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Assignment Task

Understand the application and implication of various financial standards in preparation of financial statements.

You are required to prepare the general purpose financial reports for presentation to shareholders of Alpha Exports Limited for the year ending 30 September 2021.

The reports should be prepared in accordance with the Companies Act 1993 and the relative international financial reporting standards issued by the External Reporting Board (XRB). The accounts must not be handwritten – you may choose to use Word or Excel or any other computer software (or a combination) to complete the assignment.

The following information has been extracted from the financial records of Alpha Exports limited at 30 September 2021

  2021 2021 2020 2020

(in $000s) A + E + D L + P + R A + E + D L + P + R

Accounts Payable   155,700   145,800

Accounts Receivable 95,850   91,550  

Accrued Salaries   8,500   5,500

Advisory Services – Audit 12,250      

Asset revaluation reserve   300,000   150,000

Audit fee 57      

Bad debts 550      

Buildings (at revaluation) 500,000   500,000  

Acc. depreciation – Buildings   300,000   250,000

Cash at bank 55,000   40,000  

Cash in hand 200   5,000  

Cost of sales 428,283      

Depreciation 174,500      

Directors fees 1,200      

Dividend received   15,000    

Dividends paid 105,000      

Gain on sale of plant   650    

Interest paid 7,200      

Inventory 45,800   32,500

Issued Capital   325,000   245,000

Land (at revaluation) 350,000   200,000  

Lease of Premises 25,000      

Marketable Investments 450,000   50,000  

Long-term Loan   470,000   225,950

Other expenses 128,500      

Prepaid rent 6,500   4,000  

Plant and machinery (at cost) 750,000   550,000  

Acc. dep – Plant   365,500   250,000

Provisional tax paid 125,000      

Rent expenses 5,500      

Rent received   32,000    

Retained earnings (1/10/2020)   185,000   185,000

Salaries 356,515      

Sales   1,668,850    

Wages 219,095                       

Tax Payable (1/10/2020)   15,800   15,800

Tax in advance                                                                                

TOTAL $3,842,000 $3,842,000 $1,473,050 $1,473,050

Additional information:

Alpha Exports Limited is a company registered in New Zealand under the Companies Act 1993. It is not an issuer and has no public accountability as such as the shares are closely held.

As a simplifying measure, GST has been totally excluded from these figures. You can therefore ignore any GST complications.

The amounts are rounded off to thousands of dollars.

The buildings are depreciated at the rate of 10% p.a. (Straight line). Plant and machinery is depreciated at the rate of 20% p.a. (straight line). Depreciation entries have been made for the year ending 30 Sep. 2021. During the current year, an obsolete item of machinery was sold for $6,650,000 (cost price $15 million). The appropriate entry for the sale has been recorded in the accounts.

The directors have decided to follow the cost model for plant and machinery but to adopt the revaluation model for land and buildings.

On 1 August 2021 the land owned by the company was revalued by a firm of independent registered valuers. The fair value of the land was considered to be $350 million. The valuer determined that there had been no change in the value of the buildings. The appropriate entry has been recorded in the accounts for the revaluation of land.

The Board of Directors has determined that none of the assets of the business are impaired.

No significant change has been made in the Accounting Policies adopted by the company.

Marketable investments consist of investment in 2.5% Government Bonds (popularly called as Kiwi Bonds) and are included at cost price which is not materially different from the fair price of these securities.

Issued capital on 1 October 2020 comprised 122.5 million ordinary shares issued at a value of $2.00 each. On 4 October 2020, an additional 32 million shares were issued at an issue price of $2.50 each.

Inventory is valued at the lower of cost and net realisable value, using First In First Out (FIFO) method.

Raw materials comprise 20 per cent of inventory, work in progress 60 per cent of inventory, while the balance comprises finished goods.

One of the competitors of the company is currently seeking compensation for breach of patent rights. The company was notified of the claim on 1 September 2021. The total amount of the claim is $2,500,000. The company’s solicitor is unable to say whether the claim will be successful or not, but expects that legal costs could range from $10,000 to $15,000.

A fire on 10 October 2021 destroyed a warehouse of Alpha Exports Ltd. It is expected that the estimated loss of $4,850,000 would be fully covered by insurance.

A loan of $100 million was repaid during the year and an additional loan taken during the year. These 15% Loans are secured against land and building as well as a floating charge on inventory. No interest is outstanding on balance date.

Taxation is paid at a rate of 28 cents in the dollar. The appropriate journal entry has NOT been completed for taxation.

The directors of the company are recommending that the shareholders approve a final dividend of 40 cents per share at the annual general meeting to be held on 30 Nov 2021.

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• Posted on : December 23rd, 2019

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