B407 Week 14 Revision question

B407 Week 14 Revision question - B407F Advanced Financial...

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B407F Advanced Financial Reporting and Analysis I Final Revision Exercise Question 1 On 1 January, 2007, Ace Limited purchased 800,000 ordinary shares in Cab Limited when Cab Limited’s retained earnings were $1,800,000 On 1 January 2008, Ace Limited purchased 2,400,000 ordinary shares in Best Limited at a cash consideration of $4,000,000. The accountant of Ace Limited is in the process of preparing consolidated accounts for Ace Limited and its subsidiaries. He provides you with the draft financial statements of the group for the year ended 31 December 2008. Statement of Financial Position as at 31 December 2008: Ace Limited Best Limited Cab Limited $000 $000 $000 Non-current assets Land 8,560 5,000 7,000 Plant and equipment 4,900 3,000 Investment: - - Best Limited 4,200 Cab Limited 1,800 - - Current assets Inventories 250 650 - Accounts receivable 100 210 - Cash 50 90 660 Total assets 19,860 8,950 7,660 Share Capital @$1 each 6,000 3,000 2,000 Retained earnings 10,664 2,150 3,060 Total equity 16,664 5,150 5,060 6% debenture 2,000 - - Long-term loan 1,000 2,800 1,700 Non-current liabilities 3,000 2,800 1,700 Current liabilities Accounts payable 196 1,000 900 Total liabilities 3,196 3,800 2,600 Total equity and liabilities 19,860 8,950 7,660 1
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Ace Limited Best Limited Cab Limited $000 $000 $000 Revenue 24,000 9,000 7,500 Cost of sales (16,000) (5,140) (5,520) Gross profit 8,000 3,860 1,980 Dividend income 464 - - Gain on disposal of fixed assets 100 Selling and distribution expenses (3,050) (1,700) (420) Administration expenses (3,414) (686) (659) Finance cost (36) (64) (21) Profit before taxation 2,064 1,410 880 Taxation (400) (310) (160) Profit for the year 1,664 1,100 720 Dividend paid (1,000) (450) (260) 664 650 460 The following information is provided: (a) For the purpose of acquisition, the Land of Best Limited was revalued to give a valuation of $500,000 in excess of its carrying value. However, this valuation has not been reflected in the books of Best Limited at 31 December 2008. It was the group policy not to charge depreciation on land. (b) During the year, Ace sold goods with an invoiced value of $200,000 to Best Limited. Of these, goods with a value of $40,000 were in stock with Best Limited on 31 December 2008. Ace Limited invoices its goods at cost plus 25%. (c) The group’s depreciation policy is to provide for depreciation on plant and equipment at the rate of 10% on cost each year, including a full year’s provision in the year of acquisition. (d) Included in the plant and equipment of Best Limited is a machine purchased from Ace Limited on 1 January 2008 for $800,000. Ace Limited recorded a profit of $100,000 on the sale of the machine. 2
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B407 Week 14 Revision question - B407F Advanced Financial...

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