ACFI1001 Lecture Notes - Lecture 3: Arkansas Highway 34, Retained Earnings, Accounts Payable
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QUESTION 1 30 MARKS
The following information represents the abridged financial statements of Mega Ltd and its subsidiary Ultra Ltd:
Statement of financial position as at 31 December 2018 | ||||||
Mega Ltd | Ultra Ltd | |||||
ASSETS | ||||||
Property, plant and equipment | 270 000 | 340 000 | ||||
Investment in Ultra Ltd: 48 000 shares at fair value | 350 000 | - | ||||
(cost: N$ 330 000) | ||||||
Trade receivables | 80 000 | 23 500 | ||||
Inventories | 350 000 | 218 000 | ||||
Bank | 65 000 | - | ||||
Total assets | 1 115 000 | 581 500 | ||||
EQUITY AND LIABILITIES | ||||||
Share capital | 400 000 | 240 000 | ||||
Mark-to-market reserve | 20 000 | 10 000 | ||||
Retained earnings | 375 000 | 240 000 | ||||
Long-term borrowings | 43 000 | 21 000 | ||||
Trade and other payables | 277 000 | 23 500 | ||||
Bank overdraft | - | 47 000 | ||||
Total equity and liabilities | 1 115 000 | 581 500 |
Statement of profit or loss and other comprehensive income for the year ended | ||||||
31 December 2018 | ||||||
Mega Ltd | Ultra Ltd | |||||
Revenue | 927 000 | 1 628 000 | ||||
Cost of sales | -472 000 | -725 000 | ||||
Gross profit | 455 000 | 903 000 | ||||
Other expenses | -287 100 | -472 000 | ||||
Dividend received from Ultra Ltd | 94 000 | - | ||||
Profit before tax | 261 900 | 431 000 | ||||
Income tax expense | -198 000 | -128 000 | ||||
Profit for the year | 63 900 | 303 000 | ||||
Other comprehensive income | ||||||
Items that will not be reclassified to profit or loss | ||||||
Mark-to-market reserve | 4 000 | 1 000 | ||||
TOTAL COMPREHENSIVE INCOME FOR THE YEAR | 67 900 | 304 000 |
Extract from the Statement of changes in equity for the year ended 31 December 2018 | ||||
Mark-to-market reserve | Retained earnings | |||
Mega Ltd | Ultra Ltd | Mega Ltd | Ultra Ltd | |
Balance at 1 Jan 2018 | 15 000 | 8 000 | 215 000 | 170 000 |
Changes in equity for 2018 | ||||
Total comprehensive income for the year: | ||||
Profit for the year | 63 900 | 303 000 | ||
Other comprehensive income for the year | 4 000 | 1 000 | ||
Dividends | -108 000 | -120 000 | ||
Balance at 31 December 2018 | 19 000 | 9 000 | 170 900 | 353 000 |
Additional information:
On 1 January 2018, the date on which Ultra Ltd acquired the interest in Mega Ltd, the equity of Mega Ltd consisted of:
Share capital N$ 260 000
Mark-to-market reserve N$ 3 000
Revaluation reserve N$ 7 000
Retained earnings N$ 135 000
Ultra Ltd elected to measure non-controlling interests at fair value at the acquisition date. On 1 January 2018, the fair value of each non-controlling interestâs share was N$8,50 per share, based on market prices.
Ultra Ltd classified the investment in Ultra Ltd under IFRS 9 in its separate financial statements and recognised fair value adjustments in a mark-to-market reserve (other comprehensive income). Ignore tax implications.
REQUIRED
Prepare consolidated financial statements for the Mega Ltd Group for the reporting period ended 31 December 2018. (30 marks
Ratio Analysis
The comparative statements offinancial position of IKEA Furniture Outlay Retail Shop in Sydneyfor the current year and previous year are given below. Calculatethe ratios necessary to evaluate the shopâs performance
IKEA Furniture Outlay Profit & Loss Statement
For the year ended30th June 2012 & 2013
2012 | 2013 | |
Sales( all credit) | 220 000 | 250 000 |
Less Cost of Sales: | 76 500 | 124 000 |
Opening Inventory | 65 000 | 85 000 |
Purchases | 99 500 | 144 000 |
Goods available for sale | 164 500 | 229 000 |
Closing Inventory | (88 000) 76 500 | (105 000) 124 000 |
Gross Profit | 143 500 | 126 000 |
Operating Expenses | 39 700 | 71 060 |
Net Profit | 103 800 | 54 940 |
IKEA Furniture OutlayBalance Sheet as at 30th June2012/2013
2012 | 2013 | |
Assets: | ||
Current Assets: | ||
Cash | 75 700 | 87 000 |
Accounts Receivable | 69 000 | 68 500 |
Inventory | 88 000 | 105 000 |
Total CurrentAssets | 232 700 | 260 500 |
Non-CurrentAssets: | ||
Plant and Equipment | 295 000 | 208 500 |
Total Assets: | 527 700 | 469 000 |
Liabilities | ||
CurrentLiabilities | ||
Accounts Payable | 51 500 | 59 950 |
Bank overdraft | 15 200 | 20 500 |
Total CurrentLiabilities | 66 700 | 80 450 |
NoncurrentLiabilities: | ||
6.5% Bank Loan | 333 000 | 243 070 |
Total non-currentliabilities: | 333 000 | 243 070 |
Totalliabilities | 399 700 | 323 520 |
Ownerâs Equity | ||
Ordinary shares of $2 each | 95 000 | 100 100 |
Retained profit | 33 000 | 45 380 |
Total OwnerâsEquity | 128 000 | 145 480 |
Required:
Prepare Ratio Analysis based on the formula distributed toyou
Make comments about how to improve the business performance.
Note:
All sales are on credit. Accounts receivable balance on1/07/2011 was $66 800 and Business works 5 days a week.
Retained Profit = Net Profit â Dividend paid
Formula:
Current ratio = Current assets/Currentliabilities
Liquid ratio = Current assets âInventory (Closing Stocks)/Current liabilities â Bank overdraft
Gross profit ratio = Grossprofit/Sales
Net profit ratio = Net profit aftertax/Sales
Accounts receivable rate = Creditsales/Average accounts receivable Collection days = 365 days /Accounts receivable rate
Return on equity = Net profit aftertax/Owners equity Debt to Equity = Total debt/Equity
Total asset turnover = Totalsales/Total assets
Return on investment (ROI) = Netprofit after tax/Total assets Inventory turnover = Cost of Goodssold/Average Inventories Times Interest cover = Net Profit beforeInterest & tax / Interest
Earnings per share = (Net profitbefore tax â Preference Dividend) / Number of Ordinary shares
Ratio(Formula) | 2012 | 2013 | Interpretation |
Ratio(Formula) | 2012 | 2013 | Interpretation |
Ratio(Formula) | 2012 | 2013 | Interpretation |
Ratio(Formula) | 2012 | 2013 | Interpretation |