Java manufactures high quality tinned soups and other food products. The company spends a great deal of
Question:
Java manufactures high quality tinned soups and other food products. The company spends a great deal of money advertising its products on television and in newspapers and magazines. The company sells its products to major retailing organisations.
Java’s trial balance as at 30 June 20X5 is as follows:
£000 | £000 | |
Administration costs | 170 | |
Advertising costs | 1,100 | |
Bank | 17 | |
Corporation tax | 24 | |
Cost of new brand name | 1,600 | |
Deferred taxation | 330 | |
Distribution costs | 240 | |
Dividend | 500 | |
Inventory as at 30 June 20X4 | 32 | |
Plant and machinery – cost | 1,200 | |
Plant and machinery – depreciation | 520 | |
Premises – cost | 3,300 | |
Premises – depreciation | 794 | |
Purchases and other manufacturing costs | 2,600 | |
Retained earnings | 461 | |
Sales | 9,700 | |
Share capital | 1,000 | |
Trade payables | 230 | |
Trade receivables | 850 | |
Wages- administration | 980 | |
Wages- distribution | 470 | |
13,059 | 13,059 | |
- Stocks were been physically counted at 30 June 20X5 and were valued at £39,000.
- Premises are to be depreciated at 2% of cost and plant and machinery at 25% on the reducing balance basis. All depreciation is to be treated as part of the cost of goods sold. The company did not purchase or sell any tangible fixed assets during the year.
- The balance on the corporation tax account represents the amount remaining after the settlement of the tax liability for the year ended 30 June 20X4.
- The balance on the deferred taxation account is to be increased to £390,000.
- The directors have estimated the tax charge on the profits for the year ended 30 June 20X5 at £940,000.
- During the year the company purchased an established brand name from another manufacturing company which was selling its food business. The directors of Java have decided that the cost of this acquisition should be capitalised as an intangible fixed asset and its cost written off over a period of 20 years on the straight-line basis. A full year’s amortisation is be charged for the year ended 30 June 20X5. Amortisation of the brand name is to be treated as part of the cost of goods sold.
Required:
- Prepare Java’s financial statements for the year ended 30 June 20X5.
- Discuss the problems associated with the accounting treatment of the newly purchased brand.
Managerial Economics and Strategy
ISBN: 978-0321566447
1st edition
Authors: Jeffrey M. Perloff, James A. Brander