The document provides information for a case study on XYZ Corporation including its income statement, balance sheet, statement of changes in equity, and additional context. It asks the reader to prepare XYZ's statement of cash flows based on the information given, showing proof and listing any significant non-cash transactions.
The document provides information for a case study on XYZ Corporation including its income statement, balance sheet, statement of changes in equity, and additional context. It asks the reader to prepare XYZ's statement of cash flows based on the information given, showing proof and listing any significant non-cash transactions.
Original Description:
Financial Accounting
Practice paper
Acc1006
End of Year
The document provides information for a case study on XYZ Corporation including its income statement, balance sheet, statement of changes in equity, and additional context. It asks the reader to prepare XYZ's statement of cash flows based on the information given, showing proof and listing any significant non-cash transactions.
The document provides information for a case study on XYZ Corporation including its income statement, balance sheet, statement of changes in equity, and additional context. It asks the reader to prepare XYZ's statement of cash flows based on the information given, showing proof and listing any significant non-cash transactions.
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$) Sales 32,000 Fees earned 3,000 Cost of goods sold (11,000) GROSS PROFIT 24,000 Operating expenses: Miscellaneous expenses 11,000 Insurance expense 1,000 Bad debt expense 1,100 Depreciation expense (machinery) 1,000 Depreciation expense (building) 1,500 Amortization expense (customer relationship) 2,000 17,600 OPERATING PROFIT 6,400 Non-operating revenue and expenses: Loss on sale of machinery 100 Interest expense 2,000 2,100 PROFIT BEFORE TAX 4,300 Less: Income tax expense (all current) 1,200 NET PROFITS 3,100
OTHER COMPREHENSIVE INCOME 0
COMPREHENSIVE INCOME 3,100
ACC1002 AY2013-14 SEM 1 ESSAY DRILL 1
NUS Business School 2013 Page 2
XYZ Corporation Balance sheets for December 31, 2011 and December 31, 2012 (numbers in S$) 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
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
ACC1002 AY2013-14 SEM 1 ESSAY DRILL 1
NUS Business School 2013 Page 3
XYZ Corporation Statement of Changes in Equity for the year ended December 31, 2012 (Numbers in S$) Share Capital Treasury Shares Revenue Reserves 1
Total Beginning balance 12,000 (1,000) 6,000 17,000 Shares issued in exchange for a building 30,000 -- -- 30,000 Shares issued in exchange for cash 15,000 -- -- 15,000 Comprehensive income for 2012 -- -- 3,100 3,100 Dividends declared Cash Dividend -- -- (3,000) (3,000) Scrip Dividend 4,000 -- (4,000) 0 Treasury shares reissued (Share capital includes Premium on Treasury Shares Reissued) 300 1,000 -- 1,300 Ending balance 61,300 0 2,100 63,400
Required:
Based on the information given above, prepare the Statement of Cash Flows in good form as required by FRS 7 and in accordance with the companys reporting policy. Include the proof and the list of significant noncash transactions in your answer.
1 Revenue Reserves is an alternative term for Retained Earnings ACC1002 AY2013-14 SEM 1 ESSAY DRILL 1
NUS Business School 2013 Page 4
Question 2 (a) Chng Corporation had the following balances in its shareholders' equity accounts at December 31, 2010 (numbers in S$): 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.
ACC1002 AY2013-14 SEM 1 ESSAY DRILL 1
NUS Business School 2013 Page 5
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.
ACC1002 AY2013-14 SEM 1 ESSAY DRILL 1
NUS Business School 2013 Page 6
(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 ACC1002 AY2013-14 SEM 1 ESSAY DRILL 1
NUS Business School 2013 Page 7
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$11,000 to dismantle it and ship it to the buyer. (x) Kwok Corporation has a policy of taking all purchase discounts. To encourage this, it records all inventory purchases using the discounted price when the purchase is recorded. If it later misses a discount, it records a separate ACC1002 AY2013-14 SEM 1 ESSAY DRILL 1
NUS Business School 2013 Page 8
expense called discount lost expense that equals the lost discount. It does not add the lost discount to the value of the inventory. Required: (a) Prepare an adjusted trial balance for Kwok Corporation at December 31, 2012. (b) Prepare a statement of comprehensive income for Kwok Corporation for the year ended December 31, 2012. (c) Prepare a classified balance sheet for Kwok Corporation at December 31, 2012. SOLUTION Question 1 (adapted from Pratt, Financial Accounting 8 th edition) XYZ Company Statement of Cash Flows Year Ended 31/12/2012 Numbers in S$
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