Someone know how to prepare the required financial statements?

SCHOOL OF ACCOUNTING AND FINANCE AF3110 INTERMEDIATE ACCOUNTING 1 ASSIGNMENT 2017/18 Semester 1 Purpose The purpose of the assignment is to develop the students' ability to integrate the knowledge on topics covered across the syllabi of AF2108 and AF3110. Content New Oasis Ltd (NOL) is a listed company in Hong Kong specializing in electronic products. The following balances have been extracted from the nominal ledger of NOL at 30 June 2017. Revenue Cost of sales Administrative expenses Distribution costs Loan note interest paid Finance cost Investment income Contract assets Research and development expenditures Construction in progress Land and buildings - Valuation at 30 June 2016 - Accumulated depreciation at 30 June 2016 Plant and equipment - Cost at 30 June 2017 - Accumulated depreciation at 30 June 2016 Financial asset, valued at 1 July 2016 Retained earnings at 30 June 2016 Ordinary share capital (78 million shares) at 30 June 2016 Revaluation reserves at 30 June 2016 2% Loan notes Inventory at 30 June 2017 Trade and other receivables Trade and other payables Cash at bank Note $'000 329,600 152,600 21,300 4,800 30,650 50,000 7,800 8,380 872,000 76,900 25,000 $'000 768,000 500 39,000 29,800 228,980 135,000 15,900 21,500 28,700 1,645,130 150,050 240,000 53,800 1,645,130 To finalise the financial statements the following additional information has been prepared: 1) Revenue includes a $3 million sale made on 1 January 2017 of goods. The carrying amount of these goods at the date was $2 million. NOL is still in procession of the goods (but they have not been included in the inventory count) and has an unexercised option to repurchase them at any time in the next three years. In three years' time the goods are expected to be worth $4 million. The repurchase price will be the original selling price plus interest 1 at 10% per annum from the date of sale to the date of repurchase. 2) NOL enters into a contract on 1 July 2016 to construct a server on a customer's premises for a promised consideration of $750 million with a bonus of $50 million if the server is completed within 2 years. At the inception of the contract, NOL expects the costs to be $400 million and concludes that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The contract asset in the trial balance is comprised of contract costs incurred at 30 June 2017 of $149.96 million less a progress billing of $99.96 million to the customer. At 30 June 2017, the total expected costs increase by $60 million. NOL uses an input method based on costs incurred to date relative to the total expected costs to determine the progress towards completion of its contracts. The accounting policy of NOL is to consider the outcome of contracts insufficiently certain to measure the outcome reliably until they are at least 20% complete. 3) NOL commenced a research and development project on 1 January 2017. It spent $1 million per month on research until 31 March 2017, at which date the project passed into the development stage. From this date it spent $1.6 million per month until 30 June 2017, at which date development was completed. However, it was not until 1 May 2017 that the directors of NOL were confident that the new product would be a commercial success. Research and development costs not allowable to be capitalized should be charged to cost of sales. 4) The financial assets, measured at fair value through profit or loss, are held at 30 June 2017 (after the sale below) and they are made up by a portfolio of equity shares in different companies. They are carried at their fair value as at 1 July 2016, however, they had a fair value of 25.5 million on 30 June 2017. During the year a financial asset which had a carrying amount of $1.4 million was sold for $1.6 million. Investment income in the trial balance above includes the profit on sale of the financial asset and dividends received during the year. 5) NOL uses the revaluation model for land and buildings. The buildings were acquired on 1 July 2007 and have a total useful life of 50 years. Depreciation on buildings should be presented in distribution costs. The nominal ledger balance of $872 million (land $300 million and buildings $572 million) represents the latest version on 30 June 2013. The balance of the revaluation reserve of $150.05 million solely represents accumulated revaluation surpluses from land up to 1 July 2016. On 1 July 2016, an independent valuer valued the land at $200 million and the buildings at $500 million respectively and the revised useful life of the buildings is 40 years. There was neither acquisition nor disposal of land and buildings (except those referred in note 7 below) during the year ended 30 June 2017. NOL only makes transfers between the revaluation reserves and retained earnings upon derecognition. 6) NOL's policy is to depreciate plant and machinery at 15% per annum on cost. On 1 January 2017, a new machine was acquired for $7 million and correctly included in the cost of plant and machinery. Depreciation on plant and machinery should be presented in cost of sales. 7) On 1 July 2016, NOL decided to construct a new factory on its land for production purpose. Construction work commenced on 1 July 2016. NOL incurred the following costs in connection with its construction which was included in the account of construction-in-progress totaling of $8.38 million: - Purchase of materials for the construction - $6.08 million in total. - Employment costs of the construction workers - $200,000 per month. 2 - - - - Overhead costs incurred directly on the construction of the factory - $100,000 per month. Income received during the temporary use of the factory premises as a car park during the construction period - $50,000. Costs of relocating employees to work at the new factory - $300,000. Costs of the opening ceremony on 31 December 2016 for publicity purpose - $250,000. The factory was completed on 31 December 2016. The overall useful life of the factory building was estimated at 40 years from the date of completion. However, it is estimated that the roof will need to be replaced 20 years after the date of completion and that the cost of replacing the roof would be 40% of the total cost of the factory. Depreciation on this factory should be presented in cost of sales and administrative in the ratio of 8:2 respectively. The construction of the factory was partly financed by a loan of $240 million taken out on 1 July 2016. The loan was at an annual rate of interest of 2%. During the period 1 July 2016 to 31 October 2016 (when the loan proceeds had been fully utilised to finance the construction), NOL received investment income of $280,000 on the temporary investment of the proceeds. 8) The balance of ordinary share capital in the trial balance above should include a 1 bonus new share for 4 existing shares which was made by NOL on 1 October 2016, but the full amount received has not yet appropriately recorded. 9) A dividend of 5 cents per ordinary share (78 million shares) was paid on 2 October 2016 and the amount was recognized in finance costs. 10) The company's bank reconciliation at 30 June 2017 to the above nominal ledger balance, showed that bank interest paid for June 2017 of $500,000 had been taken from the company's bank account but that the nominal ledger account did not yet reflect this payment. 11) The tax payable for the year ended 30 June 2017 has been estimated at $35 million. Assume no tax effect on adjustments of the above items (1) to (11). Required Tasks (a) Prepare a revised statement of profit or loss and other comprehensive income (expenses should be analysed by function) and a statement of changes in equity for NOL for the year ended 30 June 2017 and a revised statement of financial position as at that date. (23 marks) (b) Discuss the features of the concept of prudence and the arguments for and against its reintroduction into the HKICPA's 'Conceptual Framework for Financial Reporting'. (5 marks) Useful references from Intermediate Financial Reporting, 3rd edition: 1) HKICPA 'Conceptual Framework for Financial Reporting' (Chapter 2) 2) HKAS 1 'Presentation of Financial Statements' (Chapter 19) 3) HKAS 16 'Property, Plant and Equipment' (Chapter 3) 4) HKAS 38 'Intangible Assets' (Chapter 6) 5) HKAS 23 'Borrowing Costs' (Chapter 7) 6) HKFRS 9 'Financial Instruments' (Chapters 15 & 16) 7) HKFRS 15 'Revenue from Contracts with Customers' (Chapter 11) 3 Instruction of Submission Each student is required to submit a hardcopy of the assignment for required tasks (a) and (b). The assignment submission should contain the following items: 1. A title page (you are required to use page 5 as the title page of your report). Complete the details accordingly. This marking rubric will be used to grade your answer; 2. The completed assignment; and 3. An Honour Declaration duly completed (provided on page 6) The above items should be stapled or bounded together before submission. Failure to include any item will invalidate the submission. Part (b) of the assignment should be no more than 500 words and is due on Friday, 17 November 2017 by 5 p.m. (submit to your own instructor). Penalty at a rate of 5, out of 10 marks, per day will be imposed for late submission. The penalty period starts from Friday, 17 November 2017 after 5 p.m. to the day on which full and valid submission is received. Ensure that you use the proper language for the requirement. Part (b) of the assignment should be written such that a non-accountant will understand what you are saying. Note that your answers should be written in your own words, and not use quotes taken from a textbook or other source. Plagiarism is treated seriously. Any student found guilty of this offence will be given a zero mark for this assignment and may be subject to further disciplinary actions. 4 AF3110 (2017/18 Semester 1) Title Page for Assignment Name: Date & Time of Class: Student Number: Technical Competency Level of Performance (Marks) Marking Criteria Very Poor ( 0% but