On January 1, Year 6, HD Ltd., a building supply company, JC Ltd., a construction company, and Mr. Saeid, a private investor, signed an agreement to carry out a joint operation under the following terms and conditions:

• A partnership under the name of Olympic Homes would be established.

• JC would identify the homes for renovation.

• Olympic Homes would purchase the home and arrange a first mortgage on the property when the home is purchased for renovation and resale.

• JC would perform the renovation work at a discounted fee.

• HD would supply all of the construction materials at a reduced markup from its regular sales.

• Mr. Saeid would guarantee the payment of the mortgage and would lend money to Olympic for the down payment on the purchase of the property and to finance the cost of materials and labour during the renovation. The loans would be interest free with no monthly payments and would be repayable out of the proceeds on sale of the property.

• All three parties would contribute $132,000 as start-up capital, would have a one-third interest in the assets, be responsible for one-third of the liabilities and would receive one-third of the profit from the Partnership.

• All three parties must agree on major operating and financing decisions with respect to operations carried out by Olympic.

Condensed financial statements for HD Ltd. and Olympic for the year ended December 31, Year 6, were as follows:

 

STATEMENTS OF FINANCIAL POSITION
At December 31, Year 6
	HD Ltd.			Olympic Homes
Assets
Properties under renovation	$	–		$	456,000
Investment in Olympic Homes		132,000			–
Inventory		426,000			–
Cash		66,000			45,600
Other assets		1,232,000			753,000
	$	1,856,000		$	1,254,600
Shareholders' Equity and Liabilities
Ordinary shares/capital contributed	$	516,000		$	396,000
Retained/accumulated earnings		268,000			27,000
Mortgage payable					243,000
Loan payable to Mr. Saeid					150,000
Accounts payable		396,000			219,000
Other liabilities		676,000			219,600
	$	1,856,000		$	1,254,600

 

INCOME STATEMENTS
For the Year Ended December 31, Year 6
	HD Ltd.			Olympic Homes
Sales	$	2,100,000		$	1,380,000
Income from Olympic		49,000			0
		2,149,000			1,380,000
Cost of goods sold		1,470,000			897,000
Selling expenses		266,000			174,000
Other expenses		126,000			135,000
Income tax expense		96,000			0
		1,958,000			1,206,000
Profit	$	191,000		$	174,000

 

Additional information:

• During Year 6, HD had sales of $126,000 to JC at a markup of 20 percent of selling price. At December 31, Year 6, the property under renovation included supplies purchased from HD of $54,000.

• Olympic completed two projects under the joint operations. Olympic distributed $49,000 of income to each of the partners in December.

• HD accounts for its share of income from the joint operations when it is received from Olympic.

• HD pays income tax at a rate of 40%. The income earned by Olympic is not taxed in Olympic. It is flowed through and taxed in the hands of the partners.

 

Required

Prepare corrected Year 6 financial statements for HD in accordance with IFRS 11. (Do not round intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive values. Omit $ sign in your response.)

 

HD LTD.
STATEMENTS OF FINANCIAL POSITION
At December 31, Year 6
Assets
Properties under renovation		$
Inventory
Cash
Other assets
		$
Shareholders' Equity and Liabilities
Ordinary shares		$
Retained earnings
Mortgage payable
Loan payable to Mr. Saeid
Accounts payable
Other liabilities
		$

 

HD LTD.
INCOME STATEMENTS
For the Year Ended December 31, Year 6
Sales		$
Income from Olympic
		$
Cost of goods sold		$
Selling expenses
Other expenses
Income tax expense
		$
Profit		$

Answer rating: 100% (QA)

ANSWER To prepare corrected Year 6 financial statements for HD Ltd in accordance with IFRS 11 we nee... View the full answer