NovaCast Innovations Ltd, a manufacturer and retailer of cutting-edge fishing equipment, began its business on 1 July 2021 by issuing 100,000 shares with a value of $2.00 each. These shares were fully paid upon application. No costs were incurred for the issuance of these shares, and no additional shares were issued during the period ending on 30 June 2022.

 

PART A

During the year ending on 30 June 2023, the company recorded the following aggregate transactions for income and expense items:

 

Accounts	$'000
Sales of goods	300
Rent received	1
Gain from trading securities	4
Cost of sales	100
Rent expense for administrative offices	15
Doubtful debts expense (administrative)	5
Advertising expense	20
Sales staff employee entitlement expense	10
Sales staff wages and salaries	12
Administrative staff employee entitlement expenses	8
Administrative staff wages and salaries	9
Depreciation expense - equipment (selling)	To be calculated
Depreciation expense - buildings (selling)	To be calculated
Interest expense	4
Other borrowing expense	25
Income tax expense	7

 

The following additional information was noted during the preparation of financial statements for the year ended 30 June 2023:

• Inventory was measured at the lower of cost and net realisable value.
• Trading securities are equity investments that are held for the purpose of selling and short-term profit taking. 
• Buildings and equipment were measured at cost. The economic benefits were expected to be consumed evenly over the useful life of the asset. The residual values are negligible. 

 

Asset	Cost ($)	Useful life (years)
Buildings  (acquired on 1 July 2021)	200 000	20
Equipment  (acquired on 1 July 2022)	80 000	10

 

• Previously, the land was accounted for at its cost. However, on 30 June 2023, the company's manager made a decision to switch the method of measuring the land's value from the cost model to the revaluation model. As a result, the land's value was revalued upwards to $152,000 (ignore income tax implications for this transaction). Before this revaluation, there had been no surplus from revaluation recognised. The valuation process was carried out by Jim's Valuation Pty Ltd, a registered valuer.

 

Asset	Carrying amount ($)  on 1 July 2022	Fair value ($) on 30 June 2023
Land (acquired on 1 July 2021)	$62 000	$152 000

 

• The provision for employee benefits includes $13 000 payable within 1 year.
• The warranty provision is in respect of a 24-month warranty given on certain goods sold. Based on past data, NovaCast Innovations predicts 20% of the warranty is to be claimed within 1 year.
• $8 000 of bank loans are repayable within 1 year. The remaining amount is payable in full at the end of 2030. The loans are secured over the land.
• $20 000 of other loans are repayable within 1 year. The remaining amount is payable in full at the end of 2025.

 

After incorporating the information provided above, summarised account balances for assets and liabilities as at 30 June 2023 are provided below: 

 

Year-end balances, 30 June 2023	$'000
Cash on hand	30
Cash on deposit, at call	20
Trade debtors	80
Allowance for doubtful debts	3
Other debtors	10
Raw materials	25
Work in progress	16
Finished goods	50
Trading securities	90
Land	152
Buildings	200
Accumulated depreciation - buildings	To be calculated
Equipment	80
Accumulated depreciation - warehouses and equipment	To be calculated
Bank loans	18
Other loans	50
Trade creditors	10
Provision for employee benefits	30
Warranty provision	15
Current tax payable	10
Deferred tax liability	15

 

The account balances for equity items have not been updated yet. Below are the summarised opening balances for equity items, representing the closing balances for the prior financial year 2022:

Year-end balances, 30 June 2022	$'000
Share Capital, 30 June 2022*	200
General Reserve, 30 June 2022	12
Retained earnings, 30 June 2022	100

* NOTE: 100 000 shares @ $2.00.

 

The following additional information regarding the equity items was noted during the preparation of financial statements for the year ended 30 June 2023:

 

• Additional shares were issued and fully paid on the following dates during the 2023 financial year:

1 Jan 2023: 40 000 ordinary shares issued/fully paid @ $2.00 

            1 April 2023:  20 000 ordinary shares issued/fully paid @ $2.00 

• A cash dividend of $20 000 (20 cents per share) was declared and paid during the 2023 financial year.
• NovaCast Innovations Ltd has transferred $5 000 out of retained earnings into general reserve during the 2023 financial year.
   

 

Required:

For the year ending 30 June 2023 (NOTE: comparative financial statements are not required), 

1. Using the pro forma table supplied fill in a preliminary trial balance for NovaCast Innovations Ltd

NovaCast Innovations Ltd - Trial Balance as at 30 June 2023	DR	CR
	$'000	$'000
Sales of goods
Rent received
Gain from trading securities
Cost of sales
Rent expense for administrative offices
Doubtful debts expense (administrative)
Advertising expense
Sales staff employee entitlement expense
Sales staff wages and salaries
Administrative staff employee entitlement expense
Administrative staff wages and salaries
Depreciation expense - equipment (selling)
Depreciation expense - buildings (selling)
Interest expense
Other borrowing expense
Income tax expense
Cash on hand
Cash on deposit, at call
Trade debtors
Allowance for doubtful debts
Other debtors
Raw materials
Work in progress
Finished goods
Trading securities
Land
Buildings
Accumulated depreciation - buildings
Equipment
Accumulated depreciation - equipment
Bank loans
Other loans
Trade creditors
Provision for employee benefits
Warranty provision
Current tax payable
Deferred tax liability
Share Capital
General reserve
Land revaluation surplus
Retained earnings, 30 June 2022
Dividends paid
Retained earnings - transfer to general reserve
Totals