Jane formed A Ltd on 1 January 2010. A Ltd, a prestigious handcraft manufacturer in Hong Kong, manufactures and sells a single model of handcraft. The raw materials used in the production are imported from Japan. 10,000 kg of the raw materials were purchased every month in 2015. The price of the raw material was $100 per kg. Transportation cost of $5 per kg was required for shipping raw materials from Japan to the factory in Hong Kong. Each piece of handcraft needed to consume 2 kg of raw materials. The labour cost for each piece of handcraft was $50 and the rent for the factory was $50,000 per month in 2015. The selling price for each piece of handcraft was $1,000 in 2015. The fixed monthly cost for newspaper advertising was $10,000. There were 10 pieces of handcrafts left unsold on 31 December 2015. (a) Assuming all the raw materials had been consumed on 31 December 2015 and there was no work-in-progress, prepare extracts of the statement of financial position for the inventories of A Ltd on 31 December 2015 in accordance with the requirements under HKAS 2 Inventories. Show your workings. (b) A Ltd knows that HKFRS 15 Revenue from Contracts with Customers will replace HKAS 18 Revenue soon. This new accounting standard sets out new requirements for revenue recognition. Explain in detail two requirements that must be met when the handcraft (goods promised to a customer) is ‘distinct’ under this new accounting standard.
Jane formed A Ltd on 1 January 2010. A Ltd, a prestigious handcraft manufacturer in Hong Kong, manufactures and sells a single model of handcraft. The raw materials used in the production are imported from Japan. 10,000 kg of the raw materials were purchased every month in 2015. The price of the raw material was $100 per kg. Transportation cost of $5 per kg was required for shipping raw materials from Japan to the factory in Hong Kong.
Each piece of handcraft needed to consume 2 kg of raw materials. The labour cost for each piece of handcraft was $50 and the rent for the factory was $50,000 per month in 2015.
The selling price for each piece of handcraft was $1,000 in 2015. The fixed monthly cost for newspaper advertising was $10,000.
There were 10 pieces of handcrafts left unsold on 31 December 2015.
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(a) Assuming all the raw materials had been consumed on 31 December 2015 and there was no work-in-progress, prepare extracts of the
statement of financial position for the inventories of A Ltd on 31 December 2015 in accordance with the requirements under HKAS 2 Inventories. Show your workings. -
(b) A Ltd knows that HKFRS 15 Revenue from Contracts with Customers will replace HKAS 18 Revenue soon. This new accounting standard sets out new requirements for revenue recognition. Explain in detail two requirements that must be met when the handcraft (goods promised to a customer) is ‘distinct’ under this new accounting standard.
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