Prepare the statement of cash flows in accordance with aasb

Question

Assignment

ChallengeMe Pty Ltd is a manufacturer of tennis equipment and fashion wear. The statement

of financial position as at 30 June 2020 and details of expenses and revenues for the year ending 30 June 2020 are as follows:

Statement of financial position as at 30 June 2020

					2020		2019
					$000		$000
Current assets
Cash					135		274
Inventory					2,774		2,486
Prepayments					115		-
Accounts receivable					2,897		2,654
Allowance of doublful debts					(150)		(120)
Total current assets					5,771		5,294
Non-current assets
Investment - associated company					1,050		-
Investments					1,216		948
Land					1,500		1,750
Buildings					800		800
Accumulated depreciation - buildings					(200)		(160)
Plant and equipment					1,025		768
Accumulated depreciation - plant and equipment					(100)		(548)
Deferred tax asset					312		302
Total non-current assets					5,603		3,860
Total assets					11,374		9,154
Current liabilities
Accounts payable					1,637		1,483
Accruals					1,575		1,110
Lease liability					5		-
Income tax payable					243		83
Provision for employee entitlements					205		298
Provision for deferred payments (relating to
investment in Squash Pty Ltd)					50		-
Provision for warranty					314		-
Total current liabilities					4,029		2,974
Non-current liabilities
Lease liability					15		-
Deferred tax liability					240		75
Borrowings					3,500		3,800
Total non-current liabilities					3,755		3,875
Total liabilities					7,784		6,849
Net assets					3,590		2,305
Shareholders' equity
Share capital					2,750	2,000
Retained earnings					280	130
Revaluation surplus					560	175
Total shareholders' equity					3,590	2,305

Statement of profit or loss and other comprehensive income for the year ending 30 June 2020

	2020	2019
	$000	$000
Income
Sales	31,394	27,346
Dividends income	51	47
Expenses
Bad debts	(90)	(85)
Cost of sales	(28,205)	(24,611)
Doubtful debts	(35)	(40)
Inventory write-off	(50)	0
Warranty expenses (taken to provision for warranty)	(314)	0
Depreciation
- Building	(40)	(40)
- Plant and equipment	(100)	(60)
Interest	(315)	(418)
Rent	(600)	(600)
Salaries and wages	(1,324)	(1,231)
Finance charges	(7)	(90)
Profit before tax	365	218
Income tax	(215)	-
Profit after tax	150	218
Other comprehensive income
Reduction in revaluation surplus as a result of reduction
in value of land	(175)	-
Increase in revaluation surplus as a result of increase
in value of plant and equipment	560	-
Total comprehensive income	535	218

Statement of changes in equity for the year ending 30 June 2020

	Share capital	Retained earnings	Revaluation surplus	Total
	$000	$000	$000	$000
Opening balance 1 July 2019	2,000	130	175	2,305
Statement of profit and loss and other
comprehensive income	-	150	385	535
Issue of shares as part consideration for
acquisition of associated company	750	-	-	750
Balance 30 June 2020	2,750	280	560	3,590

Additional information

• An additional investment of $80 000 is acquired for consideration of tennis equipment costing $80 000.

• Land is devalued against a previous increment in the revaluation reserve. The previous increment is fully reversed.

• Plant and equipment with a cost of $700 000 and accumulated depreciation of $500 000 are revalued to $1 000 000 during the year

• Plant and equipment with a fair value of $25 000 are acquired under a finance lease. The residual is guaranteed by the lessee.

• Plant and equipment are sold for $20 000 cash. Cost is $68 000 and no profit or loss is made on the sale.

• During the year, one line of wooden tennis racquets is scrapped at a loss of $50 000, as there is a little demand for the range.

• During the year, an investment is made in an associated company, Squash Pty Ltd. Consideration is $1 000 000, funded by cash of $250 000 and the balance by the issue of 500 000 shares at $1.50 per share. The purchase agreement includes a clause stating that if profits exceed $110 000 in the first financial year after purchase, additional amounts are payable. Using the formula, an extra $50 000 is provided.

• Provision for warranty is based on 1 per cent of sales

• Rent expense of $600 000 is accrued within ‘Accruals'.

• Interest expense is paid during the year and dividends are received.

• Salaries and wages expense includes the expense for employee entitlements.

• Tax rate is 30 per cent.

Required

Prepare the statement of cash flows in accordance with AASB 107 for ChallengeMe Pty Ltd for the year ending 30 June 2020. Comparatives are not required. Show necessary workings.

Question 1:

MyNextProblem Ltd has acquired a new building called Next in Line Building for $2,000,000. It has incurred incidental costs of $30 000 in the acquisition process for legal fees, real estate agent's fees and stamp duties. At the quarterly Board meeting, the management believes that these costs should be expensed because they have not increased the value of the building and, if the building was immediately resold, these amounts would not be recouped. In other words, the fair value of the building is considered to still be $2,000,000.

Required: Discuss how these costs should be accounted for in the books of MyNextProblem Ltd. Maximum 200 words.

Question 2:

A recent annual report of the City of Darwin Council did not include library books on the statement of financial position, notwithstanding the existence of a substantial library collection. The City of Darwin Council's accounting policy for library books is to expense them at the time of acquisition. A note in the annual report reveals that in applying this policy the council considered the following factors:

• As soon as the book is purchased its fair value is minimal compared with its cost.
• The acquisition costs of individual books are below the council's capitalization policy.
• The useful life of a book is variable and indeterminable, making depreciation difficult.

Required

Critically evaluate the council's accounting policy for its library collection. Suggest an alternative accounting policy or supplemental information that could be reported, if appropriate. Maximum 400 words.