JUBILEE’s trial balance from the general ledger at 31 December 2012 showed the following balances: GH¢’m GH¢’m Revenue 2,648 Loan note interest paid 3 Purchases 1,669 Distribution costs 514 Administrative expenses 345 Interim dividend paid 6 Inventories at 1 January 2012 444 Trade receivables 545 Trade payables 434 Cash and cash equivalents 28 50Gp ordinary shares 100 Capital surplus 814 Retained earnings at 1 January 2012 349 4% loan note repayable 2018 (issued 2010) 150 Land and buildings: Cost (including GH¢60m land) 380 Accumulated depreciation at 1/1/2012 64 Plant and equipment: Cost 258 Accumulated depreciation at 1/1/2012 126 Investment property at 1 January 2012 548 Rental income 48 Proceeds from sale of equipment 7 , 4,740 4,740 Further information to be taken into account: i. Closing inventories were counted and amounted to GH¢388m at cost. However, shortly after the year end out-of-date inventories with a cost of GH15m were sold for GH¢8m. ii. The company decided to change its accounting policy with respect to its 10 year old land and buildings from the cost model to the revaluation model. The revalued amounts at 1 January 2012 were GH¢800m (including GH¢100m for the land). No further revaluation was necessary at 31 December 2012. The company wishes to treat the revaluation surplus as being realised over the life of the asset. Due to a change in the company’s product portfolio plans, an item of plant with a carrying value GH¢22m at 31 December 2012 (after adjusting for depreciation for the year) may be impaired due to a change in use. An impairment test conducted at 31 December, revealed its fair value less costs to sell to be GH¢16m. The asset is now expected to generate an annual net income stream of GH¢3.8m for the next 5 years at which point the asset would be disposed for GH¢4.2m. an appropriate discount rate is 8%. 5 year discount factors at are: Simple Cumulative 0.677 3.993 iv. The income tax liability for the year is estimated at GH¢27m. Ignore deferred tax. v. An interim dividend of 3Gp per share was paid on 30 June 2012. A final dividend of 1.5Gp per share was declared by the directors on 28 January 2013. No dividends were paid or declared in 2011. vi. During the year, Jubilee disposed of some malfunctioning equipment for GHC7m. the equipment had cost GH¢15m and had accumulated depreciation brought forward at 1 January 2012 of GH¢3m. There were no other additions or disposals to property, plant and equipment vii. The company treats depreciation on plant and equipment as a cost of sale and land and buildings as an administration cost. Depreciation rates as per the company’s accounting policy note are as follows: Buildings Straight line over 50 years Plant and equipment 20% reducing balance Jubilee’s accounting policy is to charge a full year’s depreciation in the year of an asset’s purchase and none in the year of disposal. viii. During the year on 1 July 2012, Jubilee made a 1 for 4 bonus issue, capitalising its general reserve. This transaction had not yet been accounted for. The fair value of the company’s shares on the date of the bonus issue was GH¢0.50 each. ix. Jubilee uses the fair value model of IAS 40. The fair value of the investment property at 31 December 2012 was GH¢586m. You are required to show necessary adjustment for the year.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
JUBILEE’s
balances:
GH¢’m
GH¢’m
Revenue
2,648
Loan note interest paid
3
Purchases
1,669
Distribution costs
514
Administrative expenses
345
Interim dividend paid
6
Inventories at 1 January 2012
444
Trade receivables
545
Trade payables
434
Cash and cash equivalents
28
50Gp ordinary shares
100
Capital surplus
814
349
4% loan note repayable 2018 (issued 2010)
150
Land and buildings: Cost (including GH¢60m land)
380
64
Plant and equipment: Cost
258
Accumulated depreciation at 1/1/2012
126
Investment property at 1 January 2012
548
Rental income
48
Proceeds from sale of equipment
7
,
4,740
4,740
Further information to be taken into account:
i. Closing inventories were counted and amounted to GH¢388m at cost. However,
shortly after the year end out-of-date inventories with a cost of GH15m were sold
for GH¢8m.
ii. The company decided to change its accounting policy with respect to its 10 year old
land and buildings from the cost model to the revaluation model. The revalued
amounts at 1 January 2012 were GH¢800m (including GH¢100m for the land).
No further revaluation was necessary at 31 December 2012. The company wishes
to treat the revaluation surplus as being realised over the life of the asset.
Due to a change in the company’s product portfolio plans, an item of plant with a
carrying value GH¢22m at 31 December 2012 (after adjusting for depreciation for
the year) may be impaired due to a change in use. An impairment test conducted
at 31 December, revealed its fair value less costs to sell to be GH¢16m. The asset
is now expected to generate an annual net income stream of GH¢3.8m for the next
5 years at which point the asset would be disposed for GH¢4.2m. an appropriate
discount rate is 8%. 5 year discount factors at are:
Simple
Cumulative
0.677
3.993
iv. The income tax liability for the year is estimated at GH¢27m. Ignore
v. An interim dividend of 3Gp per share was paid on 30 June 2012. A final dividend of
1.5Gp per share was declared by the directors on 28 January 2013. No dividends
were paid or declared in 2011.
vi. During the year, Jubilee disposed of some malfunctioning equipment for GHC7m. the
equipment had cost GH¢15m and had accumulated depreciation brought forward
at 1 January 2012 of GH¢3m.
There were no other additions or disposals to property, plant and equipment
vii. The company treats depreciation on plant and equipment as a cost of sale and land
and buildings as an administration cost. Depreciation rates as per the company’s
accounting policy note are as follows:
Buildings
Straight line over 50 years
Plant and equipment
20% reducing balance
Jubilee’s accounting policy is to charge a full year’s depreciation in the year of an
asset’s purchase and none in the year of disposal.
viii.
During the year on 1 July 2012, Jubilee made a 1 for 4 bonus issue, capitalising its
general reserve. This transaction had not yet been accounted for. The fair value of
the company’s shares on the date of the bonus issue was GH¢0.50 each.
ix. Jubilee uses the fair value model of IAS 40. The fair value of the investment property
at 31 December 2012 was GH¢586m.
You are required to show necessary adjustment for the year.
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