ACCY200, Autumn 2023, Week 3 Tutorial Questions & Solutions

Question 1: McCombie, K (2023)

For the year ended 30 June 2023, the following information is available for Ronny Ltd:
2023 2022
Land 240,000 100,000
Buildings 1,200,000 500,000
Accumulated depreciation-buildings (200,000) (150,000)
Machinery 45,000 38,000
Accumulated depreciation-machinery (13,100) (7,200)

Additional information from accounting records:

a) Land was revalued at the end of the year. This resulted in an increase in land of $40,000.
b) Buildings were purchased during the year. This was paid for by issuing $200,000 worth of
shares and the balance paid in cash.
c) Machinery with a cost of $8,000 and a carrying amount of $6,400 was sold for cash during
the year. A gain on sale of $4,000 was recorded. New machinery was purchased for cash.
d) The tax rate is 30%

Required:
a) Calculate net cash used in investing activities
b) Present the cash flows in the correct format
Answers:
a)
• Land: = 240 000 – 100 000 – 40 000* = $100 000
• Buildings: = 1 200 000 – 200 000 (share purchase) – 500 000 = $500 000
• Proceeds on sale of machinery: CA + gain = 6 400 + 4 000 = $10 400
• Purchase of machinery: = 45 000 + 8 000 – 38 000 = $15 000
b)
Cash flows from investing activities
Purchase of land (100,000)
Purchase of buildings (500,000)
Proceeds on sale of machinery 10,400
Purchase of machinery (15,000)
Net cash flows from investing activities $(604,600)

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Question 2: McCombie (2023)

For the year ended 30 June 2023, the following information is available for Scatter Ltd:

2023 2022
Dividend payable 13,000 10,000
Bank loan 100,000 80,000
Share Capital 250,000 200,000

Additional information:
• A bonus share dividend of $5,000 and a cash interim dividend of $11,000 were paid during
the year.
• Repayments of $45,000 on the bank loan were made during the year. Further loans were
taken out, partly to cover the cost of a new vehicle for $30,000 and the remainder to inject
cash into the business.
• Land was purchased, partly paid for by issuing $30,000 shares.
Required:
a) Calculate the net cash used in financing activities.
b) Present the cash flows in the correct format.

• Borrowings
= 100 000 + 45 000 – 30 000 – 80 000 = $35 000

• Proceeds from share issue: = 250 000 – 5 000 – 30 000 – 200 000 = $15 000

• Dividends paid: = 10 000 + 11 000 = $21 000

Cash flows from financing activities

Repayment on borrowings $ (45,000)
Proceeds on borrowings 35,000
Proceeds on share issue 15,000
Dividends paid (21,000)
Net cash from financing activities $ (16,000)

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Question 3: McCombie, K (2023)

The comparative statement of financial position and the statement of profit or loss and other
comprehensive income of Baboon Ltd are as follows:

Statement of Financial Position

As at 30 June 2023
2023 2022
$ $
Deposits at call 30 000 19 000
Accounts receivable 320 000 340 000
Allowance for doubtful debts (15 000) (19 000)
Inventory 670 000 654 000
Prepaid Insurance 55 000 52 000
Land 400 000 400 000
Buildings 1 850 000 1 175 000
Accumulated depreciation (235 000) (200 000)
Plant 940 000 850 000
Accumulated depreciation (452 000) (375 000)
3 563 000 2 896 000
Bank overdraft 49 000 140 000
Accounts payable 570 000 553 000
Interest payable 30 000 25 000
Dividend payable 230 000 205 000
Current tax payable 77 000 70 000
Borrowings 1 300 000 900 000
Deferred tax liability 16 000 12 000
Share capital 1 000 000 800 000
Retained earnings 291 000 191 000
3 563 000 2 896 000

Statement of Comprehensive Income

For year ended 30 June 2023
Income
Revenue (sales) $8 550 000
Cost of sales (4 517 000)
Gross profit 4 033 000
Gain on sale of plant 18 000
Distribution expenses (4 997 000)
Administration expenses (2 721 000)
Interest expense (70 000)
Profit before tax 780 000
Income tax expense (250 000)
Profit for the period 530 000
Other comprehensive income -
Total comprehensive income $ 530 000

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Additional information from accounting records:
• Distribution expenses includes a bad debts expense of $7 000.
• Cash paid to suppliers of inventory $4 516 000 and cash paid to other suppliers and employees
$3 035 000.
• Income tax paid $239 000.
• Plant with a cost of $70 000 and an accumulated depreciation of $50 000 was sold for cash
during the year.
• Plant was purchased for cash.
• A new building was purchased: $300 000 was paid for by borrowing arrangements with the
bank and the balance was paid in cash. There were no buildings sold.
• Repayments on borrowings $150 000.
• Interim dividends were paid: $100 000 by issuing bonus shares and $100 000 paid in cash.

Required:
Prepare a statement of cash flows in accordance with AASB 107 for the year ended 30 June 2023 (use
the direct method when presenting cash flows from operating activities).

Answer

Working out:
Operating activities
• Receipts from customers = $8 550 000 + 340 000 – 320 000 – [19 000 + 7000 – 15 000] = $8
559 000
• Payments to suppliers & employees = $4 516 000 + $3 035 000 = $7 551 000
• Income tax paid = $239 000
• Interest paid = 25000 – 30000 + 70000 = $65 000

Investing activities
• Purchase buildings = 1 850 000 – 1 175 000 – 300 000 = $375 000
• Purchase of plant = 940 000 + 70 000 – 850 000 = $160 000
• Proceeds from sale of plant = CA + gain = 70000 – 50000 + 18000 = $38 000

Financing activities
• Proceeds from borrowings = 1 300 000 + 150 000 – 900 000 – 300 000 = $250 000
• Proceeds from share issue = 1 000 000 – 800 000 – 100 000 = $100 000
• Dividends paid = 205 000 + 100000 = $305 000

CCE beginning = 19 000 – 140 000 = (121 000)

CCE ending = 30 000 - 49 000 = (19 000)

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 STATEMENT OF CASH FLOWS
Cash flows from operating activities $
Receipts from customers 8 559 000
Payments to suppliers & employees (7 551 000)
Cash generated from operations 1 008 000
Interest paid (65 000)
Income tax paid (239 000)
Net cash from operating activities 704 000
Cash flows from investing activities
Purchase of buildings (375 000)
Purchase of plant (160 000)
Proceeds from sale of plant 38 000
Net cash used in investing activities (497 000)
Cash flows from financing activities
Proceeds from borrowings 250 000
Repayment of borrowings (150,000)
Proceeds from share issue 100 000
Dividends paid (305 000)
Net cash from financing activities (105 000)
Net increase in cash and cash equivalents 102 000
Cash and cash equivalents at beginning of period (121 000)
Cash and cash equivalents at end of period (19 000)

Question 4: Adapted from Loftus et al (2023), Chapter 19

The following information has been made available to you to assist in the preparation of the
financial statements of Alice Ltd for the year ended 30 June 2023. The statements will be authorised
by directors on 28 August 2023.
(a) The company has been involved in a dispute with a government environment agency relating to
the release of waste from its manufacturing plant in May 2023. An expert investigation was
conducted to determine if the company was at fault. The draft financial report only discloses a
contingent liability in the notes detailing the investigation and estimating the potential damages
at $1 million. The investigator’s report, released on 1 August 2023, found Alice Ltd to be
responsible for the release and damages amounting to $1.5 million were payable by the company.
(b) Credit notes totalling $75,000 were recorded as June 2023 sales but were in fact sales made in
July 2023.
(c) Based on expert advice provided to Alice Ltd in 2023, it was decided the headquarters’ building
should be depreciated over a total period of 20 years. The building had been purchased on 1 July
2017 for $12,500,000 with an estimated life of 25 years and a residual value of nil. Alice Ltd uses
the straight-line method of depreciation.
At 1 July 2022, details for the building were as follows.

Cost 12,500,000
Accumulated depreciation (2,500,000)

Carrying amount 10,000,000

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 Required:
In relation to the above events or transactions, identify whether this is a: change in accounting
policy, change in estimate, an error, or an after reporting date event. Prepare the necessary
notes or general journal entries to comply with applicable accounting standards.

Answers:
(a) Release of investigator’s report on 1 August 2023:

The release of the report and the decision that damages were payable by Alice Ltd provide new
information about conditions existing at the end of the reporting period given that the release of
the waste occurred in May 2023. This is an after reporting date adjusting entry.

30 June 2023
Damages expense Dr 1,500,000
Damages payable Cr 1,500,000
(Recognition of damages liability)

(b) This is an error and must be retrospectively restated

30 June 2023
Sales revenue Dr 75 000
Accounts receivable Cr 75 000
(July credit notes raised in respect of June sales)

(c)
This requires a change in estimate and the effect of the change should be recognised prospectively
by including it in profit or loss.

Working out for this:

At 1 July 2022, there have been 5 years of depreciation recorded. Each of these years recorded
$500,000 ($12,500,000/25 years).

With a revised useful life of 20, there are 15 remaining years to record remaining depreciation. For
the current year and the next 14 after they should record $666,667 ($10,000,000/15).

Note x.
At the beginning of the financial year, the total useful life to the company of the building was revised
downwards from 25 to 20 years. For each of the remaining 15 years of the asset’s life, including the
current financial year, depreciation expense will be increased by $166,667, from the original estimate
of $500,000, to $666,667.