Financial Accounting — Case Study for Annual Report Assignment Essay Example

Case Study for Annual Report Assignment

SP 2, 2012

Contents Page

Statement of Comprehensive Income………………………………………………..3-5

Statement of Financial Position………………………………………………………5-6

Statement of Changes in Equity……………………………………………………..7

Notes to the Financial Statements…………………………………………………..8-10

Directors Declaration…………………………………………………………………..11

Annual Directors Report……………………………………………………………….12

Annual Auditors Report………………………………………………………………..13

Appendix and Calculations…………………………………………………………..14-15

Reference List………………………………………………………………………….16

Statement of Comprehensive Income

As at 30th June 2012

$’000s $’000s

Revenue 51,475

Service revenue 69,907

Sales return (980)

Net revenue 120,402

Other Incomes

Gain on sale of land 389

Interest earned on Cash at Bank 152

Cash payment on legal suit 648 1,189

121,591

Cost of sales (21,852)

Gross profit 99,739

Expenses:

Salaries and Wages 36,430.7

Annual Leave expenses 2,700

Provision for annual leave 64(note 1)

Provision for long service leave 90(note 2)

General operating Expenses 13,920

Advertising Expenses 1,727(note 3)

Auditors Expense 940

Insurance Expense 850(note 4)

Interest Expense 3,600

Application for loan 1.4

Interest on principal loan 600

Coffee mugs 0.7

Depreciation on Vehicles 156

Depreciation on Buildings 1,230

Doubtful Debts 1,430

Loss on sale of Plant 260

Extraordinary Expenses:

Cost of repairing Products 4,600

Advertising and Mailing 600 56,599.8

Profit before tax 43,139.2

Tax expense (30% x 43,139.2) 12,941.76

Profit after tax 30,197.44

Statement of Financial Position

For the period, ended 30th June 2012

$ 000 $ 000

Non-current Assets

Plant and Equipment 14,560

Land 19,900

Buildings 17,300

Vehicles 740 52,500

Current Assets

Cash at Bank 380

Prepayments 203

Account receivables 32,750

Intangibles 444

Inventory 14,510 48,287

Total Assets 100,787

Total Equity and Liabilities

Current liabilities

Accounts payable 28,900

Potential claim 12.5(note 6)

Accrued Liabilities 4,868 33,780.5

Long term liabilities

Loan from ABank 3,600

Potential claim 3,000(note 5)

Shareholders’ funds

Share capital 9,137

Retained Earnings 37,716.44

General Reserve 12,630 66,083.44

99,863.94

Statement of Changes in Equity

For the period ,ended 30th June 2012

Share capital General reserve Retained Earnings

$000 $000 $000

Balance as at July 2011 9,137 9,430 11,239

Profit for the period — — 30,197.44

Transfer from Retained Earnings — 3,200 (3,200)

Interim Dividend — — (476)

Final dividend — — (520)

Balance As at 30th June 2012 9137 12,630 37,716.44

Notes to the financial statements

Reporting Entity

The company is a reporting entity. It is located in Australia, and it s main business is selling of products and services.

Basis of Preparation

  1. Compliance Statement

The financial statements i.e. statement of comprehensive income, statement of financial position and statement of changes in equity, have all been prepared in accordance to Australian Accounting standards (Financial Accounting 2).

b) Measurement Basis

The financial statements: statement of comprehensive income, statement of financial position and statement of changes in equity have all been prepared using information based on historical costs. However, when preparing the statement of financial position, inventory and property is measured at fair value.

c) Presentation of currency

All the financial statements have been prepared using Australian dollars, since that is in accordance to Australian Accounting Standards (Financial Accounting 2).

d) Judgments and estimates

The aim of management when preparing financial statements is to conform to the Australian Accounting Standards, and in the process they are required to make assumptions that may differ from the actual results, for example estimates of liabilities, expenses, assets and income.

Important accounting policies

  1. Property and equipment

During preparation, all the property and equipment are measured at their cost, which is the total expense incurred during acquisition, less the impairment losses and depreciation. The gains on disposal and the losses on disposal of assets is determined by getting the difference between the carrying amount of the assets and the proceeds obtained from disposal. Depreciation is determined by getting the difference between an assets cost and its residual value.

  1. Inventories

The inventories in the financial statements are given as the lower of their net realizable value and their cost. Cost of inventories includes all expenses incurred in bringing them to their present condition, while the net realizable value is the value at which the inventories are estimated to be sold.

  1. Provision for annual leave expense for financial year ending 30th June 2012

Provision for Annual leave as at June 2012 562,000

Less: Provision as at July 2011 498,000

Provision for annual leave expense 64,000

  1. Provision for long service leave expense for financial year ending 30th June 2012.

Provision for long service leave as at June 2012 430,000

Provision for annual leave Expense as at July 2011 340,000

Provision for long service expense 90,000

  1. Advertising expense

Advertising 1,760,000

Less: Prepayments 33,000

Net advertising Expense 1,727,000

  1. Insurance 1,020,000

Less prepayments 170,000

.Net Insurance Expense 850,000

  1. Expected Customer Claims

$3,000,000 the amount justified by the lawyers –Long-term Liability

  1. 25/100x =.25*50,000

=12,500 –Short-term liability

Director’s declaration

Pursuant to the standards laid out by Australian Accounting Standards Board the directors confirm the following:

  1. In preparation of the financial statements, all standards have been followed specifically paying attention to AASB 101, 108, 110, 137 and 1054.
  2. The directors have selected and applied accounting policies consistently in order to portray the true and fair view of the state of affairs of the company.
  3. The directors have prepared the financial statements of the company as going concern business i.e. the business is not going to terminate its operations in foreseeable future.
  4. The directors also confirm that they have maintained proper books of accounts in order to safeguard the assets of the company.

Annual directors’ report

The directors are pleased to their report and financial statements for the year ended 30th June 2012.

Transfers to Reserve

During the financial year ending 30th June 2012, the directors moved a sum of $3,200,000 from retained earnings to general reserve. This can be attributed to high profits that the company has realized over the years.

Dividends

The board of directors has approved a dividend of 15p per share, to all shareholders in the register under the year in consideration. This is in addition to the interim dividend of 7p that the company had announced earlier.

Annual auditor’s report

The financial reports have been audited and they received unqualified opinion. That is to mean that the auditors did not find any material error of omission or commission in preparation of the financial statements. This shows the management commitment to maintain strong internal controls so as to safeguard the assets of the company and to ensure that operations are running on smoothly.

Appendix with calculations

$000

Advertising 1,760,000

Less: Prepayments 33,000

Net advertising Expense 1,727,000

Insurance 1,020,000

Less prepayments 170,000

Net Insurance Expense 850,000

Expected Customer Claims

$3,000,000 the amount justified by the lawyers

25/100x =.25*50,000

=12,500 +3,000,000= 3,012,500

Total number of Shares

As at May 2006 2,000,000

Issue on April 2011 1,400,000

Total number of shares 3,400,000

rovision for long service leaveBy: Name 1By: NameP

By: Name 2By: Name 3Bal b/f 340,000

Balance c/d 430,000 Charge for the year 90,000

430,000 430,000

rovision for annual leave a/c By: Name 5By: Name 4P

Bal b/f 498,000

Bal c/d 562,000 Profit and loss a/c 64,000

562,000
562,000

Calculation of final dividend

Dividend-= 510,000

Number of shares 3,400,000

=15p

References

Financial Accounting 2. (2012). Case Study for Annual Report Assignment