External Reporting 1 Solutions: Accounting and Financial Analysis

This document presents comprehensive solutions to an external reporting assignment. The solutions cover various aspects of financial reporting, starting with the preparation of a Statement of Profit or Loss and Other Comprehensive Income and a Statement of Changes in Equity for KLZR Limited, including detailed notes on administrative, selling, and other expenses, as well as earnings per share calculations. The assignment then addresses adjusting and non-adjusting events, providing a classification and treatment of events occurring between the balance sheet date and the signing date. Furthermore, the document includes journal entries for share capital transactions, such as share applications, allotments, and forfeitures, detailing the calculations involved. Finally, the assignment concludes with the preparation of journal entries and calculations related to machine revaluation, depreciation, and deferred tax assets, illustrating the accounting treatment of these items. This assignment provides a complete overview of external reporting principles.

EXTERNAL REPORTING
1

Contents
Solution 1:.............................................................................................................................................3
Solution 2:.............................................................................................................................................6
Solution 3:.............................................................................................................................................9
Solution 4:...........................................................................................................................................11
Bibliography........................................................................................................................................13
2

Solution 1:
KLZR LIMITED
Statement Of Profit/Loss And Other Comprehensive Income
Particulars Notes Amount
Sales revenue 9,97,000
Dividend revenue 7,000
Interest revenue 3,000
Revenue 10,07,000
Cost of sales 3,55,000
Gross Profit 6,52,000
Administrative Expenses 1 89,000
Selling and distribution expenses 2 2,18,000
Finance Cost 32,000
Impairment of non-current asset 5,000
Other Expenses 3 1,52,000
Profit Before Tax 1,56,000
Income tax Expense 61,000
Profit for the year 95,000
Other comprehensive income -
Total Comprehensive Income for the
year 95,000
Profit attributable to
Owners of the company 95,000
Non-controlling interest -
Total comprehensive income attributable to
Owners of the company 95,000
Non-controlling interest -
Earnings per share 4 0.24
3

Notes:
1. Administrative
Depreciation
- Motor Vehicles 20,000
- Plant and Equipment 10,000
Salaries 44,000
Rental expenses 15,000
Total 89,000
2. Selling and distribution
Depreciation
- Motor Vehicles 25,000
- Plant and Equipment 36,000
Salaries 60,000
Selling expenses 97,000
Total 2,18,000
3. Other expenses
Auditor remuneration 36,000
Doubtful debts 8,000
Office expenses 92,000
Bad debt recovered -26,000
Loss on destruction of building 42,000
Total 1,52,000
4. Earnings per Share
Total Earnings for the year 95,000
Total number of shares outstanding 4,00,000
EPS 0.24
4

KLZR LIMITED
Statement Of Changes In Equity
Particulars Share
capital
Retaine
d
earning
s
Genera
l
Reserv
e
Revaluatio
n Surplus
Total
equity
$ $ $ $ $
Balance at 1 July 2017 4,00,00
0 2,25,000 15,000 - 6,40,00
0
Changes in equity for the year
2017-18
Transfer -
(25,000
) 25,000 - -
Dividends -
(65,000
) - -
(65,000
)
Income for the year - 95,000 - - 95,000
Revaluation gain - - - 20,000 20,000
Balance at 30 June 2018 4,00,00
0 2,30,000 40,000 20,000 6,50,00
0
Other explanations:
- The auditors fee mentioned as a part of other expense include $ 16000 towards fee for
management consulting services
- Dividend declared by the management would be should under payable in the current
liabilities section of the balance sheet
- Impairment of goodwill has been shown as a spate line item in the profit and loss
statement
5

Solution 2:
There is a gap between the balance sheet date and signing of balance sheet date. During this
period any events might take place which might affect the financials of the last year.
Adjusting events are those events for which conditions exist on the balance sheet date for
which adjustments in the balance sheet are required. (Fridson & Alvarez, 2012)Any
important events which occur between these two dates for which the conditions exist on
balance sheet date would require adjustments in the books of account. (Ramírez, 2018)Any
other non-adjusting event if important will be required to be mentioned in the notes to
account. Any event occurring after the balance sheet date that might be favourable for the
company need not be mentioned in the financials. (Girard, 2014)If any adjusting event occurs
which might affect the going concern assumption of the entity, then such events needs to be
reported in the financial. If the assumption of going concern is harmed, then the financials
needs to be made in the format specified by the standards in connection with the same.
(Ittelson, 2009)
In the given scenario the balance sheet date is 30th June and on 20th august that has been
finalised. Any important events which occur between these two dates for which the
conditions exist on balance sheet date would require adjustments in the books of account.
(Kuti, 2014)We have been provided with few events of Utar Ltd. we have classified the same
as adjusting and non adjusting events and the treatment in such circumstances:
- The company holds the shares of the listed company which are recorded at market price.
(Lerner, 2009)A considerable decline in value of investments before signing of the books
requires making of a provision for diminution in value of these investments. Since the
company holds the shares of the publically listed company as on the balance sheet date
and there are events after such date that are likely to affect the financials, this event will
be classified as an adjusting event and appropriate adjustments in the books shall be
made. The following journal shall be passed:
Date Particulars Dr Amt Cr Amt
30-06-2018 Profit and Loss 50000
To Investment Fluctuation Reserve 50000
(Being provision for decline in value of
investments of Binnie Ltd accounted for)
6

- The provision for debtors was made at 50%, but on 10th August it was sure that no
amount can be recovered from them. The management should provide for the whole
amount of the debtor as provision. Since the company had Fancy Ltd as there debtors as
on the balance sheet date and there are events after such date that is likely to affect the
financials, this event will be classified as an adjusting event and appropriate adjustments
in the books shall be made. The following journal shall be passed:
Date Particulars Dr Amt Cr Amt
30-06-2018 Profit and Loss 400000
To Provision for Doubtful Debts 400000
(Being Provision for doubtful debt increased for
Fancy Ltd)
- The company has an outstanding loan in foreign currency. Any major fluctuations in the
currency rate will affect the position of the company. (McLaney & Adril, 2016)Before
the finalisation of the balance sheet a major shift in the currency rate was witnessed
which increased the company’s liability by A$10105. Since the company had the foreign
currency loan as on the balance sheet date and there are events after such date that is
likely to affect the financials, this event will be classified as an adjusting event and
appropriate adjustments in the books shall be made. The following journal shall be
passed:
Date Particulars Dr Amt Cr Amt
30-06-2018 Profit and Loss 10105
To Foreign Currency Fluctuation Reserve 10105
(Being reserve created for fluctuations in foreign
currency)
- Charging of lesser depreciation in order to arrive at higher profits is a wrong. The fixed
assets should be appropriately depreciated and they should be valued at fair value. (Piper,
2015) In the given case the fixed assets should be valued at $1150000. Since the
company had these fixed assets as on the balance sheet date and there are events after
7

such date that is likely to affect the financials, this event will be classified as an adjusting
event and appropriate adjustments in the books shall be made. The following journal
shall be passed:
Date Particulars
Dr
Amt Cr Amt
30-06-2018 Depreciation 350000
To Plant and Equipment 350000
(Being under charged depreciation accounted for)
8

Solution 3:
In the books of TARA Limited
Journal
Date Particulars Dr amt Cr amt
01-Aug-17 No entry
30-Sep-17 Bank 156,00,000
To Share Application 156,00,000
(Being Share application money received for
5200000 shares at $3 each)
10-Oct-17 Share Application 6,00,000
To Bank 6,00,000
(Being money received for extra application on
200000 shares refunded)
10-Oct-17 Share Application 150,00,000
To Share Capital 150,00,000
(Being amount received on application
transferred to share capital account)
10-Nov-17 Bank 100,00,000
To Share Allotment 100,00,000
(Being Share allotment money received for
5000000 shares at $2 each)
28-Feb-18 Bank 49,00,000
To Share Call 49,00,000
(Being Share call money received for 4900000
shares at $1 each)
9

14-Mar-18 Share Capital 5,00,000
To Share Forfeiture 5,00,000
(Being money received for 100000 shares
forfeited for non receipt of call money)
14-Mar-18 Bank 5,30,000
Share forfeiture 70,000
To Share Capital 6,00,000
(Being Shares forfeited reissued at $5.3 per
share)
14-Mar-18 Share forfeiture 4,30,000
To Bank 4,30,000
(Being remaining money in forfeiture account
refunded to former shareholders)
Calculation of amount to be forfeited:
No of shares on which call not paid = 100000
Monies already received on these shares = 3+2 =5 per share
Total amount received on forfeited shares = 100000*5 = 500000
Calculation of amount to be refunded:
Total money forfeited = 500000
Less: Loss on reissue of forfeited shares = 70000
Amount to be refunded to former shareholders = 500000-70000 =430000
10

Solution 4:
In the books of Companion Ltd
Journal
Date Particulars Dr amt Cr amt
01-07-2016 Machine 1,90,000
To Bank 1,90,000
(Being Machine purchased for $190000)
30-06-2017 Accumulated Depreciation 30,000
To Machine 30,000
(Being depreciation for the year charged)
30-06-2017 Revaluation Reserve 10,000
To Machine 10,000
(Being machine revalued at year end)
30-06-2017 Deferred tax asset 3,000
To Profit & Loss 3,000
(Being deferred tax asset created on tax bas due to
revaluation)
30-06-2018 Accumulated Depreciation 28,800
To Machine 28,800
(Being depreciation for the year charged)
30-06-2018 Machine 18,800
To Revaluation Reserve 18,800
(Being machine revalued at year end)
30-06-2018 Deferred tax asset 12,000
To Profit & Loss 12,000
(Being deferred tax asset created on tax bas due to
revaluation (15000-3000))
Year
Opening
value of
Block
Depreciation for
the year
Value after
depreciation Revaluation Total Block-
Closing
2016-2017 1,90,000 30,000 1,60,000 -10,000 1,50,000
11

2017-2018 1,50,000 28,800 1,21,200 18,800 1,40,000
Particulars As per accounting
record
As per taxable
record
Tax
Base
Value of Asset on
01.07.2016
1,90,000 1,90,000
Less: Depreciation -30,000 30,000
Less: Revaluation -10,000 -
Closing Value on
30.06.2017
1,50,000 1,60,000 -10,000
Value of Asset on
01.07.2017
1,50,000 1,60,000
Less: Depreciation -28,800 -30,000
Add: Revaluation 18,800 -
Closing Value 1,40,000 1,90,000 -50,000
DTA on 30.06.2017 10000*30% 3000
DTA on 30.06.2018 50000*30% 15000
In the above solution we have assumed that the depreciation charged charges under tax laws
is on straight line basis.
12