Management Accounting essay

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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

Less profit on vehicle disposal                                      4500            243387.50

Total expenses                                                                                                          860125        Net loss                                                                                                            142125

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 5 Depreciation Vehicles Depreciation =HK\$69625 The apportionment should be 70% and 30% respectively. respectively 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

Fixed asset                                                      Capital

Land                           120000                        Ordinary shares (HK\$1)200000

Add appreciation       180000         300000   less dividend                20000   180000

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

Less acc depreciation  (192000)         68000   Rent accrual                        30000

Current assets

Bank balance                                    57000

Inventory                                        119000

Receivables           183000

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. 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)

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).