Accounting and Finance Unit 4 Topic 4 Part B – Preparation of Company Financial Reports – Statement of Financial Position and Statement of Changes in Equity

Example 1 – Seashell Ltd 0 Workings: 0 Tax 30% of profit = 98,100 0 Profit after tax = 327,000 – = 228,900

2. STATEMENT OF FINANCIAL POSITION – Example 1 – Seashell Ltd 0 Preparing the Retained earnings account: 1 Jul Balance 330,500CR June Interim ordinary 72, ,500CR 2020 dividend Profit and Loss 228, ,400CR (Profit after tax) General reserve 25, ,400CR

Workings: 0 Bonus share issue = 0 600,000 shares x 1/6 = 100,000 x $2 = $200,000 0 New Share Capital amount 0 1,200, ,000 = 1,400,000 0 Asset Revaluation = 0 300,000 – 200,000 = 100,000 0 General reserve 0 90, ,000 = 65,000

Seashell Ltd Statement of Financial Position as at 30 June 2020 Current Assets Cash and cash equivalents 42,000 Trade receivables 418,000 Total Current Assets 460,000 Non-current Assets Property, plant and equipment 1 2,457,500 Total Non-Current Assets 2,457,500 Total Assets 2,917,500 Current Liabilities Current tax liability 98,100 Total current liabilities 98,100 Cash at bank Accounts receivable Equipment less acc deprec. + land

Borrowings 742,000 Total Non-Current Liabilities 742,000 Total Liabilities 840,100 Net Assets 2,077,400 Equity Share capital 2 1,400,000 Other reserves 3 165,000 Retained earnings 512,400 Total equity 2,077,400 Debentures (loans to the company) Total assets less total liabilities Non-current liabilities

Seashell Ltd Notes to the Statement of Financial Position as at 30 June Property, plant and equipment Land 2,000,000 Equipment at cost 800,000 Accumulated depreciation (342,500) 457,500 Total property plant and equipment 2,457, Share capital 700,000 ordinary shares each fully paid at $2 1,400,000 1,400,000

3. Other reserves (other components of equity) Asset revaluation 100,000 General 65, , Dividends The directors have recommended a dividend of 4cents Per share to ordinary shareholders

Example 2 – 9.6 from page 297 Krachler – Statement of Financial Position and notes

Cash on hand 2,000 and cash at bank 76,000 Inventory Accounts receivable less allowance for doubtful debts Prepaid expenses

1 (Buildings less accumulated depreciation) + (fixtures and fittings less accumulated depreciation) + land ????? Goodwill is an accounting concept meaning the value of an asset owned that is intangible but has a quantifiable "prudent value" in a business, such as a reputation the firm enjoys with its clients ????? Long term lease ?????

Accounts payable, accrued wages, GST payable and debenture interest payable ????? Debentures ????? 0 Total assets less total liabilities

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Example 3 – Village Ltd ?????

Question 1 – ChemHow Ltd

Question 2 - Rustic Industries

Question 3 – Highvale Industries Ltd

Introduction to Statement of Changes in Equity... Page 35

Changes to share Capital IncreaseDecreases Further share issueShare issue costs Bonus share issues

Changes to Asset Revaluation Reserve IncreaseDecreases Non-current asset re-valued upwards Issue of bonus shares

Changes to General Reserve IncreaseDecreases Transfer from Retained earnings Transfer to retained earnings Issue on bonus shares

Changes to Retained earnings IncreaseDecreases Profit after taxLoss after tax Transfer from General Reserve Transfer to General Reserve Dividends (Interim and Final)

Statement of Changes in Equity – Example 1 Emron Ltd page 36 0 Workings: 0 Bonus share issue: 0 18,750 x $2 = 37,500 0 Income tax 0 270,000 x 30% = 81,000 therefore profit after tax = 189,000

0 Changes that have occurred during the year to Share Capital are: 0 Share capital balance at 30 June 2010 is $1,530,000 this includes a bonus share issue of $37,500 so the balance at the start of the financial year (1 July 2009) must have been ($1,530,000 – 37,500 = $1,492,500)

0 Changes that have occurred to Retained earnings: 0 Balance at 1 Jul 84,000 (as per trial balance) 0 + Profit after tax 189,000 0 less Interim Divided 24,000 0 Less Transfer to general reserve 150,000 0 Closing balance at 30 June = $99,000

0 Changes to Revaluation surplus (Asset revaluation reserve) 0 Balance at 30 June $300,000 0 Land was revalued during the year $300,000 0 Balance at 1 July 2009 would have been 0

0 Changes to the General Reserve 0 Closing balance of reserve was 157,500 0 Add back bonus share issue $37,500 0 Balance before bonus share issue = 195,000 0 A transfer was made from retained earnings to general reserve $150,000 0 Therefore balance at 1 Jul 2009 must have been $45,000

Statement of changes in equity Share capital Retained earnings Revaluation surplus General reserve Total equity Balance at 1/7/091,492,50084,000045,0001,621,500 Changes in equity Bonus share issue37,500(37,500)0 Share issue costs00 Dividends(24,000) Total comprehensive income 189,000300,000489,000 Transfer to general reserve (150,000)150,0000 Balance at 30/6/101,530,00099,000300,000157,5002,086,500 This figure must agree when you add down total equity column and across closing balance row

Example 2 – Superior Ltd 0 What changes have occurred to share capital? 0 It has increased due to bonus share issue 0 What changes have occurred to Retained earnings? 0 The balance has increased due to profit, decreased due to transfer to reserve, and decreased due to interim divided 0 What changes have occurred to Revaluation reserve? 0 Decreased due to bonus share issue 0 What changes have occurred to General reserve? 0 Has increased to transfer from retained earnings

Example 3 page 39 – Points to note for Ex 9.13 from your book

b) The Dividend for the year ended 30/06/09, declared and paid during the year ended 30/06/10, must be shown as a decrease in equity (retained earnings) during that year. The dividend for the year ended 30/06/10 had not, at that date, been declared, and therefore will only be recorded as a reduction in equity when this has occurred, which will take place presumably, sometime during the following financial year. It does not, therefore, feature in the Statement of Changes in Equity for the year ended 30/06/10

0 In 9.14 to 9.16 all balance given are closing balances and you need to work back to find opening balance by showing changes. 0 Also in 9.14 and 9.15, you will need to add an extra column into the statement called “Debenture repayment reserve”