Question

Emerald Ltd, a manufacturing company, commenced operations on 1 July 2016 by issuing 350 000 $5.00 shares, payable in full on application on a first-come, first-served basis. By 31 July 2016 the shares were fully subscribed and duly allotted. There were share issue costs of $10 000. No additional shares were issued during the year ending 30 June 2017.

For the year ending 30 June 2018, the company recorded the following aggregate transactions:

	$
Sales	5 120 000
Interest income	34 000
Sundry income	25 000
Cost of Sales	2 465 000
Employee benefit expenses	856 000
Depreciation expense	244 000
Amortisation - franchise	25 000
Rental expense	120 000
Advertising expense	147 000
Insurance expense	48 000
Freight out expense	110 000
Doubtful debts expense	16 000
Interest expense	36 000
Borrowing Costs	9 000
Other expenses	8 000
Income tax expense	320 000

The following additional information was noted during the preparation of financial statements for the year ended 30 June 2018:

75 000 fully paid ordinary shares have been issued on 1 October 2017 at the price of $4.00.

$135 000 dividends (31.76 cents per share) were declared and paid during the 2018 financial year. A final dividend for 2018 of $51 850 was proposed but not recognised in the financial statements.

There was a gain of $20 000 from the cash flow hedge arrangement during the 2018 financial year. Any gain or loss associated with the cash flow hedge is directly recognised in equity. There was no previously recognised cash flow hedge reserve before the 2018 financial year.

$25 000 of bank loans is repayable within 1 year.

$90 000 of other loans is repayable within 1 year.

The employee benefits of $32 000 are expected to be settled wholly within 12 months.

Emerald Ltd measures inventory at the lower of cost and net realizable value and property, plant and equipment using a cost model.

The summarised balances are provided below:

Year-end balances, 30 June 2018	$
Cash on hand	960 000
Cash on deposit, at call	82 000
Accounts Receivables	665 000
Allowance for doubtful debts/ Impairments	24 000
Other debtors	27 000
Finished goods inventories, 30 June 2018	600 000
Work in Progress inventories 30 June 2018	105 000
Land	94 000
Buildings	230 000
Accumulated depreciation – buildings	60 000
Plant and equipment	1 385 000
Accumulated depreciation – plant and equipment	330 000
Franchises	140 000
Accumulated amortisation of franchise	50 000
Goodwill	620 000
Bank loans	92 000
Other loans	440 000
Accounts payable	696 000
Provision for employee benefits	116 000
Income tax payable	35 000
Deferred tax liability	140 000
Retained earnings, 30 June 2017	225 000
Dividends paid	135 000
Cash flow hedge reserve (equity)	20 000

Required:

For the year ending 30 June, 2018,

a) Using the pro forma table supplied in appendix B, prepare a preliminary trial balance for Emerald Ltd; (5 Marks)

b) Prepare a statement of profit or loss and comprehensive income for Emerald Ltd in accordance with the requirements of AASB 101. Emerald Ltd uses the single statement format for the statement of comprehensive income and classifies expenses by function within the statement; (18 marks)

c) Prepare a statement of changes in equity for Emerald Ltd in accordance with the requirements of AASB 101; (15 marks)

d) Prepare a statement of financial position for Emerald Ltd in accordance with AASB 101. Use the current/non-current presentation format; (17 marks)

e) Prepare appropriate notes to the accounts. (You do not need to prepare notes related to income taxes. Include the following note as note 1. You may optionally add accounting policies to this note): (25 marks).

“1. Summary of significant accounting policies

Basis of accounting

The financial report is a general purpose financial report which has been prepared on the historical cost basis, except where stated otherwise.

Statement of Compliance

The financial statements have been prepared in accordance with the requirements of the Corporations Act, Australian Accounting Standards which include Australian equivalents to International Financial Reporting Standards (AIFRSs) and AASB Interpretations. Compliance with AIFRSs ensures the financial statements and notes comply with International Financial Reporting Standards”

APPENDIX A: PRESENTATION REQUIREMENTS (Departures attract a penalty)

The hard copy of the assignment must be handed in to the lecturer in class. It is also required to be submitted through Turnitin by the due date;

It is worth 20% of the final grade but will be marked out of 100;

The assignment will be marked on the basis of a requirement of "suitable for publication", that is, the relevant statements/notes comprise an external report and each statement is to be presented on one page;

The assignment must be performed individually.

You are to employ an aggregated format whenever appropriate and consistent with provision of minimum line items prescribed in AASB101;

The financial statements and the notes are to be typed in 12 point font;

You are not to use specialized accounting software packages, such as are employed by professional accounting firms, to produce your financial reports;

You are to apply the “cost of sales” method to the classification of expenses in the income statement (see AASB101 paras 97-105);

You are directed to use the current/non-current format for the statement of financial position (balance sheet) and supply a “net assets” line item;

The notes are to be simplified equivalences to published reports; that means a list of constituent components of a given line item with their respective dollar amounts, not footnotes

Your hard copy assignment is to be collated in the following order:

Coversheet (optional for electronic version but mandatory, signed with ticked module and Turnitin ID, for hard copy), Part A followed by Part B (trial balance, statement of profit or loss comprehensive income, statement of changes in equity, statement of financial position, and notes to the accounts.

APPENDIX B

Emerald Ltd - Trial Balance as at 30 June 2018	DR	CR
Sales	$’000	$’000
Interest income
Sundry income
Cost of sales
Employee benefit expenses
Depreciation expense
Amortisation - franchise
Rental expense
Advertising expense (selling)
Insurance expense
Freight out expense
Doubtful debts expense
Interest expense
Borrowing costs
Other expenses
Income tax expense
Cash on hand
Cash on deposit, at call
Accounts Receivables
Allowance for doubtful debts/ Impairments
Other debtors
Finished goods inventories, 30 June 2018
Work in Progress inventories 30 June 2018
Land
Buildings
Accumulated depreciation – buildings
Plant and equipment
Accumulated depreciation – plant and equipment
Franchise
Accumulated amortisation of franchise
Goodwill
Bank loans
Other loans
Accounts payable
Provision for employee benefits
Income tax payable
Deferred tax liability
Retained earnings, 30 June 2017
Dividends paid
Cash flow hedge reserve
Share capital
Totals