Accounting for Corporations

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AF5111 Accounting for Corporations 2017/2018 Semester 1

Assignment 1 The following trial balance has been extracted from the records of Proust Ltd as at 31 December 2017.

Proust Ltd

Trial balance as at 31 December 2017

Notes Dr Cr

$000 $000

4% Debentures 1 500

Administrative expenses 2,260

Allowance for doubtful debts, 1 January 2017 2 20

Bank overdraft 340

Cash and bank 280

Corporation tax 3 30

Cost of sales 6,650

Investment 4 1,740

Distribution costs 2,760

Dividends paid 80

Interest expense 90

Inventory, 31 December 2017 440

Investment income 260

Ordinary shares (450,000 shares) 5 900

Preference shares (400,000 shares) 400

Loss from discontinued operations 440

Other operating income 590

Property, plant and equipment: 6

at cost/valuation 5,930

accumulated depreciation, 1 January 2017 3,150

Retained profits, 1 January 2017 780

Revaluation surplus 6 640

Sales 12,550

Sales of non-current assets 480

Trade and other payables 720

Trade and other receivables 630

21,330 21,330

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The following additional information is available: (1) Interest on the debentures is paid semi-annually on 1 January and 1 July every

year. Proust Ltd has not yet accrued for the interest payable. The debentures were issued at par. One quarter of the debentures will mature in 2018, while the rest will mature in 2020.

(2) The allowance for doubtful debts is to be 4.5% of receivables. Bad debt expense is

classified by Proust Ltd as an administrative expense. (3) The balance on the Corporation tax account represents an under provision for

corporation tax for 2016. Corporation tax for the year ended 31 December 2017 is estimated to be $57,000.

(4) The investment consists of unlisted shares in a business partner of Proust Ltd,

representing 5% of share capital of that company. The shares were purchased for $1,740,000 in 2017 and their market value as at 31 December 2017 is estimated to be $2,150,000.

(5) On 31 December 2017 Proust Ltd issued 300,000 ordinary shares at $600,000

to finance the redemption of all 400,000 preference shares at a price of $2 per share. The preference shares were originally issued at $1 per share. These share transactions were not yet recorded by Proust Ltd.

(6) The balances on property, plant and equipment comprise:

Cost/

valuation Accumulated depreciation

$000 $000

Land 1,000 -

Buildings 1,500 600

Equipment 3,430 2,550

5,930 3,150

Equipment is recorded at cost. During the year ended 31 December 2017 production equipment which had cost $832,000 and which had been depreciated by $502,000 was sold for $480,000. The proceeds have been recorded in the accounts but no other entries for the disposal have yet been made. Depreciation is to be charged on equipment at 20% a year and on buildings at 4% a year using the straight line method. A full year’s depreciation is charged on all assets in use at the end of the financial year. No depreciation is charged on land. Depreciation is apportioned 70% to production, 10% to distribution and 20% to administration.

The balance on the revaluation surplus comprises a surplus of $340,000 on a previous revaluation of land and a surplus of $300,000 on a previous revaluation of buildings.

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(7) On 3 March 2018 the directors of Proust Ltd proposed a final dividend of $0.5

per share.

Instructions: Prepare for Proust Ltd (a) a statement of profit or loss and other comprehensive income

for the year ended 31 December 2017 ; (b) a balance sheet as at 31 December 2017, and (c) a statement of changes in equity for the year ended 31

December 2017 in compliance with the relevant accounting standards and ordinance in Hong Kong. Show full supportive workings. Round all figures to the nearest $000. Earnings per share, comparative figures and other disclosure notes are not required. The assignment should be typed and submitted in hardcopy format together with a signed copy of Honour Declaration. Make sure the submission contains your name and student number.