Prepare the statement of financial position

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Reference no: EM131356

CASE STUDY: Pacific Ltd

Re: Accounting Issues: Year Ending 30 June 2014

From: Steven Evans ([email protected])

Sent: Monday, 8th August 2013

To: Paul Jones ([email protected])

Dear Paul

Thank you for your phone call this morning, as discussed I am emailing below the accounting issues we briefly discussed.

To assist us in our decision making process could you please make sure you reference any relevant sources relating to your advice, for example AASBs, Corporations Act, and relevant websites.

1. Pacific Limited is seeking a large sum of money to invest in a couple of large projects and was considering issuing a prospectus offering shares to the public. Brad Condor, the finance director suggested we issue debentures instead. He says it is cheaper than issuing shares and that all costs of issuing debentures, unlike shares, would be expensed. Is this correct? Also, how is it cheaper than increasing share capital?

2. We have entered into a long term contract to construct and supply plant and machinery to our mining customers. This means that we often receive a confirmed order from a customer in one financial year but due to the time taken to construct the item, deliver it to the customer about 18 months later. At present we recognise the sale as revenue on delivery of the item although the cost of constructing the item for sale is expensed as and when it is incurred. Is this correct treatment for revenue? Are there any other matters we need to consider regarding revenue?

Please respond by letter (not email) as I would like to present this to the board. I look forward to hearing from you in the near future.

Regards

S Evans

Steven Evans

Managing Director, Pacific Ltd

Level 6, 510 King William Street

Adelaide SA 5000

Question 2

The following is a balance sheet for Happy Feet Ltd as at 30 June 2013. On that date the company went into voluntary liquidation.

Balance Sheet as at 30th June 2013

Current  Assets

$

$

Cash at bank

14,500

 

Receivables

16,000

 

Inventory

14,500

45,000

 

 

 

Non-Current Assets

 

 

Plant and Equipment

164,000

 

Less: Accumulated Depreciation

135,000

 

 

  29,000

 

Land

  86,000

115,000

 

 

 

Total Assets

 

160,000

 

 

 

Current Liabilities

 

 

Accounts Payable

 

 72,000

 

 

 

NET ASSETS

 

 88,000

 

 

 

Equity

 

 

Share capital

 

 

95,000 Shares issued at $1 and called to $0.50

47,500

 

Less: Calls in arrears (5 000 shares at $0.25 each)

  1,250

46,250

Reserves

 

22,000

Retained Profits

 

19,750

EQUITY

 

88,000

 Additional Information:

1. All assets were sold and realized cash of $215,500 and calls in arrears were collected/

2. The cost of liquidation was $3,235 and this was paid in cash to the liquidator.

3. Accounts Payables allowed us a discount of $3,200 and the outstanding debts were paid.

4. The electricity bill/invoice for June 2013 amounted to $675. This was received on 3 July 2013 and was paid by the company. It had not been recorded in the accounts previously.

Required:

Using the information above, prepare the attached general ledger T-accounts: Happy Feet Limited - General Ledger

Question 3

Refer to the prescribed text book Company Accounting 9th Edition 2012 (CA)Leo K., Hoggett J., and Sweeting J:666-667.

Prepare the statement of financial position and Notes to the accounts at 30th June 2013 in accordance with the requirements of AASB101. You are not required to prepare the Statement of changes in equity.

Reference no: EM131356

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