Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Alba Ltd is an electronic and electrical consumer products manufacturing company headquartered in Malaysia. The following items have been extracted from Alba Ltds financial statements

Alba Ltd is an electronic and electrical consumer products manufacturing company headquartered in Malaysia. The following items have been extracted from Alba Ltds financial statements for the year ended 30 June 2020. Net profit $1,350,000 Shareholders equity $8,500,000 Net cash flows from operating activities $2,300,000

As a part of its business growth strategy plan, Alba Ltd intends to expand its operations into Australia. The Chief Financial Officer (CFO) of Alba Ltd has recently approached a local bank in Australia seeking a loan of $4,500,000. The company currently is in a strong financial position and therefore, the CFO of Alba Ltd is confident that the company would qualify for the loan. The Australian bank traditionally uses the below ratio to assess the Companys ability to generate future cash flows from operations. Net cash flows from operating activities to net profit ratio (i.e. Net cash flow from operating activities/net profit). The generally acceptable ratio for the bank is 1.60 or above. The Australian bank uses International Financial Reporting Standards (IFRS) as a basis for lending decisions. However, Alba Ltd prepares the financial statements using Malaysian Generally Accepted Accounting Principles (GAAP). The CFO of Alba Ltd has noted the following policy differences between the accounts which have been prepared based on Malaysian GAAP and what is required under IFRS in Australia. 1. The company used the LIFO method for inventory valuation. However, IFRS only permits the use of FIFO method. The inventory valuations for the current and previous period are as follows under the two methods:

Current Period Previous Period FIFO $650,000 $740,000 LIFO $880,000 $950,000 2. During the current financial year, the company has expensed $220,000 of new product development cost paid and recognised it in the Statement of Profit or Loss. However, the project is technically feasible and therefore qualify to be capitalised under IFRS. It needs to be recognised as an asset in the Balance Sheet (Statement of Financial Position). 3. Interest received of $120,000 and dividend received of $50,000 have been classified as cash flows from financing activities in the current years cash flow statement. Traditionally, interest received, and dividend received were classified as cash flows from operating activities and the company does not have any significant reason for a policy change. 4. The directors of the company have recommended that a dividend of $250,000 be paid in respect of the 2019/2020 financial year. The dividend is required to be approved by the companys shareholders. As of the reporting date, the shareholders had not met to approve this dividend, but the directors have recorded $250,000 as dividends to be paid anyway. 5. The CFO is conservative in its accounting values and decided to make a provision of $500, 000 for any future major repairs that may be undertaken to its manufacturing plant. However, at 30 June 2020 there was no contractual obligation to incur any expenditure due to major repairs expected to be undertaken in future years. Hence, this provision for future repairs cannot be recognised in the financial statements in accordance with IFRS. Required: a) Prepare the necessary General Journal entries (Dr and Cr) to adjust the books of Alba Ltd to reflect the requirements of IFRS as at 30 June 2020. Narrations are not required. (10 Marks) b) Would Alba Ltd be granted the $4,500,000 loan from the Australian bank after making the adjustments to the financial statements? Show all calculations (Round off your answers to the nearest two decimals). (5 Marks) (Total 15 Marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting

Authors: Walter B. Meigs, Robert F. Meigs, Mark Bettner, Ray Whittington

9th Edition

0070434360, 978-0070434363

More Books

Students also viewed these Accounting questions

Question

=+b) What would the data values in such an indicator variable be?

Answered: 1 week ago

Question

To what extent is news constructed or created?

Answered: 1 week ago