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Question 1
The financial statements of XYZ Corporation are given below. These are taken from the
2012 annual report. Based on the information given, prepare the Statement of Cash
Flows in good form as required by FRS 7. For interest and dividend receipts and
payments, the company records interest paid in the Cash Flow from Operating Activities
section. It does not record any other dividend and interest cash flows in this section.
The company uses the direct method for cash flow from operating activities [you can
also try the indirect method for practice].
XYZ Corporation Statement of Comprehensive Income for the year ended December
31, 2012) (Numbers in S$)
Sales 32,000
Fees earned 3,000
Cost of goods sold (11,000)
GROSS PROFIT 24,000
Operating expenses:
Miscellaneous expenses 11,000
Insurance expense 1,000
Bad debt expense 1,100
Depreciation expense (machinery) 1,000
Depreciation expense (building) 1,500
Amortization expense (customer relationship) 2,000 17,600
OPERATING PROFIT 6,400
Non-operating revenue and expenses:
Loss on sale of machinery 100
Interest expense 2,000 2,100
PROFIT BEFORE TAX 4,300
Less: Income tax expense (all current) 1,200
NET PROFITS 3,100

OTHER COMPREHENSIVE INCOME 0

COMPREHENSIVE INCOME 3,100




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XYZ Corporation Balance sheets for December 31, 2011 and December 31, 2012
(numbers in S$)
2012 2011
Assets
Cash at hand 1,000 1,000
Cash at bank 5,000 8,000
Trade Debtors 23,200 12,000
Less: Allowance for bad debts (1,300) (1,000)
Inventory 4,000 3,000
Prepaid insurance 1,000 2,000
Land 30,000 20,000
Machinery 6,000 8,000
Less: Accumulated depreciation (2,500) (2,000)
Building 30,000 --
Less: Accumulated depreciation (1500) --
Customer relationship (net of accumulated amortization) 6,000 8,000
TOTAL ASSETS 100,900 59,000

Liabilities and Equity
Trade Creditors 9,000 12,000
Miscellaneous Expenses Payable 3,000 1,500
Bank overdraft 100 1,000
Interest payable 200 0
Income Taxes Payable 200 500
Advance Fee Receipts - 3,000
Dividends payable 3,000 1,000
Notes payable 22,000 23,000

Issued Share Capital (no-par shares) 61,300 12,000
Less: Treasury shares -- (1,000)
Revenue Reserves 2,100 6,000
TOTAL LIABILITIES AND EQUITY 100,900 59,000



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XYZ Corporation Statement of Changes in Equity for the year ended December 31,
2012 (Numbers in S$)
Share
Capital
Treasury
Shares
Revenue
Reserves
1

Total
Beginning balance 12,000 (1,000) 6,000 17,000
Shares issued in exchange for a
building
30,000 -- -- 30,000
Shares issued in exchange for cash 15,000 -- -- 15,000
Comprehensive income for 2012 -- -- 3,100 3,100
Dividends declared
Cash Dividend -- -- (3,000) (3,000)
Scrip Dividend 4,000 -- (4,000) 0
Treasury shares reissued
(Share capital includes Premium on
Treasury Shares Reissued)
300 1,000 -- 1,300
Ending balance 61,300 0 2,100 63,400


Required:

Based on the information given above, prepare the Statement of Cash Flows in good
form as required by FRS 7 and in accordance with the companys reporting policy.
Include the proof and the list of significant noncash transactions in your answer.


1
Revenue Reserves is an alternative term for Retained Earnings
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Question 2
(a) Chng Corporation had the following balances in its shareholders' equity
accounts at December 31, 2010 (numbers in S$):
Issued share capital (20,000 shares) 450,000
Treasury shares (1,000 shares) (20,000)
Retained Earnings 500,000
The following transactions occurred during 2011:
February 3 Issued 3,000 ordinary shares for S$22 per share.
May 10 Declared a cash dividend of S$0.50 per share on ordinary shares.
July 5 Issued 1 for 1 bonus shares at an issue price of S$1 per share by
capitalizing retained earnings. Treasury shares were included in the
bonus issue.
October 12 Reissued 500 treasury shares at a price of S$11 per share
December 31 Net income for the year was determined to be S$75,000.
December 31 Other comprehensive income was S$1,000 consisting entirely of foreign
currency translation gains.

Required:
Present the Statement of Changes in Equity for Chng Corporation in column form. Show
the Premium on Treasury Shares as a separate column.

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Question 2 (continued)

Parts (b) to (d) are based on the following exhibit. This is the cash flows from operating
activities section of the consolidated statement of cash flows for Kyocera Corporation.

Consolidated Statements of Cash Flows
Kyocera Corporation and Consolidated Subsidiaries
For the three years ended March 31, 2012

2010 2011 2012
(Yen in millions)
Cash flows from operating activities:





Net income 45,433 130,118 84,758
Adjustments to reconcile net income to net cash provided by
operating activities:





Depreciation and amortization 72,829 71,544 73,120
Provision for doubtful accounts and loss on bad debts (Note 7) 9,389 2,039 370
Write-down of inventories 9,207 5,291 11,486
Deferred income taxes (Note 16) (9,080 ) 6,470 (4,064 )
Equity in losses of affiliates and unconsolidated subsidiaries
(Notes 4, 7
and 13) 18,297 160 36
Foreign currency adjustments 1,100 506 (759 )
Change in assets and liabilities:





Increase in receivables (38,823 ) (38,043 ) (3,803 )
(Increase) decrease in inventories 10,416 (69,368 ) (39,762 )
(Increase) decrease in advance payment (22,734 ) (20,008 ) 3,507
Increase in other current assets (174 ) (616 ) (1,094 )
Increase (decrease) in notes and accounts payable 40,400 29,422 (10,092 )
Increase (decrease) in accrued income taxes 6,152 2,039 (6,680 )
Increase in other current liabilities 4,420 3,033 4,411
Decrease in other non-current liabilities (5,724 ) (2,871 ) (5,287 )
Other, net (3,525 ) (29 ) 2,918

Net cash provided by operating activities 137,583 119,687 109,065
Required:
(b) Calculate the change in net accounts receivable in 2011. Show working.
(c) Kyoceras cash flow statement above is prepared using U.S. listing requirements
which are not the same as IAS 7. Spot one way in which Kyoceras cash flow
from operating activities deviates from IAS 7 requirements.
(d) Explain in 5 lines or less how the company can include write-down of
inventories as a non-cash adjustment without double counting when it subtracts
the increase in inventories.


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(e) The following is a summary of information from Singtels 2012 footnote on PPE.
Numbers are in S$ million. The information given covers all PPE transactions
except disposals.
PPE at cost:
Balance at 1/4/2011 29,144.2
Additions 2,396.9
Foreign currency changes and other adjustments 73.1
Balance at 31/3/2012 31,142.9

Accumulated Depreciation and Impairment:
Balance at 1/4/2011 18,031.7
Foreign currency effects 50.0
Depreciation expense 1875.4
Balance at 31/3/2012 19,562.9


From the cash flow statement, proceeds from sale of PPE were S$14.6 million.

Required for part e):
Show a single summary journal entry for the PP&E disposals. That is, give a
single journal entry that shows all the PP&E disposals as if they were a single
transaction. Assume that the disposals were all for cash. Narration is not
required.
Question 3
The following transactions take place for Kwok Corporation in 2012:
(i) Kwok Corporation is incorporated on January 1, 2012. On that date, 10 million
shares are issued, and the total proceeds of the share issue are
S$10,000,000.
(ii) On January 2, 2012, the company buys landed property for S$1,500,000. The
purchase includes land, buildings and installed equipment. The appraised
value of the land is S$550,000, the building has an appraised value of
S$500,000 and the equipment has an appraised value of S$50,000. The
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building is depreciated straight line over 20 years with a residual value of
S$100,000. The equipment is depreciated over 3 years using the DDB
method and has a residual value of S$1,000.
(iii) The company purchases merchandise inventory in three batches on credit
with terms of 1/5 net 30. Batch 1 is on January 3: 1000 items at a cost price of
S$100 per item. Batch 2 is on July 1: 9000 items at a cost price of S$90 per
item. Batch 3 is on October 1: 10000 items at a cost price of S$50 per item.
The company uses FIFO and the perpetual method to record inventory. All
payments to suppliers are made 3 days after the purchase date, except for
Batch 1. In the case of Batch 1, payment is made in full on January 31.
(iv) The only sale transaction was on July 3: 9,000 units were sold for S$2.7
million. The sale was on a cash basis.
(v) The company offered a one year embedded warranty. During this time, items
are replaced for free if they are defective. Warranty expense is estimated at 3
percent of sales. On September 20, 400 items were replaced under the
warranty. On November 3, 300 items were replaced under the warranty.
(vi) On January 6, the company purchased shares (of other companies) at a cost
of S$5 million. These shares were not held for trading, and in fact the
company did not sell any of them. At December 31, these shares had a
market value of S$8 million.
(vii) The company incurred miscellaneous expenses of S$1.5 million during the
year. These were all paid in cash when incurred.
(viii) On November 1, the company borrows S$1,000,000 for 120 days at an
interest rate of 10 percent per year.
(ix) On December 31, the equipment had a value in use of S$10,000. It could be
sold on that date for S$20,000, but would require a cost of S$11,000 to
dismantle it and ship it to the buyer.
(x) Kwok Corporation has a policy of taking all purchase discounts. To encourage
this, it records all inventory purchases using the discounted price when the
purchase is recorded. If it later misses a discount, it records a separate
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expense called discount lost expense that equals the lost discount. It does
not add the lost discount to the value of the inventory.
Required:
(a) Prepare an adjusted trial balance for Kwok Corporation at December 31, 2012.
(b) Prepare a statement of comprehensive income for Kwok Corporation for the year
ended December 31, 2012.
(c) Prepare a classified balance sheet for Kwok Corporation at December 31, 2012.
SOLUTION
Question 1 (adapted from Pratt, Financial Accounting 8
th
edition)
XYZ Company Statement of Cash Flows
Year Ended 31/12/2012
Numbers in S$

Cash flows from operating activities
Cash collected from sales 20,000
Cash paid to suppliers (15,000)
Cash paid for miscellaneous expenses (9,500)
Interest paid (1,800)
Tax paid (1,500)
Cash flows from operating activities (7,800)

Cash flows from investing activities
Purchase of land (10,000)
Sale of machinery 1,400
Cash flows from investing activities (8,600)

Cash flows from financing activities
Issue of new shares 15,000
Reissue of treasury shares 1,300
Repayment of debt (1,000)
Dividend paid (1,000)
Cash flows from financing activities 14,300

Net change in cash and cash equivalents (2,100)
Cash and cash equivalents at 31/12/2012 (cash at hand 1000, cash at bank 5000,
bank overdraft 100)
5,900
Cash and cash equivalents at 31/12/2011 (cash at hand 1000, cash at bank 8000,
bank overdraft 1000)
8,000

Significant non-cash transactions
1. A building with fair value S$30,000 was purchased by issuing new shares.
2. A scrip dividend was paid worth S$4,000.

Question 2
(a)
Chng Corporation
Statement of Changes in Equity
December 31, 2011
Numbers in S$
Shares
issued
Treasury
shares
Premium
on treasury
shares
Retained
earnings
Foreign
currency
translation
reserves
Total
Balance at
31/12/2010
450,000 (20,000) -- 500,000 -- 930,000
Comprehensive
income for
2011
-- -- -- 75,000 1,000 76,000
Ordinary
shares issued
66,000 -- -- -- -- 66,000
Bonus share
issue
23,000 -- -- (23,000) -- 0
Dividends -- -- -- (11,000) -- (11,000)
Treasury
shares
-- 5,000 500 -- -- 5,500
Balance at
31/12/2011
539,000 (15,000) 500 541,000 1,000 1,066,500

(b)
Change in net A/R = 36,004
[Working: 38,043-2,039]

(c)
Tax paid is not shown as a separate item.

(d)
The increase in inventory shown is the increase that would be recorded if there were no impairment.

(e)
Dr. Cash 14.6m
Dr. Accumulated depreciation 394.2m
Dr. Loss on disposal 62.5m
Cr. PP&E at cost 471.3m



Question 3
(a) Kwok Corporation
Adjusted trial balance
As at December 31, 2012
(Numbers in S$)
Dr. Cr.
Cash 4,303,100
Inventory 521,730
Land 750,000
Building 681,818
Accumulated depreciation
Building
29,091
Equipment 68,182
Accumulated depreciation and
impairmentequipment
58,182
AFS investments 8,000,000
Note payable 1,000,000
Warranty liability 18,630
Interest payable 16,667
Shares issued 10,000,000
Retained Earnings 0
Fair value adjustment reserves 3,000,000
Sales 2,700,000
COGS 811,800
Depreciation expensebuilding 29,091
Depreciation expense
equipment
45,455
Impairment expense
equipment
12,727
Warranty expense 81,000
Discount lost expense 1,000
Miscellaneous expense 1,500,000
Interest expense 16,667
TOTALS 16,822,570 16,822,570


(b)
Kwok Corporation
Statement of Comprehensive Income (numbers in S$)
Year ended 31/12/2012

Sales 2,700,000
Less: COGS 811,800
Gross margin 1,888,200
Less: other operating expenses
Depreciation (74,546)
Impairment of equipment (12,727)
Warranty expense (81,000)
Discount lost expense (1,000)
Miscellaneous expense (1,500,000)
Operating profit 218,927
Less: interest expense (16,667)
Net profit 202,260

Other comprehensive income:

Gains on AFS portfolio 3,000,000
Comprehensive income 3,202,260


Kwok Corporation
Statement of Financial Position (numbers in S$)
31/12/2012

ASSETS
Current assets
Cash 4,303,100
Inventory 521,730
Current assets total 4,824,830

Non-current assets

AFS investments 8,000,000
Land 750,000
Building 681,818
Less: accumulated depreciation (29,091)
Net Building 652,727
Equipment 68,182
Less: accumulated depreciation and impairment (58,182)
Net Equipment 10,000
Non-current assets total 9,412,727
TOTAL ASSETS 14,237,557

LIABILITIES AND EQUITY

Current liabilities
Note payable 1,000,000
Interest payable 16,667
Warranty liability 18,630
Current liabilities total 1,035,297

Equity

Shares issued 10,000,000
Retained earnings 202,260
Fair value adjustment reserve 3,000,000
TOTAL EQUITY 13,202,260
TOTAL LIABILITIES AND EQUITY 14,237,557