Mercy Limited Financial Statement Analysis

This assignment delves into a comprehensive analysis of Mercy Limited's financial statements. It examines various aspects including trade receivables, allowance for impairment, inventory valuation methods, income tax calculations, and plant & equipment accounting. The analysis provides insights into the company's capital management strategies, financial position, and overall performance based on the provided information.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student:
Name of the University:
Author’s Note:

1CORPORATE ACCOUNTING
Question 1:
In the books of Sam Ltd.
Journal Entries
Dr. Cr.
Date Particulars Amount Amount
Business Combination Valuation
Entries:
01-07-
2013 Accumulated Depreciation A/c. Dr. 26000
To, Plant A/c. 24000
To, Deferred Tax Liability A/c. 600
To, Business Combination
Valuation Reserve A/c. 1400
Depreciation Expenses A/c. Dr. 200
Retained Earnings (1/7/16) A/c. Dr. 600
To,
Accumulated Depreciation
A/c. 800
Deferred Tax Liability A/c. Dr. 240
To, Income Tax Expenses A/c. 60
To, Retained Earnings (1/7/16) 180
Amortization of Customer Database
A/c. Dr. 1500
Retained Earnings (1/7/16) A/c. Dr. 3150
To, Income Tax Expenses A/c. 450
To, Transfer from BCVR A/c. 4200
Transfer from BCVR A/c. Dr. 6300
Income Tax Expenses A/c. Dr. 2700
To, Contingent Legal Liability
A/c. 7000
To, Gain on Settlement A/c. 2000
Accumulated Impairment Loss for
Goodwill A/c. Dr. 7000
To, Business Combination
Valuation Reserve A/c. 2000
To, Goodwill A/c. 5000

2CORPORATE ACCOUNTING
Pre-Acquisition Entries:
01-07-
2013 Share Capital A/c. Dr.
15000
0
Reserves A/c. Dr. 10000
Retained Earnings (1/7/13) A/c. Dr. 30000
Business Combination Valuation
Reserve A/c. Dr. 21000
To,
Shares in Sam Ltd. A/c.
13000
0
To, Gain on Bargain Purchase
(Transfer to P/L) A/c. 81000
30-06-
2017 Share Capital A/c. Dr.
15000
0
Reserves A/c. Dr. 7000
Retained Earnings (1/7/16) A/c. Dr. 27700
To, Business Combination
Valuation Reserve A/c. 54700
To,
Shares in Sam Ltd. A/c.
13000
0
Transfer from Reserves A/c. Dr. 2000
To, Reserves A/c. 2000
Business Combination Valuation
Reserve A/c. Dr. 7000
To, Transfer from BCVR A/c. 7000
Transfer from BCVR A/c. Dr. 4200
To, Business Combination
Valuation Reserve A/c. 4200
Workings:
Acquisition Analysis:
Particulars
Carryin
g
Amount
Fair
Value
Net
Fair
Value
Share Capital 150000
15000
0
Reserves 10000 10000

3CORPORATE ACCOUNTING
Retained Earnings 30000 30000
Plant 94000 96000 2000
Land 80000 95000 15000
Inventory 20000 26000 6000
Customer Database 6000 6000
Contingent Legal Liability -9000 -9000
Goodwill -5000 -5000
Net Fair Value of Identifiable
Assets & Liabilities A
20500
0
Purchase Consideration B
13000
0
Less: Dividend Payable C 6000
Net Purchase Consideration D=B-C
12400
0
Gain on Bargain Purchase E=A-D 81000
Question 2:
In the books of Mercy Ltd.
Statement of Change in Equity
for the period ended 31 June 2016
Particulars Share Capital
General
Reserve
Retained
Earnings
Total Equity
Capital
Balance as at 1 July 2015 $ 24,00,000 $ 2,60,000 $ 80,000 $ 27,40,000
Profit for the year $ 5,81,000 $ 5,81,000
Final Dividend Declared ($ 2,56,000) ($ 2,56,000)
Transfer of Fund to General Reserve $ 30,000 ($ 30,000) $ 0
Balance as at 31 June 2016 $ 24,00,000 $ 2,90,000 $ 3,75,000 $ 30,65,000
In the books of Mercy Ltd.
Statement of Financial Position
as at 31 June 2016

4CORPORATE ACCOUNTING
Particulars Amount
Current Assets:
Accounts Receivable $ 6,00,000
Allowance for Impairment of
Receivables ($ 60,000)
Inventory $ 5,20,000
Other Debtors $ 50,000
Total Current Assets
$
11,10,000
Non-Current Assets:
Plant & Equipment (net) $ 8,00,000
Land $ 6,00,000
Buildings (net) $ 9,00,000
Long-Term Investments $ 4,60,000
Goodwill $ 3,00,000
Total Non-Current Assets
$
30,60,000
TOTAL ASSETS
$
41,70,000
Current Liabilities:
Bank Overdraft $ 2,00,000
Accounts Payable $ 4,00,000
Dividend Payable $ 2,56,000
Income Tax Payable $ 2,49,000
Total Current Liabilities
$
11,05,000
Non-Current Liabilities: $ 0
TOTAL LIABILITIES
$
11,05,000
NET ASSETS
$
30,65,000
Equity Capital:
Share Capital
$
24,00,000
General Reserve $ 2,90,000
Retained Earnings $ 3,75,000
TOTAL EQUITY CAPITAL
$
30,65,000

5CORPORATE ACCOUNTING
Notes to the financial statement:
Notes to financial statement consider information that are relevant for operations and
are materials.
About the report:
The general purpose financial report of Mercy limited for the year ending 31st June,
2016 was prepared is authorized to issue in accordance with the director’s resolution and
complying with the requirements of Australian accounting standard board 101 (Henderson et
al. 2015). Financial report is prepared at historical cost and measurements of some financial
instruments are done at fair value.
Key judgment and estimates:
Several estimates and applied judgment have been made by management that are
regarded as material.
Dividend and distributions:
Dividend policy of Mercy limited consist of profit generation, cash flow generation
and franking credits availability and it aims at delivering dividends that are all time growing.
Mercy limited paid a total dividend of amount $ 256000 for the year ending 31st June, 2016.
Equity and reserves:
Reserved shares are those ordinary shares that company has repurchased it and they
are being held for using it in future. The amount of fund that has been transferred to general
reserve by company for this particular year is $ 30000.
Impairment of trade receivables:

6CORPORATE ACCOUNTING
Assessment of impairment is done on an ongoing basis and their recognition is done
in income statement when it is indicated by objective evidence that it will not be possible to
collect debt (Chen and Li 2015). Allowance for debt impairment is written off against the
allowance account if recognition of impairment allowance has been done and it has become
uncollectable. Total amount that has been recorded against impairment allowance for trade
receivables stood at $ 60000.
Inventory:
Valuation of inventory is done at lower of net realizable value and cost. Variables that
impact the cots in recognition of inventory for bring it to condition of selling required
management judgment and key estimates. Total amount of inventory that is recognized as an
expense of year ending 31ts June, 2016 stood at $ 520000.
Income tax:
Measurement of current tax liabilities and assets are done at amount that is expected
to be paid to and are recovered from tax authorities as per the rules and applicable taxation
rate. Mercy limited has recorded total amount of income tax payable in the statement of
financial position at $ 249000.
Plant and equipment:
Measurement of carrying value of plant and equipment is done at the cost of assets by
deducting amount of impairment and depreciation. Assets costs comprise of major inspection
cost and costs that are incurred for replacement of parts. Depreciation of plant and equipment
is done at straight line method and the net value of such assets at the end of reporting period
stood at $ 800000.
Capital management:

7CORPORATE ACCOUNTING
Mercy limited manages its capital through several means such as making adjustment
of ordinary equity dividend, raising capital and maintaining a plan for dividend investment
(Roy 2015). Capital structure of company comprised of share capital, general reserve and
retained earnings and providing a satisfactory return to shareholders is the main objective of
company.

8CORPORATE ACCOUNTING
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