Modern Electronics Company Ltd Finances - Assignment Example

Student Name: Tutor: Title: Report Writing Course: Institution: Content Statement for comprehensive income………………………………………………..3 Statement for financial position……………………………………………………….4 Statement for changes in equity……………………………………………………….6 Notes to financial statements………………………………………………………….7 Directors’ Declaration………………………………………………………………..15 Annual Directors report………………………………………………………………16 Annual auditors’ report……………………………………………………………….18 Reference list………………………………………………………………………….19 Appendix………………………………………………………………………………20 Modern Electronics Company Ltd Statement for Comprehensive Income for 30th June 2012 Note 2012 ($000) 2013 Revenues 2 121,342 Other income 3 800 122,142 Expenses (without financial costs) 4 (65382.2) Financial costs 7 (244.4) Profit before income tax 55,515.1 Income tax expense 6 38860.57 Profit for the year 16654.53 Other comprehensive incomes 3 1048 Total comprehensive income for the year 17702.53 Modern Electronics Company Ltd Statement of financial position as at 30th June 2012 Note 2012 ($) 2013 Current assets Trade and receivables 32,750,000 Cash at bank 380,000 Inventories 14510,000 Prepaid insurance 170,000 Prepaid advertising 33,000 Total current assets 47,843,000 Non current assets Plant $ equipment 11,870,000 Vehicles 584,000 Intangible assets 4,400,000 Land 16,070,000 Total non-current assets 32,924000 Total assets 80,767,000 Current liabilities Accrued liabilities 4,868,000 Accounts payable 28,900,000 Total current liabilities 33,768,000 Noncurrent liabilities Loan from bank 3,000,000 Total liabilities 36,768,000 Net Assets 43,999,000 Equity Share capital 25,439,530 Reserves 9,940,000 Retained earnings 10,029,000 Total equity 45,408,530 Modern Electronics Company Ltd Statement of changes in Equity Share capital General reserves Retained earnings Total equity Bal at 1 July 2011 8,437,000 9430000 11,239,000 29,106,000 Less discount share issue (700,000) (700,000) Total comprehensive income 17,702,530 Net profit for the period Transfer from retained earnings 510,000 (510,000) 25,439,530 9,940,000 10029000 45,408530 NOTES TO FININCIAL STATEMENTS Note 1. Summary of Accounting policies 1.1 Statement of compliance (AASB 101 para 7 & 8) The financial statements shows a true and fair financial position and financial performance of the company as per Corporation Act which requires compliance with Australia Accounting Standard. This also regard to the disclosure in the notes. It is also in accordance with International Financial Reporting Standards. 1.2 Basis of preparation (AASB 101para 47-Aus 138.6) The financial report is meant for general purpose. It comprises of directors’ report and declaration, notes to statements, auditors’ report, and three financial reports (statement of changes in equity, statement of financial position, and comprehensive income statement). The report is covers a single entity. It covers the period from Ist July 2011 to 30th June 2012. The currency is in dollars (Leo et al, 2009, p.84). 1.3 Significant accounting assumptions and estimates (AASB 101para ) Assumption and estimates are grounded on historical experience and other settings which are regarded to be significant. The carrying amount of some assets and abilities are usually determined using assumptions and estimates of events that will occur in future. Significant assumptions and important carry a relevant risk owing to actual outcomes differing from estimated figures. 1.4 Accounting policies (AASB101para 117 ) Reliable measurement was used in preparation of financial statement. The listed items are represented fairly in regard to understanding of financial statement. Share capital Ordinary share is grouped as equity. The cost of share issue is subtracted from the revenue of share capital (CPA Australia Accounting Handbook). Employee benefits Employee benefits comprises of long service leave, annual leave, wages, and salaries. These are expected to be paid or settled within a period twelve months (Leo et al, 2009, p.97). Provisions Provisions are recognized if the entity has an existing obligation (constructive or legal) owing to a past event. It is likely that resources’ outflow encompassing economic benefit will be needed to settle the obligation and it is possible to make an estimate that is reliable of the amount of obligation (CPA Australia Accounting Handbook). Trade and other receivables Trade and other receivable are determined by their gross amount after deduction of doubtful debt. Once identified Bad debts are written off and the entity cannot be able to collect the debt (Leo et al, 2009, p.81). Inventories Inventories are valued at net realizable value and at a lower cost. Net realizable value is the selling price that that is estimated in the ordinary course of business, subtracting estimated costs required to make the sale (Corporations Act, 2001). Finance costs Finance costs concerns to borrowing costs that are recognized as interest expense when realized. Expense Expenses are recognized in comprehensive income statement and on the basis of accrual. Income tax The income tax is 30% of the gross profit. Tax-effect accounting is ignored. Note 2. Revenue (AASB paraa 82) Revenue consists of sales revenue, interest income, royalty income, and rental income. It is ‘recognized if an increase in future benefit benefits resulted into an increase in an asset or a decrease of liability has come up and be measured (AASB Framework). 2012 (000) 2011 Sales revenue 51,475 Sales returns (980) Service revenue 69907 Other revenues 800 Gain Non-current asset 140 Total revenue 121,342 Note 3. Other income (AASB 101 para 98 ) Proceeds from legal settlement $ 648,000 Interest on cash at bank $ 152, 000 Total other revenue $ 800,000 Notes 4. Analysis of expenses (AASB para 99) Depreciation and amortization expenses Depreciation Amount ($) Plant and equipment 2,690,000 Depreciation vehicle 156,000 Depreciation on building 307,500 Total depreciation 3153500 Employee benefit expenses Item amount Salaries and wages 36,430,700 Annual leave expense 2,764,000 Total employee benefit 39,194700 Auditors’ service remuneration Items Amount Auditors fee 778,000 Consulting fee 162,000 Total auditor’s remuneration 940, 000 Other expenses item Amount ($) General operating expense 11, 520,000 Electricity costs 2,400,000 Advertising expense 1,727,000 Insurance expense 1,590,000 Doubtful debts 1,270,000 total 18,507,000 Cost of sales is $ 21,850, 200 Note 6. Income tax (AASB 101 para 82) The company income tax is 30%. Income tax expense is $ 38, 860,57030% of the profit before tax. (Appendix e) Note 7. Finance costs (AASB 101 para 82) Interest expense for nine months $243,000 Loan application fee $ 1400 Total finance $ 244,400 The finance costs stems from external borrowing. The interest is 9% per annum. The loan has to be for six. $600,000 of principal is paid every year. The loan application fee charged was $1,400. Note 8. Changes in Accounting estimates (AASB 108 para 39) Note 9. Trade and other receivables (AASB para 77 $ 78b) Account receivables $32,750,000 Less allowance for doubtful debts $1270 Prepaid expenses include insurance and advertising Accrued revenue Note 10. Provision (AASB para 77; AASB137 para 84 &85) Provision for annual leave at July 1, 2011 $562,000 (AASB 137para 84) Annual leave expanse $2,700,000 (AASB 137 para 84) Less annual leave paid (2,764,000) (AASB para 84) Provision for annual leave at 30th June 2012 $ 498,000 (AASBpara 84) Provision for legal cases &300,000 Note 11. Share capital (AASB 101 para 79) Balance at I, July 2011 1,400,000 × $3 = $4,200,000 Discount share 1,400, 000 ×$0.5 = $700,000 Balance as at 30th June 2012 = $3,500,000 Note 12. Dividend (AASB 101 para 137, AASB para 12) The amount of dividend declared on 30th June 2012 does not recognize distribution to owners during the period (AASB 101 para 137); dividend of $510,000 was declared as final. Note 13. Contingent liability (AASB para 86) The company is liable to pay damages as a result of injury caused to a customer. The customer is claiming 2M dollars. The amount is expected to be close to $300,000 by the company lawyers. Another customer wants to be paid $50,000 for inquiries that were suffered. The company estimates 25% probability of the case being successful. Note 14. Changes in accounting estimates (AASB 108 para 39) The useful life of buildings was reviewed by directors and was changed from a average of 20 years to 15, and therefore, increasing the depreciation expense. Directors’ Declaration In regard to resolution reached by directors of Modern Electronic Company Ltd, the directors declare that: 1. The notes and financial statement represented in this report conform to the Australian Corporation Act which requires compliance will relevant Australian Accounting standard. The report gives a fair and true view of the financial position of Modern Electronic Company Ltd for the year ended 30th June 2012 (Corporations Act 2001). 2. Modern Electronics Company is in a position of clearing its debts when they are due and payable. 3. The directions are empowered by section 295A of Australian Corporation Act 2001 for their role in the company. Signed in accordance to the decision reached by the board of directors; Annual Directors’ report The directors present their report for a period of fifty two week that ended on 30th June 2012. yy@gh Ghai Randi Chairman, took office in May 2009.Randi has a long history in management, and he has help various position in prominent organizations. She hold a master degree from Oxford Univeristy. Xxrty7 Zen Kihito Chief Executive officer was appointed on 30th January 2008. Kihoto has a PhD in business from Harvard school of business. Johnson Smith Head of operations was appointed in Oct, 2007. Smith has an engineering from the University if Columbia. He has a vast experience in operation management. August 15, 2012 Directors’ meetings are held four times in an entire financial period. Attendance of the meeting is as follows; Randi 5 Kihito 4 Smith 4 The company posited a positive growth in its revenue as compared to the previous year. There was a hitch when one extraordinary expense was created owing to a recall of a product that had been estimated to $5,200,000. There is need for increase in provision for contingencies in order to deal with unexpected conditions. Chaos erupted in one of the company’s foreign venture, and it had to pull out for some time before resulting business. The company had to issue shares at a discount in order to increase the pace of realizing targeted amount. Dividends Dividend of $476,000 was paid on 1st September 2011, a dividend of 476,000 dollars was paid by the company. The dividend had been declared the previous ways. Charity welfare Modern Electronics Company wants to be at the fore front in times of starting community projects. The company is weighing several projects within the community with the aim of contributing positively to the society. Responsibility of directors Directors are in charge of ensuring fair preparation of financial statements and their subsequent presentation. The statements have to be in accordance to the allowed accounting standards. Board of director ensures that they establish internal control mechanism. Annual auditors’ report The financial report of Modern Electronics Company for the year ended 30th June shows comprehensive income statement, statement in changes in equity, and the statement of the financial position. Auditor’s responsibility The auditors have a role of carrying out an audit using auditing standards and regulations. Ethical requirement have to be observed to ensure unbiased opinion that is founded on sound accounting standards. The audit was performed following Australian Accounting starts. Independence The auditors performed the audit without any interference and with respect to Corporation Act of 2001. A declaration of independent has been submitted to the directors of Modern Electronics Company (Corporations Act 2001). In the auditors’ opinion: The financial report has taken into consideration of the corporation Act spelt the by law. The financial report factors in Australian Accounting Starts which are very important. The report complies with International Accounting Standards. Richard Martins…………….. Steve Holmes………….. August 15, 2012 References List Corporations Act 2001 (cth) CPA Australia Accounting Handbook, Pearson. Leo, K. Hoggett, J., Sweeting, J., & Radford, J., 2009, Company accounting 8th ed, John and Willy: Sidney. Appendix (a) Transfer of retained earnings to general reserve account Date Description DR. $ CR $ July 1st 2011 June 30th 2012 Retained earnings bal b/f General reserve General reserves Bank a/c Being transfer of $3200,000 to general reserves from retained earnings 3,200,000 11,239,000 9,430, 000 3,200,00 (b) Annual leave expense DR. CR. Annual Expense leave a/c 498,000 Annual leave expense b/f 562,000 Annual leave expense 2,700,000 Profits and loss a/c 2764,000 3,262,000 3,262,000 (c) Insurance expense DR. CR. Insurance expense a/c 1,760,000 Insurance prepared 170,000 Profit and loss 1,590,000 1,760,000 1,760,00 (d) Advertising DR. CR. Advertising a/c 1,760,000 Advertising prepaid a/c 33,000 Profit and loss a/c 1,727,000 Total 1,760,000 1,760,000 (e) Income tax is Gross profit ………× 30% = (f) Net profit Gross profit: Less income tax: Net profit: (g) Finance costs for the year: ¾ ×3,600,000 ×9% = $ 243,000 Application fee =$1400 Total finance costs =$ 244,400 (h) Ordinary share Fully paid @2.50 2000,000 $5000, 000 Less issue costs (30,000) Call @3 1400 000 $4200, 000 Less Share discount @0.50 of 1400000 (700,000) Less issue costs ($33,000) Balance as at July1st 2012 8,437,000 Read More