Firewatch Ltd, has been manufacturing and selling fire fighting equipment for the last two years. Firewatch...

 

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Firewatch Ltd, has been manufacturing and selling fire fighting equipment for the last two years. Firewatch Ltd commenced operations on 1 July, 2017 by issuing 500 000 $3.50 shares, payable in full on application. There were no share issue costs. For the year ending 30 June 2020, the company recorded the following aggregate transactions: Accounts Sales Interest income Cost of Sales 6 588 000 11 000 4 612 000 Gain on sale of plant 25 000 Employee benefit expenses - Admin 136 000 Depreciation expense- Admin Selling & Distribution Expenses Insurance expense - Admin Doubtful debts expense Interest expense Other borrowing expenses Income tax expense 54 000 932 000 60 000 5 000 38 000 4 000 268 000 The following additional information was noted during the preparation of financial statements for the year ended 30 June 2020: •On 1 July 2019 an additional 100 000 fully paid shares were issued and fully paid to raise $400 000. ·A cash dividend of $180 000 was declared and paid during the 2020 financial year and a final dividend for 2020 of $114 000 was proposed but not recognised in the financial statements. • Inventory was measured at the lower of cost and net realizable value. • Buildings, plant and equipment were measured at cost. The benefits were expected to be received evenly over the useful life of the asset. • Land was revalued upward by $100 000 (related income tax for this transaction was $30 000). The revaluation gain will not be reclassified and has been recorded in the "Land Revaluation Surplus'. The valuation was conducted by the registered valuer, Fair Valuations Pty Ltd. · Financial assets held for trading are equity investments that are held for the purpose of selling and short-term profit taking. • $35 000 of other loans are repayable within 1 year • $90 000 of bank loans are repayable within 1 year. The remaining amount is payable in full at the end of 2024. • The provision for employee benefits includes $47 000 payable within I year. • The warranty provision is in respect of a 12-month warranty given on certain goods sold. • The bank loan is for 5 years and repayable in full at the end of the term. The interest rate is 8% and it is secured over the land. • Firewatch Ltd uses the single statement format for the statement of profit or loss and other comprehensive income and classifies expenses by function within the statement. • Summarised account balances are provided below: Year-end halances, 30 June 2020 Accounts receivable - trade Allowance for doubtful debts/ impairment Bank Overdraft Cash on Hand Cash on deposit, at call Other receivables Raw Materials inventories, 30 June 2020 Finished goods inventories, 30 June 2020 013 000 48 000 86 000 29 000 428 000 77 000 176 000 726 000 416 000 Land Buildings Accumulated depreciation - buildings Plant and equipment Accumulated depreciation - plant and equipment 495 000 Patents Accumulated amortisation of patent 160 000 45 000 1 350 000 46 000 5 000 Goodwill Financial assets held for trading Other loans Bank loans Accounts payable- trade Provision for employee benefits Provision for warranty 910 000 215 000 110 000 527 000 535 000 88 000 67 000 Current tax liability Deferred tax asset 65 000 34 000 796 000 Retained earnings, 30 June 2019 Share Capital Dividends paid Land revaluation surplus 2 150 000 180 000 228 000 4. Prepare a statement of financial position for Firewatch Ltd in accordance with AASB 2 101. Use the current/non-current presentation format; (12 marks) 9. You are to apply the 'function of expense' or 'cost of sales' method to the classification of expenses in the income statement (see AASB101 paras 97-105); 10. You are directed to use the current/non-current format for the statement of financial position (balance sheet) and supply a “net assets" line item; Firewatch Ltd, has been manufacturing and selling fire fighting equipment for the last two years. Firewatch Ltd commenced operations on 1 July, 2017 by issuing 500 000 $3.50 shares, payable in full on application. There were no share issue costs. For the year ending 30 June 2020, the company recorded the following aggregate transactions: Accounts Sales Interest income Cost of Sales 6 588 000 11 000 4 612 000 Gain on sale of plant 25 000 Employee benefit expenses - Admin 136 000 Depreciation expense- Admin Selling & Distribution Expenses Insurance expense - Admin Doubtful debts expense Interest expense Other borrowing expenses Income tax expense 54 000 932 000 60 000 5 000 38 000 4 000 268 000 The following additional information was noted during the preparation of financial statements for the year ended 30 June 2020: •On 1 July 2019 an additional 100 000 fully paid shares were issued and fully paid to raise $400 000. ·A cash dividend of $180 000 was declared and paid during the 2020 financial year and a final dividend for 2020 of $114 000 was proposed but not recognised in the financial statements. • Inventory was measured at the lower of cost and net realizable value. • Buildings, plant and equipment were measured at cost. The benefits were expected to be received evenly over the useful life of the asset. • Land was revalued upward by $100 000 (related income tax for this transaction was $30 000). The revaluation gain will not be reclassified and has been recorded in the "Land Revaluation Surplus'. The valuation was conducted by the registered valuer, Fair Valuations Pty Ltd. · Financial assets held for trading are equity investments that are held for the purpose of selling and short-term profit taking. • $35 000 of other loans are repayable within 1 year • $90 000 of bank loans are repayable within 1 year. The remaining amount is payable in full at the end of 2024. • The provision for employee benefits includes $47 000 payable within I year. • The warranty provision is in respect of a 12-month warranty given on certain goods sold. • The bank loan is for 5 years and repayable in full at the end of the term. The interest rate is 8% and it is secured over the land. • Firewatch Ltd uses the single statement format for the statement of profit or loss and other comprehensive income and classifies expenses by function within the statement. • Summarised account balances are provided below: Year-end halances, 30 June 2020 Accounts receivable - trade Allowance for doubtful debts/ impairment Bank Overdraft Cash on Hand Cash on deposit, at call Other receivables Raw Materials inventories, 30 June 2020 Finished goods inventories, 30 June 2020 013 000 48 000 86 000 29 000 428 000 77 000 176 000 726 000 416 000 Land Buildings Accumulated depreciation - buildings Plant and equipment Accumulated depreciation - plant and equipment 495 000 Patents Accumulated amortisation of patent 160 000 45 000 1 350 000 46 000 5 000 Goodwill Financial assets held for trading Other loans Bank loans Accounts payable- trade Provision for employee benefits Provision for warranty 910 000 215 000 110 000 527 000 535 000 88 000 67 000 Current tax liability Deferred tax asset 65 000 34 000 796 000 Retained earnings, 30 June 2019 Share Capital Dividends paid Land revaluation surplus 2 150 000 180 000 228 000 4. Prepare a statement of financial position for Firewatch Ltd in accordance with AASB 2 101. Use the current/non-current presentation format; (12 marks) 9. You are to apply the 'function of expense' or 'cost of sales' method to the classification of expenses in the income statement (see AASB101 paras 97-105); 10. You are directed to use the current/non-current format for the statement of financial position (balance sheet) and supply a “net assets" line item;

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Answer to question 9 FUNCTION OF EXPENSE OR COST OF SALES METHOD FOR CLASSIFICATION OF EXPENSE AS ... View the full answer