Sydney Ltd, commenced retail operations on 1 July 2019 by issuing 1,000,000 shares at @ $1.00 per share, payable in full on application. Company sales designer’s leather bags to customers. There were no share issue costs. For the year ending 30 June 2021, the company recorded the following balances:
- Sales revenue $1,350,000 (Sales price: $1,500 each bag)
- Gain from trading securities $20,000
- Cost of sales: need to be calculated (Cost: $1,000 each bag)
- Wages and salaries (administrative) $80,000
- Wages and salaries (selling) $100,000
- Office Rent $20,000
- Advertising and distribution expense $10,000
- Utility bills $4,000
- Sales commission expense (sales employee) $28,000
- Bad debt expense $8,000
- Depreciation expense – Furniture? (need to be calculated)
- Depreciation expense – Building? (need to be calculated)
- Interest expense $40,000
- Bank charge $10,000
- Income tax expense $46,000
Summarised account balances for the equity section at the end of the prior financial year (i.e., 2020) are provided below:
| Year-end balances, 30 June 2020 | $ |
| Share Capital, 30 June 2020 | 1,000,000 |
| Retained earnings, 30 June 2020 | 95,000 |
In the current year-
- Additional shares were issued and fully paid on the following dates during the 2021 financial year:
1 Jan 2021: 40 000 ordinary shares issued/fully paid @ $2.50
1 April 2021: 60 000 ordinary shares issued/fully paid @ $3.00
- A cash dividend of $22 000 was declared and paid during the 2021 financial year.
Balance of other relevant accounts of the Sydney Ltd For the year ending 30 June 2021 are provided below:
| Accounts | $ |
| Cash on hand | 75,000 |
| Cash on deposit, at call | 60,000 |
| Trade debtors | 1,620,000 |
| Allowance for doubtful debts | 40 ,000 |
| Other debtors | 850,000 |
| Inventory | 200,000 |
| Trading securities | 25,000 |
| Land | 125,000 |
| Buildings | 500,000 |
| Accumulated depreciation – buildings* | ? |
| Furniture | 200,000 |
| Accumulated depreciation – Furniture * | ? |
| Patents | 180,000 |
| Amortisation of patent | 55,000 |
| Bank loans | 553,000 |
| Other loans | 300,000 |
| Trade creditors | 1,200,000 |
| Provision for employee benefits | 50,000 |
| Warranty provision | 45,000 |
| Current tax payable | 40,000 |
| Deferred tax liability | 35,000 |
Additional information
The following additional information was noted during the preparation of financial statements for the year ended 30 June 2021:
- Inventory was measured at the lower of cost and net realisable value as per AASB102.
- *Depreciation and accumulated depreciation for buildings and furniture need to be calculated.
- Trading securities are equity investments that are held for the purpose of selling and short-term profit taking.
- $20 000 of bank loans are repayable within 1 year. The remaining amount is payable in full at the end of 2030. The loans are secured over the land.
- $150 000 of other loans are repayable within 1 year. The remaining amount is payable in full at the end of 2024.
- The provision for employee benefits includes $20 000 payable within 1 year.
- The warranty provision is in respect of a 12-month warranty given on certain goods sold.
- Buildings and furniture were measured at cost. The benefits were expected to be received evenly over the useful life of the asset. The residual values are negligible. Building was acquired on 1 July 2019 for $500,000 (cost) and estimated useful life is 20 years. Furniture was acquired on 1 January 2020 for $200,000 (cost) and estimated useful life is 10 years.
- Land was revalued upward by $5 000 to $125 000 (assume zero income tax for this transaction). There had been no previously recognised reserve for revaluation surplus. The valuation was conducted by the registered valuer, The Valuable Pty Ltd.
- Sydney Ltd transferred $10,000 out of retained earnings into general reserve.
Required:
For the year ending 30 June 2021 (NOTE: comparative financial statements are not required),
- Using the pro forma table supplied, prepare a preliminary trial balance for Sydney Ltd;
- Prepare a statement of comprehensive income for Sydney Ltd in accordance with the requirements of AASB 101. Sydney Ltd uses the single statement format for the statement of profit or loss and other comprehensive income and classifies expenses by function within the statement;
- Prepare a statement of changes in equity for Sydney Ltd in accordance with the requirements of AASB 101;
- Prepare a statement of financial position for Sydney Ltd in accordance with AASB 101. Use the current/non-current presentation format
Proforma for Sydney Ltd Trial balance
| Sydney Ltd – Trial Balance as at 30 June 2021 | DR | CR |
| $’000 | $’000 | |
| Sales of goods | ||
| Gain from trading securities | ||
| Cost of sales* | ||
| Office Rent | ||
| Advertising and distribution expense | ||
| Sales commission expense – (selling) | ||
| Utility bills | ||
| Wages and salaries – (selling) | ||
| Wages and salaries- (administrative) | ||
| Bad debts expense | ||
| Depreciation expense – buildings | ||
| Depreciation expense – Furniture | ||
| Interest expense | ||
| Bank charges | ||
| Income tax expense | ||
| Cash on hand | ||
| Cash on deposit, at call | ||
| Trade debtors | ||
| Allowance for doubtful debts | ||
| Other debtors | ||
| Inventory | ||
| Trading securities | ||
| Land | ||
| Buildings | ||
| Accumulated depreciation – buildings | ||
| Furniture | ||
| Accumulated depreciation – Furniture | ||
| Patents | ||
| Amortisation of patents | ||
| Bank loans | ||
| Other loans | ||
| Trade creditors | ||
| Provision for employee benefits | ||
| Warranty provision | ||
| Current tax payable | ||
| Deferred tax liability | ||
| Share Capital | ||
| Dividends paid | ||
| Retained earnings, transfer to general reserve | ||
| General reserve | ||
| Land revaluation surplus | ||
| Retained earnings, 30 June 2020 | ||
| Total |
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