Chapter 9
Chapter 9
Chapter 9
Questions
Solution 9.1
(a)
ST KITTS LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 28 FEBRUARY20X7
20X7
Notes C
Revenue 12 000 000
Cost of sales (7 100 000 + 80 000) (7 180 000)
Operating expenses (3 480 000 + 120 000) (3 600 000)
Finance costs (240 000)
Profit before tax 4 980 000
Income tax expense (W2) 5 (284 200)
Profit for the period 695 800
Other comprehensive income
Revaluation surplus 800 000
Total comprehensive income 1 495 800
(b)
ST KITTS LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 28 FEBRUARY 20X7
Ordinary
share Share Retained
capital premium NDR earnings Total
C C C C C
Balance at 01/03/X6 2 500 000 - - 1 424 200 3 924 200
Total comprehensive 800 000 695 800 1 495 800
income
Issue of share capital 500 000 1 500 000 2 000 000
Share issue expenses (150 000) (150 000)
Balance at 28/02/X7 3 000 000 1 350 000 800 000 2 120 000 7 270 000
(c)
ST KITTS LIMITED
(EXTRACT FROM) STATEMENT OF FINANCIAL POSITION AT 28 FEBRUARY 20X7
Note C
ASSETS
Current assets
Inventories 1 720 000
Trade and other receivables (980 000 + 15 000) 925 000
Cash and cash equivalents 2 059 200
4 779 200
EQUITY AND LIABILITIES
Current liabilities
Borrowings 2 000 000
Trade and other payables (400 000 + 20 000) 420 000
Current tax payable (284 200 – 200 000) 84 200
2 504 200
(d)
ST KITTS LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 20X7
1. Statement of compliance
These financial statements have been prepared in accordance with the
approved accounting standards as applicable in Pakistan. Approved
accounting standards comprises of such International Financial Reporting
Standards (IFRS) issued by the International Accounting Standards Board as
are notified under the Companies Ordinance, 198, provisions of and
directives issued under the Companies Ordinance, 1984. In case the
requirements differ, the provision of the Companies Ordinance, 1984 shall
prevail.
2. Accounting policies
3 Share capital
Authorised C
10 000 000 ordinary shares of C0.50 each
Issued
6 000 000 ordinary shares of C0.50 each 3 000 000
6. Dividends of C300 000 have been declared on 25 March 20X6 but have
not been recognised as a distribution. The DPS amounts to C0.05 per
share.
Workings
Accounting Tax
Selling price 330 000 330 000
Carrying amount / tax base (180 000) (180 000)
150 000 150 000
Solution 9.2
WORLD LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 20X2
Note 20X2
C
Sales 2 84 986 750
Cost of sales (24 602 000)
Gross profit 60 384 750
Income from subsidiaries (1 150 000 + 900 000) 2/4 2 050 000
Other income
Royalty income 2 175 000
Investment income 2 430 000
Administrative & selling expenses (1 327 100 - 50 000) (1 277 100)
Distribution expenses (185 400)
Other operating expenses 3,6 (43 285 250)
Finance costs (367 500)
Profit before tax 17 924 500
Income tax expense (5 054 850 + 200 000 - 450 000) 5 (4 604 850)
Profit for the period 13 319 650
Other comprehensive income -
Total comprehensive income 13 319 650
1. Accounting policies
1.3 Revenue
Revenue is measured at the fair value of the consideration received or receivable net of VAT.
Revenue consists of sales of goods, royalties, dividends and interest income.
.
3. Operating expenses
The operating expenses are calculated after taking into account the following:
5. Tax
Normal tax
Current 4 754 250
Deferred 300 600
Overprovision in previous year (450 000)
Income tax expense 4 604 850
Workings
Solution 9.3
a)
CA TB TD Rate DT
Balance at 01/04/X3 1 000 35% 350
Rate change -5% (50)
30% 300
Rates prepaid 40 0 40 Taxable
Royalties in advance (10) 0 (10) Deductible
Manufacturing plant 2 000 1 050 950 Taxable
Motor vehicles 1 000 1 200 (200) Deductible
Computer equipment 500 300 200 Taxable
Furniture 500 230 270 Taxable
Balance at 31/03/X4 4 030 2 780 1 250 375
b)
ELECTORAL LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 20X4
Note C'000s
Revenue from sales 2 7 500
Cost of sales (7 500 - 2 000) (5 500)
Gross profit 2 000
Other income (1 500 + 120 + 12 + 140 + 110 + 35 + 5 000) 2 6 917
Distribution costs (1 200)
Administration expenses (1 000)
Other operating expenses (2 807 + 25 - 40) (2 792)
Finance costs (250)
Profit before tax 3 3 675
Income tax expense 4 (1 057.5)
Profit for the period 2 616.5
Other comprehensive income -
Total comprehensive income 2 617.5
4. Taxation C
Normal tax
Current 1 032.5
- current year 1 027.5
- underprovision prior year 5
Deferred 25
- current year 75
- rate change (50)
1057.5
Workings
Calculation of current tax:
X 0,30
Accounting profit 3 675 1 102.5
Accounting profit on sale of plant (110)
Tax gain on sale of plant 160
Donations 20
Legal fees 5
Traffic fines 10
Dividends received (Exempt) (35)
Depreciation 900
Wear and tear (1 165)
Prepaid rates - 2003 25
Prepaid rates - 2004 (40)
Royalties in advance - 2003 (30)
Royalties in advance - 2004 10
Taxable income 3 425 1 027.5 Dr TE Cr CTP
Sale of plant
Accounting Tax
Selling price 360 360
CA / TB 250 200
Profit 110 160
Solution 9.4
Debit Credit
Alternative entries 1
Alternative entries 2
Amortisation 34 483
Accumulated amortisation 34 483
Increased amortisation from change in estimate
MANGO LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 20X5
Restated
20X5 20X4
C C
Revenue (20X4: 5 400 – 500) 7 200 000 4 900 000
Cost of sales (3 600 000) (2 160 000)
Gross profit 3 600 000 2 740 000
Other income 550 000 300 000
Other expenses (20X5: 880 + 34.483) / (20X4: 760 – 25) (914 483) (735 000)
Profit before tax 3 235 517 2 305 000
(20X5: 960 550 – 10 000) / (20X4: 808
Income tax expense 950 – 137 750) (950 550) (671 200)
Profit for the period 2 284 967 1 633 800
Other comprehensive income - -
Total comprehensive income 2 284 967 1 633 800
MANGO LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 20X5
Ordinary
share Share Preference Retained
capital premium share capital earnings Total
C C C C C
Balance at 01/01/20X4 400 000 200 000 350 000 477 907 1 427 907
As previously stated 579 082 579 082
Correction of error (101 175) (101 175)
Shares issued 100 000 100 000 200 000
Total comprehensive income as
restated 1 633 800 1 633 800
Balance at 01/01/20X5 500 000 300 000 350 000 2 111 707 3 261 707
As previously stated 2 550 132 2 550 132
Correction of error (438 425) (438 425)
Capitalisation issue 100 000 (100 000)
Profit for period 2 284 967 2 284 967
Dividends (156 000) (156 000)
- Ordinary (100 000) (100 000)
- Preference (56 000) (56 000)
Balance at 31/12/20X5 600 000 200 000 350 000 4 240 674 5 390 674
MANGO LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20X5
The calculation of earnings per share is based on earnings of C 2 249 217 (20X4:C1 613 550) and on a weighted
average of 600 000 (20X4:540 000) shares in issue after a capitalisation issue on 1 April 20X5. Comparatives
have been restated.
Reconciliation of earnings:
20X5 20X4
C C C C
Gross Net Gross Net
Profit for period 2 284 967 1 633 800
Preference dividends (20X5: 20 000+18 000) (38 000) (18 000)
Basic earnings 2 246 967 1 615 800
Workings
1. Fictitious sales
20X3 20X4 Total
Decrease in revenue (150 000) (500 000) (650 000)
Decrease in expenses (commission) 7 500 25 000 32 500 (5% X 650 000)
Decrease in profits/retained earnings (142 500) (475 000) (617 500)
Tax saving at 29% 41 325 137 750 179 075
Net decrease (101 175) (337 250) (438 425)
DT
Was CA TB TD (29%)
01/04/X2 Cost 750 000 750 000
01/04/X2 Accumulate (750 000 X ^33 / *180) (137 500) (225 000)
- d ^(2yrs 9 mths)
31/12/X4 depreciation * (15 yrs) /
(750 000 X 0.10 X 3)
/ Tax
allowance
31/12/X4 Balance 612 500 525 000 87 500 25 375 DT
L
01/01/X5 Depreciation (750 000 X 12 / 180) / (50 000) (75 000) 25 000 7 250 Cr
- / tax (750 000 X 0.10)
31/12/X5 allowance
562 500 450 000 112 32 625 DT
500 L
Is CA TB TD DT (29%)
31/12/X4 Balance 612 500 525 000 87 500 25 375 DTL
01/01/X5 - Depreciation (612 500 X 12 / *87) (84 483) (75 000) (9 483) 2 750 Dr
31/12/X5 / tax *(7yrs 3 mths) or
allowance (120 mths – 33 mths)
528 017 450 000 78 017 22 625 DTL
Solution 9.5
a)
Income from sale of widgets (900 000/ 90% x 10%) 100 000
Income from services rendered 100 000
Correction of error: service revenue recognised as sales revenue
b)
c)
d) (Working 1)
31 December 20X6
Deferred tax See above journal 13 621
Current tax payable 13 621
Deferred tax becomes current tax payable when adjustment processed in
20X6 tax return
Prior year adjustment to deferred tax recognised as current tax payable:
31 December 20X4
Interest income (56 344 – 27 555) 28 789
Debtors (balancing) 95 630
Sales income (787 295 – 662 876) 124 419
Correction of error: effect of correction of error on revenue
and interest income measurement: discount rate 17% instead of 7%
Tax expense (95 630 x 30%) 28 689
Deferred tax 28 689
Tax effect of the above entry
31 December 20X5
Interest income 50 227
Debtors 50 227
Correction of error: effect on 20X5 due to revenue measured using
incorrect discount rate: 17% instead of 7%
Interest income decreased (96 767 – 46 540) (see working 1)
e)
CHARTWELL LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20X6
6. Correction of error
Revenue was measured using the incorrect discount rate.
20X5
Net effect on statement of Comments/ calculations C
comprehensive income items
Increase/ (decrease) in expenses or losses
- Tax Per journals (15 068)
(Increase)/ decrease in income or profits
- Revenue from interest Per journals 50 227
- Profit for the year Balancing 35 159
7. Revenue
20X6 20X5
Revenue constitutes the following: C C
Sales 980 000 + 200 000 – 100 000 (a) 1 080 000 xxx
Services rendered 900 000 + 100 000 (a) 1 000 000 xxx
2 080 000
Other income
Dividend income 400 000 xxx
Interest income 260 000 – 33 421 (d) 226 579 xxx
426 579
f)
CHARTWELL LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 20X6
20X6
C
Revenue Per note 7 2 080 000
Cost of sales and services Given (1 500 000)
Distribution expenses 200 000 x 30% (60 000)
Administration expenses 200 000 x 20% (40 000)
Other expenses 200 000 x 50% + 4 000 – 2 000 (a) (102 000)
Finance charges Given (30 000)
Other income 426 579
Profit before tax Balancing 974 579
Income tax expense 285 000 + 600 (a) – 10 026 (d) (275 574)
Profit for the period Balancing 699 005
h)
CHARTWELL LIMITED
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 20X6
20X6 20X5 20X4
C C C
ASSETS
Non-current assets (Given)
Property, plant and 864 800 * *
equipment
Current assets
[528 000 + 95 630 (d) – 50 227 (d)– 539 982 3 245 403 2 495 630
Trade receivables 33 421 (d)]
Cash (Given) 120 000 * *
1 524 782 * *
EQUITY AND
LIABILITIES
Share capital and reserves
Share capital 200 000 200 000 200 000
Share premium 78 000 78 000 78 000
Retained Earnings 1 012 587 363 582 78 741
Non-current liabilities
Deferred tax (Given) 15 000 333 621 328 689
Current liabilities
Trade payables (Given) 182 000 * *
[30 000 + 600 (a) + 13 621 (d) – 34 195 52 000 40 000
Current tax payable 10 026(d) ]
Royalty payable (5 000 – 2 000) 3 000 * *
1 524 782 * *
* Insufficient information to calculate number