Financial Statement Analysis and Adjustments

This assignment presents a detailed analysis of a sample financial statement. It involves identifying potential discrepancies and making necessary adjustments based on accounting principles (AASB) outlined in the provided text. The analysis covers topics like depreciation, provisions, contingent liabilities, income tax, share capital, dividends, director fees, and general reserves. The aim is to demonstrate an understanding of financial reporting standards and their application.

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Corporate Reporting (ACC2CRE)

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Part 1: Adjustment Entries
Adjustment Entries as on 30 June 2017
In the books of Roxy Limited
Amount in AUD $
Sr.
No. Date Particulars Debit Credit
1
30-
Jun Depreciation Expenses
To Accumulated Depreciation-Buildings
$
2,000,000.00
(40000000@5%)
$
2,000,000.00
2
30-
Jun Depreciation Expenses
$
250,000.00
To Accumulated Depreciation-Vehicles
$
250,000.00
(2500000@10%)
3
30-
Jun Profit and Loss account
$
2,250,000.00
To Depreciation Expenses
$
2,250,000.00
4
30-
Jun Profit and Loss account
$
160,000.00
To allowance for doubtful debts
$
160,000.00
5
30-
Jun Salaries: Travellers
$
100,000.00
To Salaries: Travellers Payable
$
100,000.00

3
6
30-
Jun Prepaid general expenses
$
15,000.00
To General Expenses
$
15,000.00
7
30-
Jun Profit and loss account
$
3,504,000.00
To Provision for Income Tax
$
3,504,000.00
8
30-
Jun Dividends
$
2,500,000.00
To Dividends payable
$
2,500,000.00
9
30-
Jun Profit and loss Appropriation account
$
1,000,000.00
To General Reserve
$
1,000,000.00
10
30-
Jun Land
$
800,000.00
To Revaluation Surplus
$
800,000.00
(11000000-10200000)
11
30-
Jun Profit and Loss Account
$
17,000.00
To Provision for expenses for legal suits
$
17,000.00
12 30- Provision for Income Tax $

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Jun 1,974,900.00
To Income Tax Payable
$
1,974,900.00
Total $ 14,570,900.00 $ 14,570,900.00
Part 2: Financial Statements
Statement of Comprehensive Income
of Roxy Limited
for the period ending on 30 June 2017
Amount in AUD $
Particulars Amount Amount
Sales revenue $ 24,000,000.00
Less: Cost of Sales $ 11,000,000.00
Gross Profit $ 13,000,000.00
Add: Other Incomes
Interest on investments $ 1,000,000.00
Rent revenue $ 750,000.00 $ 1,750,000.00
Profit Before operating expenses $ 14,750,000.00
Less: Operating Expenses
Selling Commission expense $ 100,000.00
Delivery expense $ 200,000.00

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Salaries: Travelers $ 550,000.00
Salaries: Administration $ 2,000,000.00
Directors fees $ 200,000.00
Depreciation $ 2,250,000.00
Allowance for doubtful debts $ 160,000.00
Audit fees $ 90,000.00
Interest on mortgage $ 1,000,000.00
Provision for expenses for legal suits $ 17,000.00
Provision for Income tax $ 3,504,000.00
Damage due to fire $ 150,000.00
General expenses $ 1,450,000.00 $ 11,671,000.00
Net Profit $ 3,079,000.00
Calculation of Income Tax Payable
Particulars Amount
Net Profit Before income tax paid $ 3,079,000.00
Add: Provision for income tax $ 3,504,000.00
Net Profit amount for income tax calculation $ 6,583,000.00
Income Tax @30% $ 1,974,900.00
Net Profit After Tax $ 4,608,100.00
Statement of Change in Equity
of Roxy Limited
for the period ending on 30 June 2017
Amount in AUD $
Share Capital

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Opening Balance $ 67,000,000.00
Add: Any issue $ -
Closing Balance $ 67,000,000.00
Retained Earnings
Opening Balance $ 6,600,000.00
Less: Final Dividend Previous year $ -2,500,000.00
Less: Interim Dividend $ -1,500,000.00
Add: Profit of the year $ 3,079,000.00
Less: Transfer to general reserve $ -1,000,000.00
Closing Balance $ 4,679,000.00
Statement of Financial Position
of Roxy Limited
as at 30 June 2017
Amount in AUD $
Particulars Amount Amount
Assets
Current Assets
Cash at Bank $ 1,000,000.00
Accounts receivables $ 4,495,000.00
Less: Allowance to Doubtful Debt $ -160,000.00
Prepaid general expenses $ 15,000.00
Inventory $ 21,500,000.00
Total Current Assets $ 26,850,000.00
Non Current assets
Land $ 11,000,000.00
Buildings $ 40,000,000.00
Less: Accumulated depreciation- buildings $ -6,000,000.00

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Vehicle $ 2,500,000.00
Less: Accumulated depreciation- vehicles $ -750,000.00
Investments $ 35,000,000.00
Total Non Current Assets $ 81,750,000.00
Total Assets $ 108,600,000.00
Liabilities
Current Liabilities
Bank overdraft $ 7,500,000.00
Salaries: Travellers Payable $ 100,000.00
Provision for Income Tax $ 1,529,100.00
Provision for expenses for legal suits $ 17,000.00
Accounts payable $ 2,000,000.00
Income tax payable $ 1,974,900.00
Total Current Liabilities $ 13,121,000.00
Non Current Liabilities
Mortgage payable on land and buildings $ 20,000,000.00
Shareholder's Fund
Share capital $ 67,000,000.00
Calls in advance $ 2,000,000.00
Retained earnings (incl. Net Income) $ 4,679,000.00
General Reserve $ 1,000,000.00
Revaluation Surplus $ 800,000.00
Total Shareholder's Fund $ 75,479,000.00
Total Liabilities and Shareholder's fund $ 108,600,000.00
Part C: Notes to financial Statements

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1. The financial statements have been prepared in accordance with the AASB 101
standards and all the reporting requirements provided in the other accounting
standards.
2. The measurement basis used for preparation of the financial accounts is historical cost
basis (Accounting Standards, 2017).
3. The above financial statements are being approved by the board of directors of the
company in the annual general meeting.
4. Fixed assets or non current assets of the company are presented in the balance sheet at
cost less accumulated depreciation. It is presented as per AASB 116 (Accounting
Standards, 2017).
5. Depreciation has been charged at the rate of 10% p.a. and on buildings at the rate of
5% p.a. for the whole year. It can be seen in below table.
Particulars Building Vehicle
Cost of Asset $ 40,000,000.00 $ 2,500,000.00
Depreciation of Current Year $ 2,000,000.00 $ 250,000.00
Depreciation Rate 5% 10%
Particulars Building Vehicle
Accumulated Depreciation at starting of year
$
4,000,000.00
$
500,000.00
Depreciation of Current year
$
2,000,000.00
$
250,000.00
Accumulated Depreciation at end of year
$
6,000,000.00
$
750,000.00
6. Accounts Receivables and any prepayments under current assets are recorded at fair
value less any provision for doubtful debt.
7. Any contingent liabilities that are due in the future years have been successfully
analyzed and proper accounting treatment has been done as per AASB 137
(Accounting Standards, 2017).

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8. Land has been over-valued at its fair value. Fair value is measured at per provisions
defined in AASB 116: Property, Plant and Equipment. Fair value is measured
according to the market value of the land.
9. Provisions, Contingent Liabilities and Contingent Assets. There was legal suit for
$17,000 on the company due to breach of contact (Notes to Accounts (Sample), n.d.).
10. Income Taxes are measured according to AASB 112 (Accounting Standards, 2017).
Income tax is calculated on the profit left after deducting all the expenses relate to
cost of sales, operating expenses and selling expenses. Income tax rate applied on the
company is 30%.
11. There has been change in the income tax rate by the commonwealth government from
39% to 42% from the July 1, 2017. So, income tax returns that will be submitted after
1 July, 2017 will be charged at rate of 42%.
12. Company has authorized and subscribed share capital of 67,000,000 ordinary shares
at price of $1.
13. Company has declared the final dividend of $2,500,000 for the current year. Interim
dividend declared and paid from the previous retained earnings is equal to $1,500,000
(Notes to Accounts (Sample), n.d.).
14. Director Fees is calculated using the proper standards and laws in this behalf. The
director fee paid for the current year was $200,000.
15. There is transfer to general reserve from the profit appropriation account of
$1,000,000.