Understanding Financial Statements through IAS 38 Application

This assignment provides an in-depth analysis of the financial implications of fixed assets management through the straight-line method of depreciation. Students are required to compute annual depreciation expenses, accumulated depreciation, and their impact on asset valuations across various fixed assets such as Delivery Vehicles, Furniture and Fixtures, and Freehold Premises. Additionally, students will prepare a statement of changes in equity and a comprehensive financial position statement for ABC Company Ltd., demonstrating the overall financial health of the company over two consecutive years (2018 and 2019). The assignment integrates knowledge of accounting principles with practical application, enhancing understanding of asset management and its effects on corporate financial statements.

Mock Assessment

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
SECTION A.....................................................................................................................................1
Q1 Analysing the statement of change in equity........................................................................1
Q2 Determining the correct value of inventories........................................................................1
Q3 Measuring the working capital cycle....................................................................................1
Q.4 Identifying the correct statement for accounting treatment as per IAS38 Intangible assets 2
Q.5 Analysing the loss on disposal of a machinery....................................................................2
Q6 Analysing the profit and loss incurred over part exchange of old vehicle............................3
Q7 Determining the carrying amount of machinery...................................................................3
Q8 Analysing the value of inventory..........................................................................................4
Q9 Determining the adjusted net profit of the year.....................................................................4
Q.10 Identifying the amount to be capitalised as a non current assets.......................................4
SECTION B.....................................................................................................................................4
1. Presenting the profit and loss statement for the year ended on 31st march 2017...................4
2 Statement of changes in equity................................................................................................5
3 Statement of financial position.................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
SECTION A
Q1 Analysing the statement of change in equity
Statement of change in equity
Particulars
share
capital reserves
retained
earning
s surplus
total
equity
Balance at 1st July 2015 200000 200000
Restated balance 200000 200000
changes in equity in the year 30th June
2016
Issue of nominal share 500000 500000
share premium 100000 100000
Profit of the year 750000 750000
Balance at 1st July 2016 600000 750000 1550000
Q2 Determining the correct value of inventories
Correct value of inventories for the year
ended 31st March 2016
Particulars Units Cost
Selling
price LCM
Cost of
inventor
ies
A 1200 3.65 4.25 3.65 4380
B 2700 4.82 4.9 4.82 13014
C 900 5.4 4.5 4.5 4050
Total value of inventories 21444
Rounded to the nearest dollar 21000
1

Q3 Measuring the working capital cycle
WCC
Particulars
Amount(mil
lion) Amount(million)
annual sales 80
Cost of goods sold 60
Less: Purchase 30 30
Annual gross profit 50
Balance sheet
Liabilities
Amount(
million) Assets
Amount(
million)
Trade payable 6 Trade receivables 8
Inventories 16
Total current liabilities 6
Total current
assets 24
Wcc
Current assets* current liabilities 144
per day 365
52560
Divided by annual gross profit 50000
Wcc day 1.0512
Rounded of to the nearest day 1
Q.4 Identifying the correct statement for accounting treatment as per IAS38 Intangible assets
In accordance with the IAS 38 it can be said that there are several statements which are
correct such as:
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 All kinds of goodwill are to be capitalised by firm because this are the assets of
organisation and helping in raising the funds of the firm. (b) (IAS 38 Intangible Assets,
2017)
 The costs of development must be written off immediately from the accounts.(c)
 The research costs must be written off from the technical feasibility account (e).
Q.5 Analysing the loss on disposal of a machinery
Particulars Amount
Purchase of machine 50000
Residual value 5000
value of machine 45000
estimated life 5
value after depreciation 9000
Particulars Amount
upgrading charges over machinery 15000
Residual value 5000
value of machinery 19000
estimated life 5
depreciable value 3800
machine after depreciation 15200
sale of machine 7000
loss on disposal 8200
Q6 Analysing the profit and loss incurred over part exchange of old vehicle
Particulars Amount
original cost of the old vehicle 12000
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carrying amount 7000
total value of vehicle 19000
Part-exchange allowance 6000
cost of new machinery 18000
loss incurred over exchange of old vehicle 1000
Q7 Determining the carrying amount of machinery
Carrying Amount
Particulars Amount
purchase of machinery 14000
transportation cost 1100
installation charges 1500
repair of machinery 1000
cost of machinery 17600
depreciable at the rate of 10% 1760
Carrying amount of machinery 15840
Q8 Analysing the value of inventory
Particulars Amount
original cost of the inventory 1000
selling cost 1500
repair and maintenance over the machinery 300
sold for 1200
cost of machinery 1300
sales at 1200
Loss incurred while selling the machinery 100
4

Q9 Determining the adjusted net profit of the year
Particulars Amount
Net profit of the firm 83600
add: debited amount of motor vehicle 18000
Less: Depreciation over the machinery 4500
Adjusted net profit 97100
Q.10 Identifying the amount to be capitalised as a non current assets
In order to determine the adequate value to be added in the capitalised non-current assets
in accordance with the purchase of such machinery there will be capitalises cost of the
machinery is 1040 because a VAT registered company do not consider such taxes in the
capitalisation (Fixed Assets - Capitalisation Of Expences, 2017). However, it can be said that
here The owner has to make payments of the costs of machinery such as purchasing, additional
memory, installation, delivery and maintenance cost.
SECTION B
1. Presenting the profit and loss statement for the year ended on 31st march 2017
Statement of profit and loss for the year ended 31st march 2017
Particulars Amount
sales revenue 1250000
Less: Cost of goods sold 954000 954000
Gross profit 296000
Operating expenses
Less: Administrative expenses
wages and salaries 80480
Director's fees 24500
Insurance 2500
Management 52200 159680
Less: Selling and distribution expenses
5

wages and salaries 20120
Director's fees 10500
Insurance 2500
Management 5800 38920
Less: Depreciation over Delivery Vehicle 14000
Less: Depreciation over F&F 10000
Less: Depreciation over Freehold premises 30400
interest on bank loan 845
Wages and salaries owing amount 5000
Total operating expenses 258845
Operating income
Operating profit 37155
Add:Depreciation over Delivery Vehicle 38920
Add:Depreciation over F&F 14000
Add:Depreciation over Freehold premises 10000
Net profit of the year 100075
2 Statement of changes in equity
Statement of change in equity
Particulars
share
capital reserves
retaine
d
earning
s surplus
total
equity
Ordinary shares 500000 500000
Preference shares 150000 150000
Debentures 200000 845 199155
Profit and loss balance b/f 101735 101735
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general reserves 50000 50000
Total 850000 50000 101735
100089
0
Issue of ordinary shares 100000 100000
Profit and loss balance b/f 100075 100075
Total
120096
5
3 Statement of financial position
Statement of financial position
Particulars Amount
Assets
cash at bank and in hand 62015
Inventories 250000
Prepaid insurance 1500
Wages and salaries owing amount 5000
Trade receivables 290150
Current Assets 608665
Non operating expenses 198600
Delivery Vehicle 70000
Less: Depreciation 14000 56000
Furniture and fixtures 50000
Less: Depreciation 10000 40000
Freehold premises 480000
Less: Depreciation 30400 449600
Total Assets 1352775
Liabilities
Trade payables 195600
Bank loan 40000
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