Prepare a statement of comprehensive income, Cost Accounting

Good Food Company is a local manufacturer of instant noodles. Established in 2005, their business has been growing steadily. Their products, which are available in 3 flavors, are sold in Singapore under the "Good Food" brand. However, since the start of 2010, their sales began to slow down. One key reason is the entry of new competitors who are able to provide new products at lower prices. The new competitors provide a wider range of instant noodles with unique flavors to suit the different tastes and preferences of the Singapore market. During 2010, the company's costs also increased quite significantly driven by the higher cost of raw materials and staff costs. To save costs, the company switched to hiring a part-time accountant, Andrew, in November 2010. Andrew was happy in the beginning as he enjoyed working part-time and spending more time with his family. However, after some weeks with the company, he was having sleepless nights. He thus requested for a meeting with Grace, the CEO of the company. Below is an extract of the conversation between Andrew and Grace on 30 December 2010: Andrew: "I understand that the company has a tradition of paying its employees a 13th month bonus. The bonus will be paid in January the following year." Grace: "Yes, that's right." Andrew: "We should record the bonus. The bonus amount for all eligible employees is $30,000." Grace: "No, we should not. The employment contracts with the employees do not cover bonus. Hence, there was no need to provide for the bonus."

Andrew: "In October 2010, the company advertised in major newspapers and magazines. The entire amount of $25,000 was recorded as prepaid advertising."  

Grace: "That's correct. We are seeing some signs of better business due to advertising. We expect the benefits of advertising to continue and sustain through next year."   

Andrew: "On 1 April 2010, the company bought and paid $10,000 for a 2-year fire insurance. Thus was recorded as prepaid insurance and there were no further entries."  

Grace: "There was no need for further entries because the fire insurance is still in force."  

Andrew: "On 31 March 2010, the company purchased a new machine, which has a useful life of 5 years and a residual value of $20,000."  

The following information relates to purchase and installation of the machine:

List price                     $90,000

Discount given            $10,000

Delivery charge           $7,000

Installation cost           $5,000

Repair cost*                $2,000

* One of the Good Food Company employees accidentally damaged the machine during installation.  

The former accountant has recorded all the above expenditures as capital expenditures. No depreciation was provided for this machine.   

Andrew went on to examine the trial balance:

After examining the trial balance, Andrew discovered the following additional information:  

  • On 29 October 2010, one of the customers ordered $80,000 worth of instant noodles to be delivered in January 2011. No down-payment was made. Grace has requested the former accountant (before he left the company) to record as:

  Dr Accounts receivable                         $80,000

    Cr Sales                                           $80,000

 

  • The net realisable value of the ending inventories is $100,000.

 

Question 1  

Discuss the accounting principles and concepts that were violated in the case. Explain the appropriate accounting treatments that should be used.

Question 2  

From the violations identified in Question 1 and the additional information gathered, prepare all the necessary adjusting journal entries.  

Question 3  

(a)  Prepare a statement of comprehensive income for the year ended 31 December 2010.

(b)  Prepare a statement of financial position as at 31 December 2010.  

Question 4  

Critically discuss the ethical behaviour of Grace.

Posted Date: 3/9/2013 5:01:20 AM | Location : United States







Related Discussions:- Prepare a statement of comprehensive income, Assignment Help, Ask Question on Prepare a statement of comprehensive income, Get Answer, Expert's Help, Prepare a statement of comprehensive income Discussions

Write discussion on Prepare a statement of comprehensive income
Your posts are moderated
Related Questions
On a New product development process of making a new S3 STORAGE SIM card phone storage device for end users, forecast the following With full working and tabulations; a) With fu

Radovilsky's Department Store in Haywood, California, maintains a successful catalog sales department in which a clerk takes orders by telephone. If the clerk is occupied on one li

Determine Difference between Results Using Marginal Costing and Absorption Costing The overhead absorption rate for product X is Ksh.10 per machine hour. All unit of product X

Methods of Work in Progress The two main methods used for purposes of valuing the opening work in progress: 1. Weighted Average Method 2. FIFO or First In First out Meth

Changes in Variable Cost and Selling Price per Unit The contribution sales ratio is affected by any change in variable cost or selling price per unit. This ratio is a mea

Example of Economic Order Quantity The EOQ model supposes : - Annual demand is recognized - Hold costs are constant and recognized - Ordering costs are recognized a

Q. Is it possible to execute fca in the deficiency of a general ledger accounting system ? Ans. Yes. FCA can be executed for whichever solid waste management system and whi

Absorption Costing The process described in this section by that net overheads are absorbed into production naturally enough is identified as absorption costing.  The absorpti

A Market Value Schedule (in one report),for the complex. This schedule should show the market value of the complex at the end of each year of the project.  Valuation method and oth

explain the practical application of differential costing with the help of suitable example.