Week 3 Hand-in Assignment

In a 750- to 1,000-word response, submit your response to the following by the end of Day 7 (Wednesday) to the Turnitin Link provided. Note: Be sure to include your calculations within the same MS Word, WordPerfect, PostScript, PDF, HTML, RTF or plain text document that you create for your response.

HiAce, Ltd., commenced trading as suppliers of components for the automotive industry on 1 January 20X9, issuing 500,000 ordinary shares of $1 each, fully paid, at par value for cash. The following financial statements were compiled using the historical cost concept for 20X9:

Statement of financial position as at 31 December 20X9

HiAce Limited

Statement of comprehensive income for the year ended 31 December 20X9

$

$

Sales

1,506,419

Purchases

995,400

Less: Inventory 31 December 20X9

95,233

Cost of sales

900,167

Gross profit

606,252

Expenses

377,522

Depreciation

31,100

408,622

Net profit

197,630

Cost

Depreciation

Non-current assets

$

$

$

Freehold property

320,000

3,200

316,800

Machinery

186,000

27,900

158,100

506,000

31,100

474,900

Current assets

Inventories

95,233

Trade receivables

124,500

Cash

428,597

648,330

Current liabilities

-75,600

572,730

Non-current liabilities

-150,000

897,630

Issued share capital

700,000 $1 ordinary shares

700,000

Retained earnings

197,630

897,630

The year 20X9 encountered higher than expected inflation; consequently, the directors became concerned about the validity of the income statement and statement of financial position. Index numbers reflecting price changes were:

Specific index numbers reflecting costs were as follows:

1 January 20X9

31 December 20X9

Average for 20X9

Inventory

105

145

130

Freehold property

100

150

125

Machinery

110

140

130

General price index numbers

120

160

140

Inventory is expected to sell at a profit of 80% on cost.

The realisable value of the firm's non-current assets at 31 December 20X9 was:

$

Freehold Property

300,000

Machinery

155,000

Initial purchases of inventory were made on 1 January 20X9 for $18,560; the balance of purchases was evenly spread over the 12-month period. The non-current assets were acquired on 1 January 20X9 and were paid for in cash on that day.

Required:

1. Prepare a set of financial statements adjusted for current values using replacement cost.
2. Critically evaluate which method might be most informative and why.
3. A firm makes a product at a cost of 2,000 which it expects to be able to sell at a mark-up of 50% (for 3,000). One year later, the product is actually sold for 5,400. At the time of sale, the replacement cost of the product is 5,000. You are required to calculate the HCA profit and the replacement cost accounting profit. Discuss how the latter is split between operating and holding gains, plus the potential meaning of these for the firm
4. Support your analysis with relevant references.

Week 3 Hand-in Assignment In a 750- to 1,000-word response, submit your response to the following by the end of Day 7 (Wednesday) to the Turnitin Link provided. Note: Be sure to include your calculations within the same MS Word, WordPerfect, PostScript, PDF, HTML, RTF or plain text document that you create for your response. HiAce, Ltd., commenced trading as suppliers of components for the automotive industry on 1 January 20X9, issuing 500,000 ordinary shares of $1 each, fully paid, at par value for cash. The following financial statements were compiled using the historical cost concept for 20X9: Statement of financial position as at 31 December 20X9 HiAce Limited Statement of comprehensive income for the year ended 31 December 20X9 $ $ Sales 1,506,419 Purchases 995,400 Less: Inventory 31 December 20X9 95,233 Cost of sales 900,167 Gross profit 606,252 Expenses 377,522 Depreciation 31,100 408,622 Net profit 197,630 Non-current assets Freehold property Machinery Current assets Inventories Trade receivables Cash Current liabilities Cost Depreciation $ $ 320,000 3,200 186,000 27,900 506,000 31,100 $ 316,800 158,100 474,900 95,233 124,500 428,597 648,330 -75,600 572,730 Non-current liabilities -150,000 897,630 Issued share capital 700,000 $1 ordinary shares Retained earnings 700,000 197,630 897,630 The year 20X9 encountered higher than expected inflation; consequently, the directors became concerned about the validity of the income statement and statement of financial position. Index numbers reflecting price changes were: Specific index numbers reflecting costs were as follows: 31 December 1 January 20X9 Average for 20X9 20X9 Inventory 105 145 130 Freehold property 100 150 125 Machinery 110 140 130 General price index numbers 120 160 140 Inventory is expected to sell at a profit of 80% on cost. The realisable value of the firm's non-current assets at 31 December 20X9 was: $ Freehold Property 300,000 Machinery 155,000 Initial purchases of inventory were made on 1 January 20X9 for $18,560; the balance of purchases was evenly spread over the 12-month period. The non-current assets were acquired on 1 January 20X9 and were paid for in cash on that day. Required: A. Prepare a set of financial statements adjusted for current values using replacement cost. B. Critically evaluate which method might be most informative and why. C. A firm makes a product at a cost of 2,000 which it expects to be able to sell at a mark-up of 50% (for 3,000). One year later, the product is actually sold for 5,400. At the time of sale, the replacement cost of the product is 5,000. You are required to calculate the HCA profit and the replacement cost accounting profit. Discuss how the latter is split between operating and holding gains, plus the potential meaning of these for the firm D. Support your analysis with relevant references