014 the company paid a dividend of $506,000. This dividend had been declared on 30 June 2014 from retained earnings and was not subject to further authorisation or approval.
On 1 February 2015 an interim dividend was declared and paid from the general reserve of 12c per share.
Unless otherwise indicated the following events/transactions are not reflected in the trial balance above. You will need to make appropriate adjustments if required.
(i) On 30 June 2015 the directors decided to transfer $3,700,000 from retained earnings to the general reserve account.
(j) On 5 July 2015 the directors declared a final dividend of $1,012,000 from retained earnings. This is not subject to further authorisation or approval.
(k) On 10 July 2015 the company's lawyers advised that 2 claims had been made by customers in relation to the product which was the subject of the recall in January 2015. Details of each claim are:
- One claim lodged in May 2015 relates to a customer who used the affected product (the customer had not received the information about the product recall as they were overseas at the time) and who was injured using this product. The lawyers have advised that the company will be liable to pay damages to this customer. However the customer is claiming $2,000,000 damages. The lawyers have advised that this amount is far too large and expect the company to have to pay only $900,000. As the customer will not agree to this amount the case is expected to be decided in court in January 2017.
- The other claim was lodged in June 2015. Whilst the customer is claiming damages of $500,000 for inquires suffered, the lawyers have advised that they believe that the claim is not valid and that there is little evidence to support the customers claim that an injury occurred due to the company's product. The lawyers estimate only a 25% probability that the company will be required to pay these (or any) damages in this case. The case will be defended in court by the company and the court case is expected to be held in October 2015.
(l) On 28 July 2015 a political uprising occurred in one of the countries that the company operates in. The directors decided that company operations in that region would be suspended for an indefinite time. The company had expanded operations to this region 2 years ago and had expected this to be a future growth area for company revenues. This suspension is expected to reduce profit for the year ending the 30 June 2016 by 8%. As it is unclear how long the period of political instability will remain, the directors are unsure how profits for future years (beyond 2016) will be affected.
(m) The company tax rate is 30%. Ignore tax-effect accounting. Tax expense should be based on 30% of the accounting profit before tax. No tax expense has yet been recorded.
Question: Require a Statement of Financial Position, Statement of profit and loss and other comprehensive income and a statement of changes in equity. Also require notes to accompany these statements.