FINANCIAL ACCOUNTING

ACADEMY OF FINANCE

TOPUP 05

ASSIGNMENT FINANCIAL ACCOUNTING TOP UP 05

Instruction: Deadline for this assignment will be at 5PM, 8th October 2012 This assignment is accounted for 30% of the total marks of this course. ---------------------------------------------------------------------------------------------------------------------

QUESTION 1: (40 marks)

On 1 Jan 2012, Eastern Company acquired 80% of the ordinary share capital of Western Company by issuing to Western's shareholders 800,000 ordinary $1 shares at a market value of $1 per share. As at 30 June 2012, the following financial statements for Eastern Company and Western Company were available.

BALANCE SHEETS AS AT 30 JUNE 2012 Eastern $000 ASSETS Non-current assets Properly, plant and equipment Investment in Western Company 1,750 800 2,550 Current assets Inventory 150 450 350 350 Western $000

28 September 2012

Page 1

FINANCIAL ACCOUNTING

ACADEMY OF FINANCE

TOPUP 05

Receivables Cash

238 187 575

213 112 775 1,125

Total assets LIABILITIES AND SHAREHOLDER EQUITY Equity and liabilities Equities of $1 each Retained earnings

3,125

1,050 625 1,675

250 450 700 175 250 1,125

Non-current liabilities Current liabilities Total equity and liabilities Additional information:

1,050 400 3,125

(a) At the acquisition date, Westerns retained earnings is $250,000 (b) In 30 June 2012, the test for impairment reveals 10% impairment in the value of goodwill; (c) The property, plant and equipment of Western Company has a fair value of $400,000 at the date of acquisition. Western adjusted its PPE to the fair value at the date of acquisition. (d) Depreciation expense is assume to be zero for the period from the acquisition to the reporting date. The remaining assets and liabilities of Western Company were all stated at their fair value as at 1 Jan 2012; (e) Western Company did not issue any shares between the date of acquisition and the year end; (f) During the year, Western sold $50,000 goods to Eastern. The deal provides a profit of $10,000 for Western. At 30 June 2012, Eastern still kept $25,000 of this goods in its inventory. Require: Prepare a consolidated balance sheet for a simple group of company i.e. Eastern Group

28 September 2012

Page 2

FINANCIAL ACCOUNTING

ACADEMY OF FINANCE

TOPUP 05

QUESTION 2: (30 marks) 1. Rosa Company began operations on January 1, 2011. During 2011, the company entered into the following transactions: 1/ Issued 55,000 common shares for $30 per share in exchange for cash. 2/ Purchased $750,000 of fixed assets by cash 3/ Borrowed $200,000 from the bank. Annual simple interest rate is 16 percent. The company will pay the full principle and interest in January, 1st, 2013 4/ Paid salary for the year $250,000 5/ Purchased $2,000,000 of inventory on account. $1,075,000 was subsequently paid during 2011 6/ Sold $2,050,000 of merchandise in exchange for cash. The related inventory had cost $875,000 7/ Purchased a two-year insurance policy for $80,000 on September 30th 2012 8/ Purchased available-for-sale securities for $300,000 9/ Sold $880,000 of merchandise on account. The related inventory had a cost of $490,000. $500,000 of the sales made on account was collected during the year. 10/Paid $500,000 in miscellaneous expenses (rent, utilities and others) 11/ Declared but did not pay, a $100,000 dividend Adjusting entries required at the end of the year related to the following: a/ The fix assets were purchased on January 1st , 2011 and had an estimated useful life and salvage value of five years and $50,000, respectively. The company uses the straightline depreciation method. b/ Realize insurance expense for the year c/ The market value of the available for sale securities on December 31 was $500,000 d/ As of December, the company has incurred, but had not yet paid, $75,000 in miscellaneous expenses e/ The borrowing with the bank was made on January 1st , 2011 Require: - Record in T-account all of the above transactions and adjusting entries - Prepare Balance sheet at the end of the year end December 31, 2011 - Prepare Income statement for the year end December 31, 2011

28 September 2012

Page 3

FINANCIAL ACCOUNTING

ACADEMY OF FINANCE

TOPUP 05

QUESTION 3: (30 marks) Vienne Ltd is preparing to launch a new line of fishing product. It also tries to restructure capital to reduce risk in expanding business. Below are the most recent financial data of the company, with the comparative number of recent year.
Vienne Ltd. Statement of Financial Position ASSETS Non-current Assets: Land and Buildings Machine Total non-current assets Current Assets: Cash and cash equivalents Trade receivable Inventory Total current assets Total assets LIABILITIES Current Liabilities Trade payables Taxes payable Dividend payable Bank overdraft Total current liabilities: Non-current Liabilities: 10% Long-term loan Total non-current liabilities Total liabilities EQUITY Ordinary shares of $1 each fully paid Reserves Retained earnings Total Equity Total Liabilities and Equity

31-Dec-10 $millions $millions

31-Dec-09 $millions $millions

530 255 785 4 393 458 855 1,640

400 195 595 5 280 400 685 1,280

340 60 400 440 440 840 300 400 100 800 1,640

270 40 20 330 500 500 830 200 200 50 450 1,280

28 September 2012

Page 4

FINANCIAL ACCOUNTING

ACADEMY OF FINANCE

TOPUP 05

Vienne Ltd. Summary Income Statement for the year ending December 31 2010 $millions 114 44 70 20 50 2009 $million 150 50 100 30 70

Earning before interest and tax Interest paid Profit before tax Tax Profit affter tax

Changes in non-current assets during the year ending December 31,2010 Land/building Machine, etc. $millions $millions 500 255 200 100 700 355 100 70 170 60 40 100

Cost at January 1, 2010 Purchasing in the year Cost at December 31, 2010 Depreciation at Jannuary 1, 2010 Depreciation expense for the year Depreciation at December 31, 2010

Note: All interest expense is paid by cash During the year, the company paid all dividend payable at the end of the previous year. At the end of the current year, the company decided not to pay any dividend. Assume that the long - term loan is repaid at the beginning of the year

Required: Prepare the Cash Flow Statement of Vienne LTD. for the year end at 31th Dec 2010, using the indirect method

28 September 2012

Page 5