solution_1 question - Solution to Part A REVISED Statement...

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Solution to Part A REVISED Statement of Financial Performance Year Ending 30 June 2004 Sales 8,000,000.00 Less: Cost of Goods Sold 2,400,000.00 Gross Profit 5,600,000.00 Less: Expenses - Doubtful Debt Expenses (1) 2,800,000.00 - Depreciation (2) 800,000.00 - Other Expenses 1,100,000.00 - Advertising & Marketing (3) 200,000.00 Total Expenses 4,900,000.00 NET PROFIT 700,000.00 (1) The reserve for doubtful debt has been increased from 20% to 35% as per the industry standards. (2) The age of the assets have been taken as 5 years instead of 10 years. Thus the amount of depreciation is doubled. (3) It has been assumed that following the conservative approach, the advertisement and marketing expenses have been also deducted from the gross profits. REVISED Statement of Financial Statement as at 30 June 2004 Assets as per original statement 16,000,000.00 Less: Increase in Doubtful Debt 1,200,000.00 Less: Increased Depreciation 400,000.00 Less: Deferred Expenses (Advertisement) 200,000.00 Revised Assets 14,200,000.00 Less: Liabilities 10,400,000.00 Revised Net Assets 3,800,000.00 Owner's Equity as per original statement 5,600,000.00 Less: Previous Net Profit 2,500,000.00 Owner's Equity as on 1 July 2003 3,100,000.00 Add: Revised Net Profit 700,000.00
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