BIBM602 Financial Accounting Assignment Answer Help

BIBM602 Financial Accounting Assessments Help

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Assignment Details:

Words: 2200

Background:

Healthy Living Ltd is an NZX-listed company based in Nelson. The company specialises in developing, manufacturing and distributing natural health products. The company has no subsidiaries or associates.

You have been employed as the financial accountant since January 2022. One of your first tasks is to prepare the company’s annual financial statements for presentation to shareholders. These statements must be prepared in accordance with the Companies Act 1993 and relevant International Financial Reporting Standards as issued by the External Reporting Board (XRB).

The directors intend to approve and sign the financial reports for the financial year ending 31 January 2022 at their Board meeting to be held on Friday 20 May 2022.

Required:

Prepare the annual financial statements of Healthy Living Ltd for approval by the directors and subsequent presentation to the shareholders. Your presentation should take the following order:

Statement Profit or Loss and Other Comprehensive Income

Statement of Changes in Equity

Statement of Financial Position

Accounting Policies (Note 1 to Financial Statements)

Supporting notes as required (Note 2 to ???)

NOTE:

Statement of Cash Flows is not required

Round any calculations to the nearest $000

The Trial Balance shown below was taken from the company’s general ledger on 31 January 2022 after all the normal balance day adjustments had been taken into account.

Adjustments may need to be made for items described in the additional information.

Healthy Living Ltd
Trial Balance
As at 31 January
2021			2022
($000’s)	($000’s)		($000’s)	($000’s)
Dr	Cr		Dr	Cr
	2,365	Accounts payable		2,052
3,454		Accounts receivable	5,232
	350	Accumulated amortisation – Intangible Assets		660
		Accumulated depreciation:
	528	Land & Buildings		740
	1,045	Manufacturing Equipment		1,430
	682	Office Equipment		920
	253	Vehicles		352
	280	Accumulated Impairment – Goodwill		500
	1,020	Asset revaluation reserve		1,020
	225	Bank overdraft		180
	4,530	Borrowings		4,115
	825	Commissions and Royalties Received		816
660		Dividends paid	245
1,200		Goodwill	1,200
	528	GST liability		636
1,364		Income Tax paid	1,560
	121	Income Tax payable
2,800		Intangible Assets	3,660
6,952		Inventory	8,328
	275	Investment income (Dividends Received)		330
1,620		Investments (at cost)	1,620
	12,100	Issued & Paid up capital		13,500
38,251		Operating expenses	45,892
		PP&E:
7,950		Land & Buildings	8,600
2,590		Manufacturing Equipment	2,840
1,420		Office Equipment	1,630
610		Vehicles	700
	440	Provision for impairment of trade receivables		600
	2,975	Retained earnings (Opening balance)		4,129
	40,329	Sales		49,527

68,871	68,871		81,507	81,507

Additional Information:

1. The paid-up capital on 31 January 2022 comprises 2,450,000 ordinary shares. During the year, a public offering resulted in the issuing of 250,000 shares at $5.60 per share. All shares issued during this offering are fully paid up.

2. Operating expenses trial balance include:

*2021*		*2022*
($000’s)		($000’s)
1,230	Administration expenses	1,680
250	Amortisation of Intangibles	310
400	Audit fees	460
60	Bad debts	90
17,350	Cost of Goods Sold	19,120
676	Depreciation	934
310	Directors’ fees	340
	Donations to
20	Cancer Society of NZ	40
15	Ronald McDonald House	30
15	St John Ambulance	30
180	Impairment – Goodwill	220
175	Insurance	220
200	Interest expense (mortgage)	185
93	Interest expense (other)	85
6,307	Other expenses	9,838
370	Rates	410
1,120	Repairs and maintenance	1,570
860	Research and development expenditure	1,200
8,620	Wages & salaries	9,130
38,251		45,892

3. Annual depreciation charges (already recorded for the 2022 financial year) are calculated using the straight-line method and are based on the following useful lives:

i) Land & Buildings up to 50 years

ii) Manufacturing equipment 5 to 15 years

iii) Office equipment 5 to 10 years

iv) Vehicles 5 to 10 years

Depreciation expense recorded:	*2021*	*2022*
	($000’s)	($000’s)
Land & Buildings	160	212
Manufacturing equipment	255	385
Office equipment	178	238
Vehicles	83	99

Additions at cost price recorded were as follows:	*2021*	*2022*
	($000’s)	($000’s)
Land & Buildings	0	650
Manufacturing equipment	480	480
Office equipment	80	250
Vehicles	60	90

4. At a directors’ meeting held on 15 January 2022, it was resolved that land and buildings, recorded at modified historic cost, should be revalued in the financial statements as at 31 January 2020.

Smart, Wong & Pearce (SWP Ltd) performed an independent valuation in accordance with the Australia and New Zealand Property Institute Valuation Standards with an effective date of 31 January 2022:
Land & Buildings $8,300,000

5. The company’s auditors provided additional services to the statutory audit and half-yearly review. These other services include tax compliance services and advisory services in relation to accounting standards of $200,000 in 2022 ($170,000 in 2021). (These additional expenses are included in the Audit fees in note 2).

6. An employee sacked on 18 December 2021 has lodged a claim against the company under the Employment Relations Act for unfair dismissal and job reinstatement. The company’s legal advisors are confident that, because the employee breached her employment contract, the company will be able to defend the case successfully. The Company has decided to make a provision for legal fees associated with the defense of these matters to the value of $30,000.

7. On 6 February 2022, a major customer of Healthy Living Ltd was placed into receivership. The debtor owes the company $340,000 and there appears little likelihood that the debt will be collected.

8. On 26 February 2022, a leaking fire hose in a section of the company’s main storeroom caused an uninsured inventory loss of $470,000.

9. The senior executives have been with the company for between two and six years. The CEO, Hugh Brett, earns a salary of $210,000. The General Manager, Sales and Marketing, Colin Scott, has had extensive overseas experience. His salary is $195,000. Rex Salter, General Manager, Technical, has a salary of $197,000. The CFO, Adrian Hall, and the General Manager, Supply Chain, Neville Smith, have salaries of $159,000 and $156,000 respectively. Four staff members are paid between $120,000 and $130,000. Five staff members receive between $100,000 and $110,000 including you, the financial accountant. You have been appointed on a starting salary of $105,000, the same as was paid to your predecessor. After a satisfactory six-month probationary period, it will be increased to $112,000.

10. Healthy Living Ltd has provided a guarantee to ASB Banking Corporation for up to $1.5 million to secure ASB’s facilities as per an arrangement with Fresh Foods Ltd (a supplier of Healthy Living). Healthy Living Ltd’s position is secured by a registered charge over the assets of Fresh Foods Ltd, which ranks behind a charge in favour of the bank.

11. On 7 February 2022, a large quantity of inventory product was sold for $285,000 – this is considerably lower than the cost in the draft statements (trial balance) of $355,000.

12. Inventory is valued at the lower of cost or net realisable value, on a FIFO basis. At 31 January 2022, finished goods made up 40% and raw materials 25% of total inventory. The remainder is comprised of work in process (unfinished goods).

13. Borrowings consist of a Mortgage loan and other borrowings:

The mortgage loan (current balance $3,450,000) is secured over land and buildings, at an interest rate of 8.75% p.a. Annual payments of principal of $345,000 are made on 1 July each year.

The other borrowings are Bank loans (ASB Bank) with effective interest rates ranging from 9.6% to 9.9%. $70,000 of these loans is due for repayment on 2 September 2022.

14. The company has a bank overdraft facility of $500,000, secured by a general security arrangement over the assets of the company. The interest rate is currently 8.3% (2021: 8.7%).

15. Satisfied that the requirements of the Solvency Test were met, the directors approved a final dividend 20ȼ per share (all shares issued at this date) for the year at their meeting on 19 February 2022.

16. Because the company is no longer producing a particular product line, some items of manufacturing equipment, currently carried at $64,000, are not expected to produce further economic benefits.

17. On 17 February 2022, the company entered into a contract for extensions to its existing buildings at the headquarters in Nelson. The contract price is $1,150,000 and work is expected to commence on 18 May 2022.

18. Goodwill, originally costing $1,200,000, was considered to be further impaired by $220,000 in the 2022 year ($180,000 in the 2021 financial year).

19. Intangible assets:

Capitalised product development costs:

• Product development costs capitalised up to the 2021-year = $2,800,000. This had been amortised to a carrying amount of $2,450,000.

• Additional product development costs of $560,000 have been capitalised in the 2022 financial year.

• $310,000 has already been amortised for the 2022 financial year.

• You review the situation and decide that the maximum future revenue to be generated as a result of these costs is $2,300,000 (all product development costs).

Patents:

As well as product development costs, intangible assets are comprised of purchased patents $300,000 (purchased on 1 August 2021 to be amortised over 5 years on the straight-line method). To date no amortisation has been recorded for patents.

20. Investments (at cost) have been held all year and comprise shares in other companies. At balance date the shares were valued on the stock exchange at a total of $1,700,000. In keeping with IFRS 9 it is decided that Healthy Living Ltd will classify financial assets at fair value through profit or loss.

21. After making any necessary adjustments, you determine the total 2022 income tax expense to be $1,480,000.

NOTE:

In the “real world” you would need to adjust the various income tax accounts as a result of the changes you will need to make to the final accounts. Because we do not cover NZ IAS 12 in this course, treat the balances given in the Trial Balance as the correct figures.

It is also not necessary to prove the depreciation, accumulated depreciation and interest figures.

You may find it useful to do a Statement of Profit or Loss and Other Comprehensive Income, a Statement of Changes in Equity and Position Statement from the Trial Balance as it is, (i.e., before any adjustments) leaving plenty of space for adjustments, corrections, changes etc., required as per the additional information. You may find it useful to use an Excel spreadsheet for this.

You do not need to quote the relevant accounting standards – this assignment is about applying them, but if it helps, you may wish to indicate them in a left-hand margin.

Marks will be awarded for appropriate presentation, as well as for the “correctness” of the financial statements.

For REF… Use: #getanswers2002177

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