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Table of Contents
INCOME STATEMENT OF WALRUS PLC FOR THE YEAR ENDED MATCH 31 2007
Credit (HK$) debit (HK$)
Gross revenues 718000
Expenses
Directorfees 150000
Corporation tax 30000
Less Tax overate 6000 24000
Wages and salaries 276000
Distribution costs 101000
Add apportionment 65737.50 166737.50
Administrative expenses 186000
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Add apportionment 61887.50
Less profit on vehicle disposal 4500 243387.50
Total expenses 860125 Net loss 142125
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Calculation summary
| Segment | Description | Calculation Steps | Remarks |
| 1 | Gross Revenue | Sales - {Inventory(4/1/2006)+ Purchase + Inventory (3/31/2007)} (Atrill &McLaney, 1994) 1432000-(10700+488000+119000) =718000 |
This revenue is used in preparation of the company’s balance sheet. It is part of the capital.
The net revenue is obtained by finding the difference between the total revenue i.e. the gross revenue and revenues from external investments, and the expenditure (L. Chadwick, 1998). |
| 2 | Tax overrate | Tax liability- Tax overrate {30000-6000=24000}Net Tax Liability |
In the previous year, there was a tax overate. This should be subtracted from the estimated tax liability. |
| 3 | Building’s depreciation | Depreciation = HK$ 10000 Percentage apportionment should be 50% by 50% for distribution cost and the administrative expenses. For each. |
The depreciation as an expense should be apportioned to the company’s distribution costs and the administrative expenses according to the percentage apportionment. |
| 4 | Equipment’s depreciation | Depreciation= HK$108800 The apportionment should be 25% by 75% respectively. respectively
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| 5 | Depreciation Vehicles | Depreciation =HK$69625 The apportionment should be 70% and 30% respectively. respectively |
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| 6 | Total administrative expenses | 5000+36000+20887.50=HK$61887.50 | |
| 7 | Total distribution cost | 5000+12000+48737.50=HK$ 65737.50, | |
| 8 | Vehicle disposal | August 2003, HK$ 44000. Sold in February at HK $10000 Depreciation for 3 ½ years; Therefore, the company made a profit of HK$4500. |
Any profits or losses from that sale were to be allocated to the administrative expenses i.e. 186000+61887.50- 4500= HK$ 243387.50. |
WALRUS PLC BALANCESHEET AS AT 31 MARCH 2007
Dr Cr
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Fixed asset Capital
Land 120000 Ordinary shares (HK$1)200000
Add appreciation 180000 300000 less dividend 20000 180000
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Building 250000 Retained earnings 691000
Less acc depreciation (10000) 240000
Equipment 196000
Less acc depreciation (124000) 72000 Accounts payable 117000
Vehicles 260000 Tax Overrate 6000
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Less acc depreciation (192000) 68000 Rent accrual 30000
Current assets
Bank balance 57000
Inventory 119000
Receivables 183000
Less bad debt w/o (8000)
Less allowances (7000) 168000
1024000 1024000
| Segment | Description | Calculation Steps | Remarks |
| 1 | Vehicle depreciation | Since august 2003, the vehicle has been depreciating. These are 3 and a half years ago before the vehicle was sold. Since the depreciation rate is 25% per annum (straight line), then the vehicle is worth HK$ 5500 by the time it is being sold. That means it earns a profit of HK$ 4500 which should be allocated to the administrative expenses. | |
| 2 | Building depreciation | The straight line method of accounting for depreciation does not involve the cumulative depreciation (Bhimani 1996, pp26). Therefore, the percentage rate is used only. | |
| 3 | Vehicle depreciation | 284000-5500=278500.
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| 4 | Equipment’s depreciation | The cumulative balance is HK$76000. 196000-76000=HK$120000 40/100*120000= HK 48000 |
The equipments’ depreciation is being calculated using the reducing balance method (Khan & Jain 2006, pp126). |
The net revenue is considered as additional capital when it is a profit, and considered to reduce capital if it is a loss (Chadwick 1998, pp 96). In our case the company has made a loss that is subtracted from the initial capital. The allowances turn out to be at 4%. But this is after writing off a debt. That means the initial HK$8000 isn’t to be considered when accounting for the receivables. The debt is HK$ 8000, and the new allowances will start to operate when the debt is written off.
The land is now valued at HK$300000. According to the statement given, it is worth HK$ 120000. This means it has appreciated in value. This has to be incorporated in the balance sheet (Weetman 2010, pp 25).
STATEMENT OF CHANGES IN EQUITY AS AT 31st MARCH 2007
(HK$000)
Retained earning as at 1/4/06 503
For the year (142,125)
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Less: Dividends paid
- Interim (HK$200000/1= 200,000 shares (20)
200000x0.1=20,000
- Final -
Retained earnings as at 31/3/07 340.875
| Segment | Description | Calculation Steps | Remarks |
| 1 | Retained earnings for the previous year | HK $503000 | |
| 2 | Loss for the year | (142,125) | The company incurred a loss |
| 3 | Dividends paid | Interim (HK$200000/1= 200,000 shares 200000x0.1=20,000 |
An interim dividend of 20,000 was also paid to the shareholders. There was no final dividend paid as it is indicated that only an interim dividend was proposed for the year ended 31st March 2007. |
| 4 | Retained earnings for year ended march 31t 2007 | 503000-(142,125-20)= HK $340,875 | The final amount of retained endings at the end of that financial year amounted to HK $340,875. There is a general decline in the retained earnings from the previous year to 340,875 due to the loss that has occurred during the year (Atrill & McLaney 1994, pp 123). |
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