NANYANG TECHNOLOGICAL UNIVERSITY

NANYANG BUSINESS SCHOOL

AC1104 - ACCOUNTING II
Semester 2, 2023/2024

Seminars 12 to 13: Cash Flow Information

A) Pre-seminar preparation

a) Required reading: refer to course outline

b) Be prepared for the discussion questions

B) Self-study

Illustrations 1 to 4

C) Discussion questions

Q6 IB & Q8 GongXi

AC1104 S12 to S13 -1

Illustration 1 (Lifesaver)

Lifesaver Ltd provides home nursing services. The company earns its revenue from providing
patient services. The income statement and comparative balance sheets of Lifesaver Ltd are
provided below:

Lifesaver Ltd
Balance Sheet as at 31 December
2013 2012
$ $
Current assets
Cash 49,370 38,000

Accounts receivable 200,200 106,300

Medical supplies 62,100 311,670 21,000 165,300

Non-current assets

Equipment 344,000 306,000

Less: Accumulated depreciation (71,000) 273,000 (63,000) 243,000

Automobiles 70,000 70,000

Less: Accumulated depreciation (63,000) 7,000 (49,000) 21,000

Total Assets 591,670 429,300

Current Liabilities
Accounts payable 28,300 31,600
Interest payable 1,850 1,900
Tax payable 600 350
Wages payable 7,520 8,560
Dividend payable 1,130 39,400 1,290 43,700

Non-Current Liabilities
Bank loans 205,000 160,000

Equity
Common stock 310,000 200,000
Retained earnings 37,270 25,600

Total Liabilities and Equity 591,670 429,300

AC1104 S12 to S13 -2

 Lifesaver Ltd
Income Statement
For Year Ended 31 December 2013
Medical service revenue $ 392,000

Operating expenses
Wages expense ($103,000)
Medical supplies expense (111,300)
Gasoline expense (66,530)
Utilities expense (10,500)
Depreciation – automobiles (14,000)
Depreciation – equipment (60,000) (365,330)

Income from operations 26,670

Gain on sale of equipment 16,000

Interest expense (15,000) 1,000
Income before tax 27,670
Tax expense (11,500)
Net income $16,170

During 2013, the following events occurred:

(1) Lifesaver Ltd repaid $30,000 of bank loans.

(2) $110,000 of new shares were issued in exchange for a new equipment.

(3) Lifesaver Ltd declared a total dividend of $4,500 during the year.

(4) All the automobiles were bought at the same time and have an estimated useful life of 5
years with no residual value.

Required

(a) Prepare the cash flow statement for Lifesaver Ltd for the year ended 31 December 2013
using the direct method in compliance with SFRS(I) 1-7.

(b) Prepare the cash flow statement for Lifesaver Ltd for the year ended 31 December 2013
using the indirect method in compliance with SFRS(I) 1-7.

AC1104 S12 to S13 -3

(c) The controller of Lifesaver Ltd commented that the company has shown a healthy increase
in its cash position as evidenced from the increase in the cash account in the balance sheet.
The company tries to maintain a cash balance that is sufficient to cover two months of
wages expense and medical supplies expense. The controller noted that the company’s cash
balance is more than sufficient to meet this requirement. Explain whether you agree or
disagree with the controller’s assessment of the company’s cash position.
Adapted from Q2 of Sem 1 Exam 2007/2008

Illustration 2 (Stellar)

As a new start-up company in the industry just a few years ago, Stellar Limited’s (Stellar) average
annual growth rate in its net profit of 20% has been nothing short of extraordinary. As a new
accountant of Stellar, the CEO has tasked you to prepare a schedule to determine the operating
cash flows of the company.

You have collected the following information regarding the working capital of Stellar (all figures
in $’000):

2012 2013
Cash 101 278
Accounts Receivable 55 48
Inventories 78 95
Accounts Payable 127 117
Tax Payable 13 17

Stellar’s net profit for the year ended 2013 was determined as follows:

$’000
Revenue 620
Cost of Goods Sold (372)
Gross Profit 248

Depreciation Expense (20)

Wage Expense (25)
Gain on disposal of equipment* 15
Net Profit Before Tax 218

Tax Expense (95)

Net Profit 123

*An equipment costing $175,000 was sold during the year for $105,000. Its accumulated
depreciation at the time of disposal was $85,000.

AC1104 S12 to S13 -4

Based on Stellar’s recent performance, its CEO proudly commented:

“We are proud to have made such an immediate impact upon entering the industry. We were able
to maintain the same amount of positive cash flows generated from our operation in the past few
years despite being a new start-up company. These were accompanied by a stellar growth rate of
20% per annum in our net profit in the past 5 years.

Our cash position almost tripled during the year, increasing by $177,000 to reach $278,000. This
is an indication of our strong liquidity position.”

Required

(a) Prepare a statement of net cash flow from operating activities for Stellar Limited for the
year ended 2013 using the indirect method in compliance with SFRS(I) 1-7.

(b) Prepare a statement of net cash flow from operating activities for Stellar Limited for the
year ended 2013 using the direct method in compliance with SFRS(I) 1-7.

(c) Critically evaluate the comments made by the CEO.

Q3 of Sem 1 Exam 2013/2014

AC1104 S12 to S13 -5

Illustration 3 (SureWin)

SureWin Ltd (SW) has a 31 March financial year end. SW is the major supplier of teaching
materials to all levels of schools in Singapore. An inexperienced accounting staff prepared the
following draft statement of financial position.

SureWin Ltd
Draft Statement of Financial Position as at 31 March

2015 2014
$’000 $’000

Bank loan (Note 1) 589 560

Bank overdraft 40 20
Trade and other payables 320 280
Provision for operating loss (Note 2) 15 0
Interest payable (Note 3) 38 28
Income tax payable (Note 3) 16 14
Share capital (Note 4) 500 500
Retained earnings 272 228
Total Liabilities and Equity 1,790 1,630

Cash on hand & balances with banks (Note 5) 1,020 670

Trade and other receivables 420 350
Other current assets 70 50
Intangible assets (Note 6) 30 40
Property, plant and equipment (Note 7) 250 520
Total Assets 1,790 1,630

Additional Information

(1) SW repaid $40,000 bank loan in June 2014.

(2) SW forecasted an operating loss of $20,000 for the financial year 2015/2016. However,
the inexperienced accounting staff recognised and made a provision of $15,000 for the loss
in the financial year 2014/2015.

(3) Interest paid and income tax paid by SW during the financial year 2014/2015 were $12,000
and $8,000 respectively.

(4) SW issued ordinary shares at $1 each upon incorporation. In September 2014, SW

acquired 20,000 of its own shares from the market at $0.80 each and cancelled them
immediately. The share buyback transaction has not been recorded. There was no other
share transaction during the financial year 2014/2015 except for the share buyback.

AC1104 S12 to S13 -6

(5) Included in the cash on hand and balances with banks in 2014/2015 was an amount of
$30,000 (2013/2014: $22,000) pledged to secure credit facilities.

(6) There was no disposal or addition of intangible asset items during the financial year
2014/2015.

(7) Property, plant and equipment (PPE) items are carried at cost less accumulated depreciation
except for freehold land. SW adopts the straight-line depreciation method for all its
depreciable items.

The freehold land was purchased for $250,000 in year 2000. It was then revalued
cumulatively to $230,000 and $270,000 at the end of the financial year 2012/2013 and
2013/2014 respectively. The freehold land was then disposed of in June 2014 for $285,000
and $55,000 gain on disposal of freehold land was recognised in the Profit or Loss. SW
discovered that the revaluation of $270,000 at the end of the financial year 2013/2014 was
omitted from the financial statements for financial year 2013/2014.

There was no disposal or addition of PPE items during the financial year 2014/2015 other
than the disposal of freehold land.

(8) In November 2014, an interim tax-exempt (one-tier) dividend of $0.05 per share was
declared and fully paid out during the financial year 2014/2015. No final dividend was
proposed after 31 March 2015.

(9) The 2014/2015 financial statements are expected to be approved and issued on 30 April
2015.

Required

(i) Provide all the necessary adjusting and/or correcting journal entries for items in Notes (4)
and (7) above, if any.

(ii) Provide the necessary adjusting or correcting journal entries for item in Note (2) above, if
any. Briefly explain the rationale in accordance with SFRS(I) 1-37 Provisions, Contingent
Liabilities and Contingent Assets.

(iii) Determine the adjusted profit or loss before taxation for the financial year ended 31 March
2015, after taking into account requirements (i) and (ii) above.

(iv) Prepare SureWin Ltd’s statement of changes in equity for the financial year ended 31
March 2015, after taking into account requirements (i) and (ii) above.

(v) Prepare SureWin Ltd’s statement of cash flows for the financial year ended 31 March 2015
in compliance with SFRS(I) 1-7 Statement of Cash Flows, after taking into account
requirements (i) and (ii) above.
Q3 of Sem 2 Exam 2014/2015

AC1104 S12 to S13 -7

Illustration 4 (Simple Products)

You are the chief accountant of Simple Products Pte Ltd. Your assistant has prepared an income
statement for the current financial year and has developed the following additional information by
analysing the changes in the company’s statement of financial position.

Simple Products Pte Ltd

Draft Income Statement for the Year Ended 31 December 2016
$'000 $'000
Revenue: Expenses:
Net sales 19,000 Costs of goods sold 9,720
Interest income 640 Operating expenses (see item 5) 7,480
Total revenue 19,640 Interest expense 540
Income tax expense 600
Loss on disposal of property plant
180
and equipment (PPE)
Total expenses 18,520
Profit for the year 1,120

The changes in the company’s statement of financial position accounts during the financial year
and other relevant information are summarised below:

(1) Accounts receivable decreased by $170,000.

(2) Interest receivable increased by $30,000.

(3) Inventory decreased by $560,000 and accounts payable to suppliers of goods decreased by
$480,000.

(4) Short-term prepayments of operating expenses decreased by $36,000 and accrued

liabilities for operating expenses increased by $70,000.

(5) Operating expenses include depreciation expense of $1,400,000.

(6) Interest payable decreased by $32,000.

(7) Income taxes payable increased by $50,000.

AC1104 S12 to S13 -8

(8) The following schedule summarises the total debit and credit entries during the financial
year in other statement of financial position accounts:

Debit entries Credit entries

$'000 $'000
Notes receivable 500 380
Property plant & equipment (see item 9) 7,600 720
Investment property (see item 11) 2,000
Notes payable 1,240 1,480
Bonds payable 2,200
Share capital (issuance of shares) 1,880
Treasury shares 100
Retained earnings (see item 10) 640 1,120

(9) The $720,000 in credit entries to the PPE account is net of any debits to accumulated
depreciation when PPE were derecognised. Thus the $720,000 in credit entries represents
net book value of all PPE sold or derecognised during the financial year.

(10) The $640,000 debit to retained earnings represents dividends declared and paid during the
financial year. The $1,120,000 credit entry represents the profit for the year.

(11) All investing and financing activities were cash transactions, except the debit to investment
property (IP) which was acquired with other payables.

(12) No fair value changes occurred during the year.

(13) Cash and cash equivalents amounted to $896,000 at the beginning of the financial year and
to $340,000 at year-end.

Required

Prepare Simple Products Pte Ltd’s statement of cash flows for the financial year ended 31
December 2016 in compliance with SFRS(I) 1-7 Statement of Cash Flows. Cash flows from
operating activities are to be determined by the direct method.
Q3 of AC1102 Sem 1 Exam 2017/2018

AC1104 S12 to S13 -9

Suggested solution to illustration 1 (Lifesaver)

(a)
Lifesaver Ltd
Cash Flow Statement (Direct Method)
For the year ended 31 December 2013

Cash flows from operating activities $ $

Cash received from customers 298,100
Cash paid to suppliers (155,700)
Cash paid to employees (104,040)
Cash paid for utilities expense (10,500)
Cash paid for gasoline expense (66,530)
Cash generated from operations (38,670)
Interest paid (15,050)
Tax paid (11,250)
Net cash used in operating activities (64,970)

Cash flows from investing activities

Proceeds from sale of equipment 36,000
Net cash from investing activities 36,000

Cash flows from financing activities

Dividends paid* (4,660)
Repayment of bank loan (30,000)
Proceeds from bank loan 75,000
Net cash from financing activities 40,340

Net increase in cash and cash equivalents during the year 11,370
Cash & cash equivalents at beginning of the year 38,000
Cash & cash equivalents at end of the year 49,370

Schedule of non-cash investing and financing activities

Issue of new shares to acquire equipment $110,000

* This could also be shown as an operating cash flow.

AC1104 S12 to S13 -10

(b) For indirect method, the only difference is in the operating cash flows as follows:

Cash flows from operating activities

Income before tax 27,670
Adjustments for:
Depreciation expense 74,000
Gain on sale of equipment (16,000)
Interest expense 15,000 73,000

Increase in AR (93,900)
Increase in medical supplies (41,100)
Decrease in wages payable (1,040)
Decrease in AP (3,300) (139,340)
Cash generated from operations (38,670)
Interest Paid (15,050)
Tax Paid (11,250)
Net cash used in operating activities (64,970)

Suggested solution to illustration 2 (Stellar)

(a)
$’000
Net profit before tax 218
Depreciation expense 20
Gain on disposal of equipment (15)
Decrease in Accounts Receivable 7
Increase in Inventories (17)
Decrease in Accounts Payable (10) (15)
Tax paid (13+95-17) (91)
Net cash flows from operating activities 112

(b)
$’000
Cash collected from customers (55+620-48) 627
Cash paid to suppliers (127+389*-117)
(*Purchase = 95+372-78 = 389) (399)
Cash paid to employees (25)
Tax paid (13+95-17) (91)
Net cash flows from operating activities 112

AC1104 S12 to S13 -11

Suggested solution to illustration 3 (SW)

(i) (4) Share buyback and cancelled

DR Share capital $16,000
CR Cash $16,000

(7) Correction of prior period revaluation error

DR Beg. Freehold land $40,000
CR Beginning retained earnings $20,000
CR Beg. Revaluation Reserve $20,000

Derecognition of revaluation reserve upon disposal of freehold land

DR Revaluation Reserve $20,000
CR Retained earnings $20,000

Correction of current year gain on disposal

DR Gain on disposal $40,000
CR Freehold land $40,000

(ii) (2) Correction of provision made for future operating loss

DR Provision for 2015/2016 operating loss $15,000
CR Future operating loss $15,000

No present obligation to make future operating losses. Hence, no liability.

(iii) PBT = $272,000 (ERE) + $24,000 (Dividend) - $228,000 (BRE) + $15,000

(reversal of future operating loss) - $40,000 (correction of gain of disposal)
+ $10,000 (Tax expense)
= $53,000
(iv)
SureWin Ltd
Statement of changes in equity for the financial year ended 31 March 2015
Share capital Retained Revaluation Total
earning reserve
$’000 $’000 $’000 $’000
@ 01.04.2014 500 228 0 728
Correction of error - 20 20 40
Restated 500 248 20 768
TCI - 43* 0 43
Shares buyback (16) - - (16)
Dividend - (24) - (24)
Transfer 20 (20) 0
@31.3.2015 484 287 0 771
*PAT = $53,000 - $10,000 (Tax expense)

AC1104 S12 to S13 -12

(v)
SureWin Ltd
Statement of Cash Flows
For the year ended 31 March 2015
Cash flows from operating activities $' 000 $’000
Profit after tax (PBT = 43 + 10 = 53) 43
Adjustments for:
^ Tax expense 10
Gain on disposal of freehold land (55 - 40) (15)
Depreciation ((520 – 230 - 250) 40
Amortisation (40 – 30) 10
Interest expense 22
110
Increase in Other current assets (20)
Increase in Accounts receivable and other receivable (70)
Increase in Trade and other payables 40
Cash used in operations 60
* Interest paid (12)
Income tax paid (8)
Net cash from operating activities 40

Cash flows from investing activities

Proceeds from disposal of freehold land 285
Net cash generated from investing activities 285

Cash flows from financing activities

Increase in amount pledged with the bank (8)
Repayment of long-term loan (40)
Proceeds from long-term loan 69
Shares buyback (16)
# Dividend paid [(500,000 – 20,000) x $0.05] (24)
Net cash used in financing activities (19)
Net increase in cash and cash equivalents in the current year 306
Cash and cash equivalents at the beginning of the year (670-20-22) 628
Cash and cash equivalents at the end of the year (1,020-40-30-16) 934

^ This tax expense is not necessary if started with PBT of $53.

*This could also be shown as a financing cash flow.
# This could also be shown as an operating cash flow.

AC1104 S12 to S13 -13

Suggested solution to illustration 4 (Simple Products)

Simple Products Pte Ltd

Statement of Cash Flows for the year ended 31 December 2016
Cash flows from operating activities S$’000 S$’000
Cash receipts from customers (19000+170) 19,170
Interest received (640-30) 610
Cash from operating activities 19,780

Cash paid to suppliers and employees (9720-

560+480+7480-1400-36-70) -15,614
Interest paid (540 +32) -572
Income taxed paid (600-50) -550
Cash disbursed for operating activities -16,736
Net cash from operating activities 3,044

Cash flows from investing activities

Loans made to borrowers -500
Collections on loans 380
Cash paid to acquire PPE -7,600
Proceeds from sale of PPE (720-180) 540
Net cash used in investing activities -7,180

Cash flows from financing activities

Proceeds from notes payable 1,480
Payments to settle the notes payable -1,240
Proceeds from issuing bonds payable 2,200
Proceeds from issuing shares 1,880
Payments for share repurchase -100
Dividends -640
Net cash from financing activities 3,580
Net increase (decrease) in cash and cash equivalents -556
Cash and cash equivalents, 1 Jan. 2016 896
Cash and cash equivalents, 31 Dec. 2016 340

Note:
During the financial year, Investment Property at a cost of $2 million was acquired by means of other
payables.

AC1104 S12 to S13 -14

Question 1 (PS)

Pissa Steel Pte Ltd (PS) has 30 June financial year end. PS’s business includes sales, supply and
machining of flanges, steel fittings, tubings and pipes for the shipbuilding industry. The following
PS’s draft statement of financial position was prepared by an inexperienced book-keeper.

Pissa Steel Pte Ltd

Draft Statement of Financial Position as at 30 June

2014 2013
$’000 $’000
Investment property (Note 1) 1,690 1,300
Property, plant and equipment (Notes 2) 880 2,000
Non-current assets held for sale (Note 3) 1,120 0
Cash on hand & balances with banks (Note 4) 1,145 790
Bank overdraft 40 80
Trade and other receivables 370 260
Prepayment 120 90
Inventories 220 190
Total Assets 5,585 4,710

Share capital (Note 5) 2,250 2,250

Retained earnings 2,095 1,640
Fair value reserve on investment property (Note 1) 190 (200)
Bank loan 595 540
Trade and other payables 280 220
Interest payable (Note 7) 35 28
Income tax payable (Note 7) 60 72
Total Liabilities and Equity 5,505 4,550

Additional Information

(1) The factory was acquired at a cost of $1,500,000 on 15 March 2013 and was classified as
investment property (IP) at fair value upon acquisition in accordance with SFRS(I) 1-40
Investment Property. The fair values of the factory as at financial year ended 2013 and
2014 were $1,300,000 and $1,690,000 respectively. The book-keeper recognised all fair
value gains or losses on IP in other comprehensive income.

(2) Property, plant and equipment (PPE) consists of leasehold land, building, motor vehicles,
furniture and machineries. All its PPE items are carried at cost less accumulated
depreciation. PS adopts the straight-line depreciation method for all its PPE items.

During the financial year, PS disposed of its old motor vehicle for $40,000 and acquired a
new motor vehicle at a cost of $150,000 by cash. The gain or loss on disposal of old motor
vehicle was recognised in the profit or loss.

AC1104 S12 to S13 -15

 Total depreciation expense recognised during the financial year amounted to $100,000
which included full year depreciation for leasehold land (see Note 3 below).

(3) On 1 January 2014, PS reclassified its leasehold land as a non-current asset held for sale in
accordance with SFRS(I) 5 Non-current Assets Held for Sale and Discontinued
Operations. The leasehold land was acquired on 1 July 2010, at a cost of $1,200,000. The
useful life and the salvage value for the leasehold land are estimated to be 50 years and
$200,000 respectively.

(4) Included in the cash on hand and balances with banks was an amount of $55,000
(2012/2013: $30,000) pledged to secure credit facilities.

(5) PS issued 1.5 million ordinary shares at $1.50 each upon incorporation. In December 2013,
there was a 3:1 shares split.

(6) In March 2014, an interim tax-exempt (one-tier) dividend of $0.02 per share was declared
and fully paid out. Final dividend of $0.01 per share was proposed after 30 June 2014.

(7) Interest expense and income tax expense recognised in the financial year 2014 were
$15,000 and $28,000 respectively.

(8) The 2013/2014 financial statements are expected to be approved and issued on 21
November 2014.

Required

(i) Pissa Steel’s book-keeper was not sure why in the draft statement of financial position he
has prepared, the total assets were not equal to the total liabilities and equity, and sought
your help and explanation. Assume all items on the statement of the financial position are
correct at this point in time.

(ii) Provide all the necessary adjusting and correcting journal entries for items in Notes (1) and
(2) above, if any.

(iii) Determine the adjusted profit or loss after taxation for the financial year ended 30 June
2014, after taking into account requirement (ii) above.

(iv) Determine the carrying amount of motor vehicle disposed of during the financial year
2013/2014 and the gain or loss on such disposal in Note 2.

(v) Prepare Pissa Steel Pte Ltd’s statement of cash flows for the financial year ended 30 June
2014 in compliance with SFRS(I) 1-7 Statement of Cash Flows, after taking into account
the necessary adjusting and correcting journal entries made in (ii) above. Show necessary
workings, if any.
Adapted from Q2 of Sem 1 Exam 2014/2015
Key ans: (ii) (1) DR BRE $200,000, (2) CR Depn $10,000; (iii) $945,000;
(iv) Loss on disposal $10,000; (v) PBT $973,000

AC1104 S12 to S13 -16

 Cash flows generated from operating activities $540,000 #
Cash flows used in investing activities ($110,000)
Cash flows used in financing activities (60,000) ##
# interest paid is classified under operating activities
## dividend paid is classified under financing activities

Question 2 (THL)

The Hive Ltd (THL) owns a few car servicing centres and runs the services in Singapore. THL’s
draft statements of financial position and other relevant information are as follows:

The Hive Ltd

Draft Statement of Financial Position as at 31 March

2016 2015
$’000 $’000
Share capital (Note 1) 3,000 3,000
Retained earnings 2,430 2,200
Long-term borrowings (Note 2) 6,800 5,100
Bank overdraft 50 20
Accounts payable 2,460 1,780
Other current liabilities 180 210
Interest payable 520 410
Income tax payable 800 580
Provision for warranty cost 200 230
Total Liabilities and Equity 16,440 13,530

Machineries (Note 3) 1,410 1,240

Licences (Note 4) 400 450
Cash on hand & balances with banks (Note 5) 5,300 3,250
Inventories (Noted 6) 4,030 3,070
Other current assets 300 220
Accounts receivable 5,000 5,300
Total Assets 16,440 13,530

Notes

(1) THL issued 15 million ordinary shares upon incorporation. There was neither additional
shares issued nor share buyback during the financial years 2014/2015 and 2015/2016.

(2) THL made $1,600,000 repayment during the financial year 2015/2016.

(3) During the financial year 2015/2016, THL acquired a new machinery by cash for $300,000.
After the acquisition of the new machinery, THL disposed of one of its old machineries for
$120,000 and made a gain of $40,000.

AC1104 S12 to S13 -17

(4) There was neither sale or purchase transaction nor renewal of licensing during the financial
year 2015/2016.

(5) The inexperienced bookkeeper was not sure how to account for the following March 2016
transactions and therefore they were omitted in the draft statement of financial position:
(a) Not sufficient fund cheques of $180,000 received from the debtors were returned
and reflected in the March 2016 bank statement.
(b) Cheques of $20,000 collected from debtors in March were recorded and deposited
on 31 March 2016 but not reflected in the March bank statement.
(c) THL incurred bank service charge of $2,000 in March 2016.
(d) THL made $82,000 cash sales in March and accounted for accordingly upon sale.
On 31 March 2016, only $70,000 was deposited as the balance went missing. It is
THL’s practice to keep all the cash in the cashier machine and for the cashier to
deposit the monthly cash collection on the last day of the month.

(6) THL wrote down $10,000 of its inventories by making an allowance during the financial
year 2015/2016. The ending balance of such allowance as at 31 March 2016 was $43,000.

(7) Included in the cash on hand and balances with the banks was an amount of $500,000 in
the financial year 2015/2016 (2014/2015: $600,000) pledged to secure credit facilities.

(8) In August 2015, an interim tax-exempt (one-tier) dividend of $0.05 per share was declared
and paid. No final dividend is proposed after 31 March 2016.

(9) Interest paid and income tax paid in the financial year 2015/2016 were $400,000 and
$450,000 respectively.

(10) The 2015/2016 financial statements were approved and issued on 28 May 2016.

Required

(i) Provide all the necessary adjusting and correcting journal entries for items in Note (5)
above.

(ii) Determine the adjusted cash balance per the bank statement as at 31 March 2016.

(iii) Prepare The Hive Ltd’s statement of cash flows for the financial year ended 31 March 2016
in compliance with SFRS(I) 1-7 Statement of Cash Flows, after taking into account the
necessary adjusting and correcting journal entries made in requirement (i) above. Show
necessary workings, if any.

(iv) Refer to Note 5 item (d) above. Briefly comment on The Hive Ltd’s cash management
procedures and make two suggestions on how the company can reduce the control risk.
Adapted from Q2 of AC1102 Sem 2 Exam 2015/2016
Key ans: (i) (d) DR Cash loss $12,000; (ii) $5,056,000; (iii) PBT $1,636,000
Cash flows generated from operating activities $1,056,000 #
Cash flows used in investing activities ($180,000)

AC1104 S12 to S13 -18

 Cash flows generated from financing activities $1,050,000 ##
# interest paid is classified under operating activities
## dividend paid is classified under financing activities

Question 3 (TM)

Tengoku Motors Pte Ltd (TM) is a Singapore sole distributor of Japanese unique mini motor
vehicles in Singapore. The following TM’s draft statements of financial position were prepared
by an inexperienced accountant.

Tengoku Motors Pte Ltd

Draft Statement of Financial Position as at 31 August 2016

2015/2016 2014/2015
$’000 $’000

Property, plant and equipment (Note 1) 1,284 1,348

Intangible assets (Note 3) 78 6
Deposits (Note 4) 260 180
Petty cash and cash at bank 166 130
Inventories (Note 5) 1,500 1,820
Trade receivables (Note 6) 2,350 2,280
Other receivables and prepayment 880 770
Total Assets 6,518 6,534

Borrowings 640 720

Trade payables 2,220 1,780
Interest payable (Note 7) 58 45
Income tax payable (Note 7) 108 120
Share capital (Note 8) 550 400
Retained earnings 2,942 3,469
Total Liabilities and Equity 6,518 6,534

Additional Information

(1) Property, plant and equipment (PPE) consists of one freehold building, six motor vehicles
and some office equipment. All its PPE items are carried at cost less accumulated
depreciation except for freehold building. TM adopts the straight-line depreciation method
for all its PPE items.

TM acquired its freehold building on 1 September 2014 at a cost of $1,200,000, with an

estimated salvage value of $200,000. TM has a policy to revalue its freehold building at
the end of each financial year and the asset was thereby revalued in accordance with
SFRS(I) 1-16 Property, Plant and Equipment paragraph 35(b) where the accumulated
depreciation is eliminated against the gross carrying amount of the asset.

AC1104 S12 to S13 -19

 The schedule of PPE is as follows:
Freehold Motor Office Total
building vehicles equipment
$’000 $’000 $’000 $’000
At cost / revaluation
1 September 2015 1,082 360 70 1,512
Eliminated due to revaluation (18) 0 0 (18)
Revaluation 36 0 0 36
31 August 2016 1,100 360 70 1,530

Accumulated depreciation
1 September 2015 0 144 20 164
Depreciation 18 72 10 100
Eliminated due to revaluation (18) 0 0 (18)
31 August 2016 0 216 30 246

Net book value at 31 August 2016 1,100 144 40 1,284

Net book value at 31 August 2015 1,082 216 50 1,348

(2) All TM’s six motor vehicles were acquired on 1 September 2013 at the same cost and
expected to be used in a similar manner. Assume no salvage value.

On 1 September 2015, TM classified three of its motor vehicles as held for sale in
accordance with SFRS(I) 5 Non-Current Assets Held for Sale and Discontinued Operation.
The fair values of each motor vehicle on the date of reclassification and at the end of the
financial year 2015/2016 were $36,000 and $34,000 respectively. The costs to sell for each
motor vehicle were estimated to be $2,000. The three motor vehicles met the criteria to
be classified under SFRS(I) 5 for the next financial year.

(3) The ten-year licences ended on 31 May 2016 and were renewed for another ten years with
immediate effect for a total cash payment of $80,000.

(4) TM pledged its $100,000 (2014/2015: $80,000) deposit amount to secure the credit
facilities.

(5) Allowance for inventory write-down was $15,000 and $12,000 in the financial years
2015/2016 and 2014/2015 respectively.

(6) The breakdown of trade receivables is as follows :

2015/2016 2014/2015
$’000 $’000
Trade receivables 2,550 2,620
Less: Allowance for impairment of trade receivables (200) (340)
2,350 2,280

AC1104 S12 to S13 -20

(7) Interest expense and income tax expense for the financial year 2015/2016 were $16,000
and $55,000 respectively.

(8) TM issued 400,000 ordinary shares at $1.00 each upon incorporation. In November 2015,
TM issued additional shares at $1.50 each to raise funds for future development.

(9) In January 2016, TM announced an interim tax-exempt (one-tier) dividend of $0.06 per
share. No final dividend was declared after 31 August 2016.

(10) The 2015/2016 financial statements are expected to be approved and issued on 23
November 2016.

Required

(i) Refer to the information on the freehold building in item (1) above to determine the
following:
(a) the estimated total useful life of the freehold building;
(b) the depreciation charge for the financial year ended 2014/2015 which was being
eliminated due to revaluation; and
(c) the unrealised gain or loss recognied in the financial year 2014/2015 after
revaluation.

(ii) Provide all the necessary adjusting and/or correcting entries for item (2) above.

(iii) Determine the adjusted profit or loss before taxation for the financial year 2015/2016, after
taking into account requirement (ii) above.

(iv) Prepare Tengoku Motors Pte Ltd’s statement of cash flows for the financial year ended 31
August 2016 in compliance with SFRS(I) 1-7 Statement of Cash Flows.
Adapted from Q1 of AC1102 Sem 1 Exam 2016/2017
Key answer: (i)(a) 50 years; (ii) DR MV (HFS) $108,000; (iii) LBT ($418,000);
(iv) Cash flows generated from operating activities $156,000 #
Cash flows used in investing activities ($80,000)
Cash flows generated from financing activities $20,000 ##
# interest paid is classified under operating activities
## dividend paid is classified under financing activities

AC1104 S12 to S13 -21

Question 4 (XT)

Xcel Toys Ltd (XT) has 30 June financial year end. XT’s business includes manufacturing and
sales of educational toys. The following XT’s draft statement of financial position was prepared
by an inexperienced bookkeeper.

Xcel Toys Ltd

Draft Statement of Financial Position as at 30 June
2015 2014
$’000 $’000
Cash 6,160 6,370
Short-term deposits (Note 1) 14,000 12,000
Accounts receivable, net 19,000 14,000
Inventories 15,500 13,000
Prepayments 1,920 1,630
Land & buildings (Note 2) 24,000 20,000
Less: Accumulated depreciation (12,000) (12,000)
Machineries (Note 2) 48,000 30,000
Less: Accumulated depreciation (9,000) (5,000)
Intangibles (Note 3) 6,000 9,000
Total Assets 113,580 89,000

Accounts payable 8,750 8,690

Accrued liabilities 1,280 1,400
Income tax payable 320 280
Interest payable 900 600
Borrowings (Note 2) 18,000 12,000
Share capital (Note 4) 65,000 60,000
Retained earnings 19,330 6,030
Total Liabilities and Equity 113,580 89,000

Notes

(1) Included in the three-month short-term deposits was an amount of $400,000 (2013/2014:
$300,000) pledged to secure the credit facilities.

(2) Property, plant and equipment (PPE) consists of freehold land and buildings, and
machineries. All its PPE items are carried at cost less accumulated depreciation. XT
adopts the straight-line depreciation method for all its PPE items. Buildings, which were
acquired at a cost of $12 million, were fully depreciated by the end of the financial year
2013/2014.

AC1104 S12 to S13 -22

 Towards the end of the financial year 2014/2015, XT acquired additional freehold land and
machineries for $4 million and $18 million respectively. For the acquisition of freehold
land, XT paid $0.5 million in cash and the rest of the purchase consideration was financed
on a long-term basis by one of its suppliers and this is reflected under borrowings in the
balance sheet. Borrowings include long-term bank loans and supplier financing. XT paid
$18 million cash for the purchase of new machineries.

During the financial year 2014/2015, XT received cash proceeds of $4.3 million from
disposal of some of its machineries. The cost and accumulated depreciation of these
machineries at the date of disposal were $6 million and $2.5 million respectively. This
transaction was not accounted for in XT’s books.

(3) There was no sale or purchase transaction for intangible assets during the financial year
2014/2015.

(4) XT issued 120 million ordinary shares at $0.50 each upon incorporation. In November
2014, there was a cash share issue of 10 million shares at $0.50 per share which was fully
taken up by the shareholders. All shareholders are entitled to receive dividends.

(5) In January 2015, XT announced an interim tax-exempt (one-tier) dividend of $0.05 per
share. Shareholders were given an option to receive new shares in lieu of the cash amount.
Some shareholders chose the new share option and XT issued 5 million shares at a price of
$0.60 per share under this scheme. The rest of the shareholders opted for cash dividend.
Cash dividend was fully paid. No other dividends were announced or paid during the
financial year. The inexperienced accountant was unable to account for these transactions
in XT’s books.

A final dividend of $0.05 per share was proposed after 30 June 2015.

(6) Interest expense and income tax expense recognised in the financial year 2014/2015 were
$600,000 and $6,500,000 respectively.

(7) Dividend income during the financial year was $100,000.

(8) The 2014/2015 financial statements were approved and issued on 17 October 2015.

Required

(i) Provide all the necessary adjusting and correcting journal entries for items in Notes (2) and
(5) above.
(ii) Determine the adjusted profit or loss before taxation for the financial year ended 30 June
2015, after taking into account requirement (i) above.

(iii) Prepare Xcel Toys Ltd’s statement of changes in equity for the financial year ended 30
June 2015.

AC1104 S12 to S13 -23

(iv) Prepare Xcel Toys Ltd’s statement of cash flows for the financial year ended 30 June 2015
in compliance with SFRS(I) 1-7 Statement of Cash Flows, after taking into account the
necessary adjusting and correcting journal entries made in requirement (i) above. Show
necessary workings, if any.
Adapted from Q2 of Sem 1 Exam 2015/2016
Key ans: (i) (2) CR Gain on disposal $800,000, (5) DR RE $6,500,000; (ii) PBT $20,600;
(iv) Cash flows generated from operating activities $12,790,000 #
Cash flows used in investing activities ($14,200,000)
Cash flows generated from financing activities $3,900,000##
# interest paid and dividend received are classified under operating activities
## dividend paid is classified under financing activities

Question 5 (SR)

SingaRoar Pte Ltd (SR) is a Singapore registered company and its principal activities is to sell
bicycles. SR’s carries all its non-current assets at cost less any accumulated depreciation except
for those classified as investment property (IP). Where applicable, SR adopts the straight-line
depreciation method. The depreciation expense is recognised across the financial year.

Below is the statement of financial position prepared by the accountant of SR.

SingaRoar Pte Ltd

Statement of Financial Position as at 31 December

Draft Audited
2020 2019
$’000 $’000
Property, plant and equipment (Note 1) 2,100 2,450
Investment property - shophouse (Note 2) 5,000 5,200
Prepayments (Note 3) 25 0
Cash on hand & balances with banks 63 210
Inventories (Notes 3 and 4) 360 380
Accounts receivable 350 280
Loan (Note 5) 1,800 1,200
Provision for compensation expense (Note 6) 12 0
Accounts payable 160 100
Unearned revenue (Note 7) 100 30
Interest payable (Note 8) 70 40
Income tax payable (Note 8) 20 30
Share capital 500 500
Retained earnings 5,236 6,620

AC1104 S12 to S13 -24

Additional Information

(1) All the property, plant, and equipment (PPE) items are subject to depreciation. SR disposed
of one of its PPE items with a net book value of $20,000 for cash and correctly recognised
a gain on disposal of $10,000 in the statement of profit or loss. There was no addition nor
other disposals of PPE items during the financial year 2020.

(2) SR’s shophouse was rented out on a 3-year operating lease to a local travel agency, Zen
Ltd (Zen), since 1 January 2019 for a monthly rental of $15,000. As the Singapore tourism
sector was hit severely by the Covid-19 pandemic and the number of tourists decreased
dramatically from the beginning of the financial year 2020, Zen terminated the lease earlier
and moved out from the shophouse on 30 April 2020. SR expanded its bicycle business
and used the shophouse as a showroom cum sales office from 1 July 2020 onwards.

The shophouse was acquired on 1 July 2015 at a total cost of $3,000,000. The useful life
is estimated to be 40 years with $200,000 salvage value. The shophouse's fair values were
$5,065,000 and $5,030,000 on 30 April 2020 and 1 July 2020, respectively. There was no
change in accounting policy nor accounting estimates since the financial year 2015.

(3) On 1 April 2020, SR entered into a future purchase commitment with NewTech Pte Ltd
(NT) and pre-order five hundred units of bicycles of the same model at a total cost of
$25,000. All the five hundred units of bicycles are acquired for sale. In the contract, SR
agreed to pay another $6,000 shipping fee to NT for the door-to-door service. The
estimated useful life and the salvage value of each bicycle are 10 years and $10,
respectively.

On 1 November 2020, SR pre-paid $31,000 to NT, including the shipping fee. The five
hundred units of bicycles were shipped from Taiwan with the term F.O.B shipping point
on 1 December 2020 and arrived at SR’s premises on 2 February 2021. SR expensed off
the shipping fee upon payment on 1 November and recognised the bicycles as assets on 2
February 2021.

(4) The inventory balances were based on the year-end physical counts that included items in
the showroom, storage, and the sales office.

(5) SR repaid a $600,000 loan during the financial year 2020.

(6) A customer, Mr. Bobby, filed a legal case against SR on 8 August 2020 regarding the
defective bicycle that he bought from SR’s online platform. Mr. Bobby claimed that SR’s
improper assembly of the bicycle before the sale led to his injury in an accident on 1 June
2020. SR recognised a provision in the financial year 2020 based on its lawyer’s advice
on 15 January 2021. SR made an out-of-court settlement of $8,000 on 2 February 2021.

(7) The unearned revenue balances referred to the online sales of bicycles that were not yet
delivered to the customers as at financial year end. SR promised to deliver the bicycles to
the customers within 7 working days of the online sales.

AC1104 S12 to S13 -25

(8) Interest paid and income tax paid in the financial year 2020 were $35,000 and $35,000,
respectively.

(9) In April 2020, SR declared and paid $15,000 cash to its shareholders as the final dividend
for the financial year 2019. SR did not declare any interim dividend nor final dividend for
the financial year 2020.

(10) The 2020 financial statements are to be approved and issued on 28 April 2021.

Required

(i) Provide all the necessary adjusting/correcting journal entries for Notes (2) and (3) above
for the financial year 2020.

(ii) Prepare an IP schedule for the financial year 2020, after taking into account requirement
(i) above.

(iii) For Note (6) above, briefly explain if SR should recognise the provision in the financial
year 2020 in accordance with Singapore Financial Reporting Standards (International).
Provide all the necessary adjusting/correcting journal entries for the financial year 2020, if
any.

(iv) Determine the adjusted profit or loss after taxation for the financial year 2020, after taking
into account requirements (i) and (iii) above.

(v) Prepare SR’s statement of cash flows for the financial year ended 31 December 2020 in
compliance with SFRS(I) 1-7 Statement of Cash Flows.

(vi) Assume that a cash sale of $20,000 was wrongly recorded as an issuance of shares for
cash in the financial year 2021. Explain how this error would affect the net
increase/decrease in the cash and cash equivalents and the net cash from the various
activities in the statement of cash flows for the financial year 2021.
Q2 of Sem 2 Exam 2020/2021
Key ans: (i) (2) CR FV loss on shophouse (PPE) $30,000, (3) CR Prepayment $25,000;
(ii) Transfer to PPE ($5.03m); (iii) CR Compensation expense $4,000; (iv) Loss ($1.398m);
(v) Cash flows used in operating activities ($762,000) #
Cash flows generated from investing activities $30,000
Cash flows generated from financing activities $585,000##
# interest paid is classified under operating activities
## dividend paid is classified under financing activities;
(vi) no impact

AC1104 S12 to S13 -26

Question 6 (IB)

Iron Box Pte Ltd (IB) is a provider of business consulting services. IB’s financial statements are
as follows:

Iron Box Pte Ltd

Statement of Financial Position as at 30 June

Draft Audited
2021 2020
$’000 $’000

Property, plant and equipment (Notes 2 and 3) 1,969.0 379.0

Less: Accumulated depreciation (Notes 2 and 3) (37.3) (77.9)
Cash on hand & balances with banks (Note 4) 895.0 500.0
Accounts receivable (Note 5) 1,220.0 980.0
Less: Allowance for impairment (Note 5) (90.0) (120.0)
Prepaid salaries (Note 6) 40.0 0.0
Long-term bank loan (Note 7) 1,687.0 65.0
Accounts payable 100.0 80.0
Interest payable 15.0 4.0
Income tax payable 21.0 13.0
Share capital 500.0 500.0
Retained earnings 1,673.7 999.1

Iron Box Pte Ltd

Statement of Profit or Loss for the financial year ended 30 June

Draft Audited
2021 2020
$’000 $’000
Revenue 1,500.0 1,120.0
Costs of service (590.0) (508.0)
Gross profit 910.0 612.0
Gain on disposal of motor vehicle 42.0 0.0
Depreciation (71.4) (60.0)
Staff salaries (Note 6) (60.0) (82.0)
Impairment loss of AR (Note 5) (40.0) (10.0)
Interest expense (22.0) (7.0)
Miscellaneous expenses (15.0) (12.0)
Profit before taxation 743.6 441.0
Tax expense (58.0) (27.0)
Profit for the year 685.6 414. 0

AC1104 S12 to S13 -27

Before finalising the 2020/2021 financial statements for the scheduled issuance date on 2
September 2021, you have received the following information:

(1) IB carries all its non-current asset items at the cost model unless otherwise stated. IB adopts
a straight-line depreciation method for all its non-current assets and apportions the
depreciation expense across the financial year.

(2) On 1 January 2020, IB paid $15,000 in cash to acquire one unit of software application for
use in IB’s consulting business. IB recognised the software application as a Property, Plant
and Equipment (PPE) and used the same depreciation estimates as one of the classes of
PPE listed in item 3 below. However, the correct estimated useful life and salvage value of
the software application should be 2 years and $0, respectively.

(3) IB has three classes of PPE, namely office equipment, motor vehicle and freehold building.
The details of each class of PPE (excluding the software application mentioned in item 2)
are listed as follows:
Office equipment Motor vehicle Freehold building*
Acquisition date 1 January 2018 1 April 2019 3 July 2020
Purchase consideration $14,000 $350,000 $1,940,000
Estimated useful life 5 years 5 years 60 years
Estimated salvage value $1,000 $70,000 $500,000
Date of disposal NA 31 March 2021 NA
* Upon the acquisition of the freehold building, 10% of purchase consideration was paid
by cash and 90% of the purchase consideration was financed by a long-term bank loan
directly.

(4) Included in the cash on hand and balances with banks was an amount of $420,000 in the
financial year 2020/2021 (2019/2020: $10,000) pledged to secure credit facilities.

(5) IB correctly wrote off its irrecoverable debts against the allowance for impairment of
Accounts Receivable (AR) during the financial year 2020/2021.

(6) IB has a policy to prepay its employees’ monthly payroll on the 15th of each month and
adjust the balances at month-end, if any. The monthly payroll is on a calendar month basis.
All IB’s staffs had completed their monthly services for June 2021.

(7) The long-term bank loan consists of 50% of the purchase consideration of the motor vehicle
and 90% of the purchase consideration of the freehold building, respectively, upon
acquisition. IB repaid the loan partially during the financial years 2019/2020 and
2020/2021.

(8) In September 2020, IB declared and fully paid out an interim tax-exempt (one-tier)
dividend to all its shareholders. No final dividend is proposed after 30 June 2021.

AC1104 S12 to S13 -28

Required

(i) Determine the written-off amount against the allowance for impairment of AR in item (5).

(ii) Determine the existing PPE class that follows the same depreciation estimates of the
software application. Support your answers with workings.

(iii) Provide all the necessary adjusting and correcting entries for items (2) and (6), if any.

(iv) After taking into account the requirement (iii) above, prepare IB’s statement of cash flows
for the financial year ended 30 June 2021 using direct method in compliance with SFRS(I)
1-7 Statement of Cash Flows. Show all necessary workings.

(v) IB’s accountant commented that if IB did not discover the errors and make the necessary
adjusting/correcting journal entries in requirement (iii), the amount of net cash and cash
equivalent during the financial years for both 2019/2020 and 2020/2021 would have been
lower. Briefly explain if you agree with the accountant.
Q2 of Sem 1 Exam 2021/2022
Key ans: (i) $70,000; (ii) Office Equipment; (iii) (2) DR BRE $2,350, (6) CR Prepayments $40,000;
(iv) Cash flows generated from operating activities $444,000 #
Cash flows generated from investing activities $86,000
Cash flows used in financing activities ($545,000)##
# interest paid is classified under operating activities
## dividend paid is classified under financing activities;
(v) Disagree

Question 7 (BS)

BrightSide Ltd (BS) is a manufacturer of lighting products such as LEDs. BS has financial year
end of 31 December. The draft statement of financial position and other relevant information are
as follows:
BrightSide Ltd
Draft statement of financial position
as at 31 December 2017
2017 2016
S$'million S$'million
ASSETS
Property, plant and equipment (Note7) 566 634
Intangible assets (Note 7) 768 856
Inventory (Note 4) 890 990
Accounts receivables 1,585 1,483
Prepayments for utilities (Note 10) 15 17
Deposits (Note 6) 10 7
Cash on hand and balances with banks (Note 5) 1,065 863
Total assets 4,899 4,850

AC1104 S12 to S13 -29

 EQUITY AND LIABILITIES
Share capital (Note 9) 2,500 2,000
Retained earnings 150 125
Provision for warranty expenses (Note 1) 242 240
Accounts payables 1,228 1,620
Interest payables (Note 8) 65 55
Tax payables (Note 8) 14 10
Bank loan (Note 9) 700 800
Total equity and liabilities 4,899 4,850

Notes
(1) ChipMake Ltd (CM) is a sole supplier of high-quality semiconductor chips for BS’s LED
lamps. In January 2018, the production manager of BS discovered that a batch of
semiconductor chips provided by CM in early 2017 failed to meet high-quality standards
per agreement. According to the investigation, 40% of BS’s LEDs sold in 2017 contained
these low-quality semiconductor chips and as a result, the defective rate from this batch of
LEDs sold by BS in 2017 had increased from 5% to 10%.

BS provides one-year warranty on each LED sold. Before the discovery of the low-quality
chips, BS recognised a provision of $2.5 million warranty expenses for the LEDs sold in
2017 and the total estimated repair cost for all the LEDs sold in 2017 was to be $50 million.

According to the indemnity clauses in the agreement between BS and CM, CM would have
to pay BS a sum of $800,000 for the breach of contract to provide high-quality
semiconductor chips.

(2) On 15 December 2017, BS filed a case of patent violation against SpeedLine Ltd (SL).
BS’s lawyer estimated a 70% probability that SL would have to pay BS a sum of $3 million
as compensation. The lawsuit was still pending at the end of March 2018.

(3) In November, Juring Pink (JP), a shopping mall located in the south of the city, purchased
5,000 Christmas light bulbs from BS to decorate some Christmas trees in the mall. In
December 2017, a large Christmas tree in the mall was in flames and caused a fire in the
mall. On 25 January 2018, JP filed a lawsuit against BS for its poor-quality light bulbs
causing the overheating issue. BS’s lawyer believed that the fire was due to JP’s misuse
of extension cords. According to the lawyer on 15 February 2018, the claim made by JP
was highly controversial and therefore it was difficult to estimate the result of the lawsuit.

AC1104 S12 to S13 -30

(4) The company had been using the First in, First out (FIFO) inventory valuation method
since the beginning of 2016. The director decided to change the inventory valuation
method to the Weighted Average (WA) method from the 2017 financial year onwards in
order to enhance the comparison with its main competitors. No adjustment had been made
yet for the change of inventory valuation method. The followings were the ending balances
of inventory for the financial years of 2016 and 2017:

2017 2016
$'million $'million
FIFO Method 890 990
WA Method 950 1,000

(5) The newly joined bookkeeper was not sure how to account for the following December
2017 transactions and therefore they were omitted in the draft statement of financial
position:
(a) Bank statement showed that the bank collected $3 million from a customer on
behalf of BS on 30 December 2017. On the same day, the bank deducted $15,000
from the company's account as a bank service charge.
(b) A not sufficient funds cheque of $5,000 received from a customer was returned and
reflected in the December 2017 bank statement.
(c) On 28 December 2017, BS’s Cash account showed cash sales of $55,000. Bank
statement showed the amount deposited was actually $5,000. The company
reviewed the transactions and found that $5,000 was the correct amount.

(6) BS pledged its $500,000 deposit amount in the financial year 2017 (2016: $400,000) to
secure the credit facilities.

(7) There was no disposal of intangible asset or property, plant and equipment (PPE) during
2017. Depreciation and amortisation for the financial year 2017 were to be $176 million
and $210 million respectively.

(8) Interest paid and income tax paid by BS during the financial year 2017 were to be $30
million and $1.95 million respectively. No dividend was declared or paid for the financial
year 2017.

(9) In July 2017, BS issued additional shares at $20 each to raise funds for future development.
There were no other transactions related to BS’s share capital during the financial year
2017. BS did not borrow any new loan during the financial year 2017.

(10) Utilities expense incurred during the financial year 2017 was $95 million.

(11) All investing and financing activities were in cash transactions.

AC1104 S12 to S13 -31

(12) The financial statements are to be approved and authorised for issue on 25 March 2018 by
a directors’ resolution.

Required

(i) Provide all the necessary adjusting and correcting journal entries (if any) for the items in
Notes (1) to (4). For situations where you propose no journal entry, please provide your
reasons to justify your judgment.

(ii) Prepare all the necessary journal entries (if any) for Note (5) to update the cash account.

(iii) Determine the adjusted profit or loss before taxation for the financial year 2017 after taking
into account requirements (i) and (ii).

(iv) Determine the adjusted balance of “cash and cash equivalents” as at 31 December 2017
with reference to SFRS(I) 1-7 Statement of Cash Flows, after taking into account
requirements (i), (ii) and Note (6) above.

(v) Prepare BrightSide Ltd’s statement of cash flows for the financial year ended 31 December
2017 in compliance with SFRS(I) 1-7 Statement of Cash Flows, after taking into account
the necessary adjusting and correcting journal entries made in (i) and (ii) above. Show
necessary workings, if any.
Adapted from Q3 of AC1102 Sem 2 Exam 2017/2018
Key ans: (i) (1) CR Provision for WE $1m, (4) CR BrE $10m; (ii) (a) DR Cash at bank $2.985m;
(iii) PBT $80.685m; (iv) $1,077.43m;
(v) Cash flows generated from operating activities $37.93m #
Cash flows used in investing activities ($230m)
Cash flows generated from financing activities $399.9m
# interest paid is classified under operating activities

AC1104 S12 to S13 -32

Question 8 (GongXi)

GongXi Pte Ltd (“GongXi”) is a market leader selling organic food and household products in the
Asia Pacific region. The company ends its financial year on 31 December and applies Singapore
Financial Reporting Standards (International) [SFRS(I)] in the preparation of its financial
statements. The statement of financial position of GongXi is presented as follows:

Statement of Financial Position as at 31 December

Draft Audited
2021 2020
Assets $'000 $'000
Property (Note 1 & 2) 5,287.5 5,362.5
Plant & equipment (Note 1) 1,320.0 1,376.0
Cash (Note 3) - 29.0
Inventory (Note 4) 54.0 65.0
Accounts receivable 44.0 33.0
Other receivables (Note 5) 18.0 20.0
Total assets 6,723.5 6,885.5

Liabilities & Equity

Bank overdraft (Note 3) 8.0 -
Accounts payable 22.0 35.0
Other payables (Note 6) 13.0 17.5
Share capital 5,500.0 5,500.0
Retained earnings 1,180.5 1,333.0
Total liabilities & equity 6,723.5 6,885.5

Additional Information:

(1) All non-current assets are accounted for using the cost model and depreciated on a straight-
line basis with no residual value where applicable. The only accounting records made for
depreciable non-current assets were the yearly depreciation since acquisition. There was no
change to any depreciation estimates throughout the assets’ useful lives.

(2) The property refers to an office building held for rental. The tenant occupancy rate of the
office building was falling from 85% to 65% due to the Covid-19 pandemic. The vacant
units have been actively marketed to attract new tenants and were not self-occupied for use
in the operation.

AC1104 S12 to S13 -33

 With the economic recovery in mid-2021, the directors of GongXi believed that fair value
measurement of property would provide reliable and more relevant information for decision
making and thus decided to carry the office building at fair value with effect from 1 July
2021. GongXi’s inexperienced accounts assistant put this matter aside while the accountant
was on maternity leave. He overlooked this matter and subsequently omitted the change to
fair value measurement in 2021 books. The office building was accounted for correctly
before the financial year 2021.

The following schedule of the office building is an extract from GongXi’s notes to the
financial statements. The figures in the schedule match those in the accounting records.

2021 2020
$'000 $'000
Cost
Bal at 1 Jan and 31 Dec 6,000 6,000

Accumulated Depreciation
Bal at 1 Jan 637.5 487.5
Depreciation 75 150
Bal at 31 Dec 712.5 637.5

Net carrying amount on 31 Dec 5,287.5 5,362.5

Fair values of the office building are as follows:

Fair Value $'000

at 1 Jan 2021 5,500
at 1 Jul 2021 5,480
at 1 Jan 2022 5,570

(3) Bank reconciliation as at 31 December 2021 revealed that the bank erroneously deducted the
amount twice from GongXi’s bank account balance in December 2021 when clearing cheque
number 123456. The cheque number 123456 of $3,000 was issued in November 2021 to
settle the outstanding invoices of a supplier. The bank rectified the error on 24 February
2022.

(4) GongXi uses a perpetual inventory system and sells its organic bedsheets at a mark-up of
40%.

AC1104 S12 to S13 -34

 In November 2020, GongXi delivered 50 units of organic bedsheets to its consignee FaCai
Pte Ltd (“FaCai”). The only accounting entries made regarding this consignment was when
FaCai remitted $5,250 for the sales of all the 50 units on 20 April 2021. GongXi recorded
the sales and any corresponding expenses for all the 50 units on that same day although
FaCai confirmed that 10 units and 40 units were sold in the financial years 2020 and 2021,
respectively.

These consigned 50 units were not included in the ending inventory of the financial year
2020 as they were not physically counted. The physical inventory count at the end of the
financial year 2021 tallied with the corrected inventory balance.

(5) Other receivables include loan receivable of $10,000 (2020: $11,800) and interest receivable
of $1,200 (2020: $950).

(6) Other payables include dividend payable of $2,100 (2020: $1,800) and salaries payable of
$3,600 (2020: $4,300).

(7) Draft net loss for the financial year ended 31 December 2021 of $135,000 was arrived at
after accounting for the following items:
$
Interest income 2,400
Interest expense 600
Salaries expense 47,000

(8) The 2021 financial statements are authorised for issue on 25 April 2022.

Required

(i) Prepare all necessary adjusting or correcting entries for items (2) and (3) for the financial
year 2021. Provide justification if no entry is required.

(ii) For item (4), determine the value of the inventory discrepancy between the perpetual
inventory records and the physical inventory count when GongXi omitted the 50 units of
organic bedsheets from the year-end physical count in the financial year 2020. Briefly
explain how GongXi accounted for the inventory discrepancy in the financial year 2020.

(iii) Prepare all necessary adjusting or correcting entries for item (4) for the financial year 2021.

(iv) After taking into account the requirements (i) and (iii) above, prepare GongXi’s statement
of cash flows for operating activities only for the financial year ended 31 December 2021 in
compliance with SFRS(I) 1-7 Statement of Cash Flows. You should include all items with
alternative classifications in your statement and disregard any income tax effect.

AC1104 S12 to S13 -35

(v) On 1 February 2022, a debtor of GongXi filed for bankruptcy due to its financial difficulty
during Covid-19 pandemic. The total outstanding debts of $7,000 due from the debtor may
be irrecoverable by GongXi although it was not overdue as at 31 December 2021.
(a) Should GongXi account for this event in the financial year 2021? Justify your
answer and provide the journal entries, if any; and
(b) Briefly explain the effect of this event on GongXi’s 2021 statement of cash flows.
Q2 of AC1104 Sem 2 Exam 2021/2022
Key ans: (i) (2) CR BRE $137,500, (3) No Journal Entry; (ii) $3,750;
(iii) DR Beg. AR 1,050, CR BRE $4,050;
(iv) Cash flows used in operating activities ($38,800) #
# interest paid, dividend paid and interest received are classified under operating activities;
(v) (a) DR Impairment of AR $7,000, (b) No impact

Question 9 (Prestige)

Prestige Ltd (Prestige) has a 31 March financial year end. Below is a draft statement of financial
position prepared by its inexperienced junior accountant.

Prestige Ltd
Statement of financial position as at 31 March 2019

Draft Audited
2018/2019 2017/2018
$’000 $’000

Warehouse (Note 1) 2,795.0 2,190.0

Other property, plant and equipment (Note 1) 195.0 245.0
Cash and bank balances 354.5 640.5
Inventories 290.0 220.0
Trade and other receivables 507.0 440.0
Total 4,141.5 3,735.5

Borrowings from bank (Note 3) 555.0 770.0

Trade and other payables 120.0 70.0
Interest payable (Note 4) 155.4 215.6
Income tax payable (Note 4) 78.0 80.0
Share capital (Note 5) 300.0 300.0
Revaluation reserves (Note 1) 645.0 0.0
Retained earnings 2,288.1 2,299.9
Total 4,141.5 3,735.5

Additional Information

(1) Property, plant and equipment (PPE) consists of a warehouse and other PPE.

AC1104 S12 to S13 -36

 (a) Prestige acquired a warehouse on 1 January 2018 with an intention to lease out the
entire warehouse on operating lease for rental income. The warehouse cannot be
sold or leased out on a finance lease separately. The total area of the warehouse is
10,000 square feet. On 1 April 2018, Prestige leased out 8,000 square feet of its
warehouse to Big Storage Pte Ltd (the “Tenant”) for $36,000 per month, payable
on the first day of each month. Prestige promised to provide the ancillary services
of security and maintenance to its Tenant. Prestige recognised the entire warehouse
as PPE upon acquisition, under SFRS(I) 1-16 Property, Plant and Equipment.

The warehouse was initially carried at cost. However, Prestige revised its
significant accounting policy to carry it at fair value on 31 March 2019. The useful
life and salvage value of the warehouse were estimated to be 50 years and $200,000
respectively, where applicable. Annual depreciation charge of $40,000 for the
financial year 2018/2019 was recognised for the warehouse before its first
revaluation on 31 March 2019.

Straight-line depreciation method to apportion the depreciation charge across the

financial year is adopted for the warehouse.

Fair values of warehouse as at 31 March

2018 $2,548,000
2019 $2,795,000

(b) All PPE items other than the warehouse are carried at cost less accumulated
depreciation and sum-of-the-years’ digits depreciation method is adopted.

During the financial year, Prestige acquired a new equipment at a cost of $50,000,
fully financed by a long-term credit facility with a bank. The new equipment was
to replace its old equipment that was disposed of in cash at the end of the financial
year 2018/2019. A gain of $2,000 was made upon disposal. The old equipment
was acquired in April 2018 at a cost of $42,000. The old equipment was estimated
to have a useful life of 4 years, with zero residual value. Prestige recorded all the
transactions relating to the equipment correctly.

(2) Prestige has a significant accounting policy to carry all its investment property (IP) items
at fair value. There was no new acquisition or disposal of IP during the financial year
2018/2019.

(3) Prestige obtained a new bank loan of $100,000 during the financial year 2018/2019.

(4) Interest expense and income tax expense for the financial year 2018/2019 were $13,000
and $35,000 respectively.
(5) Prestige issued shares at $1.20 per share upon incorporation. There was no share
transaction since the date of incorporation.

AC1104 S12 to S13 -37

(6) In January 2019, Prestige announced and paid an interim tax-exempt (one-tier) dividend of
$0.04 per share. A final dividend of $0.05 was declared after 31 March 2019.

(7) The 2018/2019 financial statements are expected to be approved and issued on 29 June
2019.

Required

(i) Refer to the information with regard to the warehouse in item (1)(a) above,
(a) determine the initial cost of acquisition of the warehouse on 1 January 2018; and
(b) comment on the classifications of the warehouse on 1 January 2018 and 1 April
2018 as PPE.

(ii) Provide all the necessary adjusting and/or correcting journal entries for item (1)(a) above,
if any.

(iii) Determine the adjusted profit or loss before taxation for the financial year 2018/2019, after
taking into account requirement (ii) above.

(iv) Prepare a statement of cash flows for Prestige for the financial year 2018/2019 using the
indirect method in compliance with SFRS(I) 1-7 Statement of Cash Flows. Show the
necessary notes, if any.
Q4 of AC1102 Sem 2 Exam 2018/2019
Key ans: (i) (a) $2,200,000; (ii) DR Beg AD (PPE) $10,000, CR BRE $358,000, CR FV gain on WH (IP) $247,000;
(iii) PBT $320,200;
(iv) Cash flows generated from operating activities $3,800 #
Cash flows used in investing activities ($14,800)
Cash flows used in financing activities ($275,000) ##
# interest paid is classified under operating activities
## dividend paid is classified under financing activities

AC1104 S12 to S13 -38

Question 10 (PT)

Precision Tech Ltd (PT) is a manufacturer of motor vehicles in Singapore. PT’s 2019 draft
statements of financial position were prepared by an inexperienced accountant.

Precision Tech Ltd

Statement of Financial Position as at 31 December

Draft Audited
2019 2018
$’000 $’000

Property, plant and equipment (Notes 2 and 3) 3,120 3,000

Accumulated depreciation (810) (710)
Accumulated impairment loss (70.5) (70.5)
Intangible assets 50 50
Accumulated amortisation (15) (10)
Cash on hand & balances with banks (Note 5) 400 450
Inventories 200 150
Trade receivables 50 60
Other current assets 300 280
Total Assets 3,224.5 3,199.5

Borrowings 620 800

Bank overdraft 10 15
Trade payables 200 150
Revaluation reserve (Note 3) 20 0
Provision (Note 4) 200 0
Interest payable (Note 7) 20 40
Income tax payable (Note 7) 10 30
Share capital (Note 8) 2,000 2,000
Retained earnings 144.5 164.5
Total Liabilities and Equity 3,224.5 3,199.5

Additional Information

(1) The 2019 financial statements are expected to be approved and issued on 27 April 2020.

(2) The inexperienced junior accountant was not sure how to account for the following events
and therefore they were omitted in the 2019 draft statement of financial position:

AC1104 S12 to S13 -39

 (a) In the first week of March 2020, PT detected manufacturing defects in its two products,
cars and tractors. Some PT’s customers were injured due to the manufacturing defects.
The company lawyers estimated a probable total payments of $300,000 and $500,000
to compensate customers’ injuries related to the defects in the car and the tractor
respectively. The defected car and the tractor were sold during financial year 2019 and
January 2020 respectively.

(b) At the end of financial year 2019, PT stopped using its old moulding machine as the
management had a plan to sell it away. The machine met all the recognition criteria of
SFRS(I) 5 Non-Current Assets Held for Sale and Discontinued Operations.

The machine was acquired on 1 July 2011 at a cost of $600,000, with estimated salvage
value and useful life of $20,000 and 10 years respectively. PT recognises the
depreciation on a straight-line basis using the cost model and no impairment loss was
recorded for this asset. The fair value and value-in-use of the machine as at 31
December 2019 were $36,500 and $30,000 respectively. It cost $10,000 for the
company to sell the machine.

(3) PT constructed an electronic car for the business purposes of a PT director. PT incurred a
total cost of $100,000 to construct this electronic car. A similar electronic car could have
been acquired from the market at a cost of $120,000. The company started the construction
project on 1 January 2019 and completed in six months. The self-constructed electronic car
was ready for use upon completion. PT has an accounting policy to carry its property, plant
and equipment (PPE) at cost model. The depreciation is based on a straight-line method
with an estimated useful life and residual value of 10 years and zero respectively.
The journal entries recorded by the inexperienced junior accountant regarding the
completed self-constructed electronic car are as follows:

Dr Self-constructed electronic car (PPE) $120,000

Cr Cash $100,000
Cr Revaluation reserve $ 20,000

Dr Depreciation $6,000
Cr Accumulated depreciation $6,000

(4) Due to the outbreak of Coronavirus, PT expects a disruption of supply chain from China,
which will result in its operating loss of $200,000 in the following year. The inexperienced
junior accountant passed the following journal entry to record this operating loss on 31
December 2019.

Dr Operating loss $200,000

Cr Provision for operating loss $200,000

(5) Cash on hand & balances with banks include fixed deposit pledged of $50,000 (2018:
$72,500) for securing PT’s credit facilities.

AC1104 S12 to S13 -40

(6) There was no disposal or addition of intangible asset items during the financial year 2019.

(7) Interest expense and income tax expense for the financial year 2019 were $30,000 and
$45,000 respectively.

(8) PT issued 200,000 ordinary shares at $10.00 each upon incorporation. In June 2019, there
was a 2:1 share split.

(9) In August 2019, PT announced an interim tax-exempt (one-tier) dividend of $0.06 per
share. No final dividend was declared after 31 December 2019.

(10) Other current assets consist of items related to operating activities.

Required

(i) Provide all the necessary adjusting and correcting journal entries for items in Notes (2), (3)
and (4) above, if any.

(ii) Determine the adjusted profit or loss before taxation for the financial year ended 31
December 2019, after taking into account requirement (i) above.

(iii) Prepare PT’s statement of cash flows for the financial year ended 31 December 2019 using
the indirect method in compliance with SFRS(I) 1-7 Statement of Cash Flows, after taking
into account the requirements in (i) and (ii) above. Show necessary workings, if any.

(iv) PT did not distribute any cash dividend prior to financial year 2019 due to the restriction
of the debt covenant. Recommend a possible solution to the director of PT if the company
wishes to achieve a higher operating cash flow ratio.
Adapted from Q2 of AC1104 Sem 2 Exam 2019/2020
Key ans: (i)DR Compensation expense $300,000, DR Revaluation reserve $20,000, CR Operating loss $200,000;
(ii)($130,500);
(iii) Cash flows generated from operating activities $235,000 #
Cash flows used in investing activities ($100,000)
Cash flows used in financing activities ($157,500)
# interest paid and dividends paid are classified under operating activities

AC1104 S12 to S13 -41

Question 11 (Elia)

Elia Ltd (Elia) is a sole distributor of premium olive cooking oil in Singapore and its main supplier
is Elaiodendro from Greece. The accountant prepared the following financial statements for the
financial year ended 30 September 2020.

Elia Ltd
Statement of Financial Position as at 30 September
Draft Audited
2020 2019
$’000 $’000
Property, plant and equipment (Notes 1 & 2) 397.6 1,850.2
Cash on hand & balances with banks 982.0 300.0
Inventories 400.0 450.0
Accounts receivable (Note 3) 350.0 328.0
Non-current assets held for sale (Note 2b) 337.0 0.0
Prepayments (Note 4) 43.0 30.0
Bank overdraft 0.0 50.0
Bank loan 100.0 800.0
Accounts payable 240.0 128.0
Accrued expenses 24.0 24.0
Interest payable 45.0 28.0
Income tax payable 23.0 33.0
Share capital 200.0 200.0
Retained earnings 1,877.6 1,695.2

Elia Ltd
Draft Income Statement
for the financial year ended 30 September 2020
$’000
Revenue 580.0
Cost of goods sold (220.0)
Gross profit 360.0
Gain on disposal (Note 2a) 86.0
Rental income (Note 2c) 2.4
Depreciation (42.1)
Impairment loss (Notes 2b and 3) (40.5)
Staff salary (58.0)
Air-con service and maintenance fee (Note 4a) (24.0)
Interest expense (50.0)
Profit before tax 233.8
Tax expense (40.0)
Profit for the year 193.8

AC1104 S12 to S13 -42

Some relevant information obtained from the management of Elia is listed as follows:

(1) All Elia’s non-current asset items are carried at cost less any accumulated depreciation
except for leasehold land. A straight-line depreciation method is adopted, if applicable.

In the event of a revaluation, paragraph 35(b) of SFRS(I) 1-16 Property, Plant and
Equipment is preferred, where the accumulated depreciation is eliminated against the gross
carrying amount of the asset.

(2) Elia’s property, plant and equipment (PPE) consists of one leasehold land, two office units
and three vans.

(a) Elia acquired its leasehold land at a cost of $1.2 million on 1 April 2018. The useful
life is estimated to be 35 years and with $150,000 salvage value. The fair value of
the leasehold land on 30 September 2018 and 30 September 2019 were $1.185
million and $1.088 million, respectively. The leasehold land was then disposed of
on 1 January 2020 and Elia recognised a gain in the statement of profit or loss.

(b) In early October 2016, Elia acquired its two office units at a cost of $400,000 each.
The useful life of each office unit is estimated to be 20 years with $100,000 salvage
value. On 2 April 2020, Elia correctly reclassified one of its office units as held for
sale in accordance with SFRS(I) 5 Non-Current Assets Held for Sale and
Discontinued Operations. Elia recognised an impairment loss of $10,500 during
the financial year 2019/2020.

(c) The three vans were acquired in early October 2016 at a cost of $30,000 each. The
estimated useful life and salvage value for each van are 6 years and $4,800,
respectively. Elia rented out one of its vans on operating lease and earned monthly
rental income of $400. The rental income is received at the beginning of each
month. The one-year lease commenced on 1 April 2020.

(3) Accounts receivable is derived as follows:

2019/2020 2018/2019
$’000 $’000
Accounts receivable 400.0 348.0
Allowance for impairment loss (50.0) (20.0)
350.0 328.0

AC1104 S12 to S13 -43

(4) Prepayments are derived as follows:

$’000 Payment
date
(a) 2-year Air-con 48.0 12 Coverage period: 1 January 2019 to
service and December 31 December 2020
maintenance fee 2018
(b) Office equipment 12.0 20 The purchase price of the office
for office use September equipment is $30,000. Elia received
2020 the office equipment on 30 September
2020 and settled the remaining
outstanding amounts on the same day.
(c) One-month 25.0 28 Coverage period: 1 October 2020 to
warehouse rental September 31 October 2020
expense 2020

(5) In January 2020, an interim tax-exempt (one-tier) dividend was declared and paid.

(6) The 2019/2020 financial statements are expected to be approved and issued on 27
November 2020.

Required

(i) Prepare all the necessary adjusting and/or correcting journal entries for Note (4) above.

(ii) After taking into account requirement (i) above, prepare a PPE schedule for the financial
year ended 30 September 2020 with comparative net book values.

(iii) After taking into account requirement (i) above, prepare a statement of cash flows for Elia
for the financial year 2019/2020 using the Indirect Method in compliance with SFRS(I) 1-
7 Statement of Cash Flows. Interest and dividend paid are to be presented in the operating
activities.

(iv) After taking into account requirement (i) above, prepare a statement of net cash flow
generated from operating activities for Elia for the financial year 2019/2020 using the
Direct Method in compliance with SFRS(I) 1-7 Statement of Cash Flows. Interest and
dividend paid are to be presented in the operating activities.

AC1104 S12 to S13 -44

(v) On 1 November 2020, Elia declared to distribute its olive oil inventory to all its
shareholders as 2019/2020 final dividend. Shareholder’s approval for dividend is not
required according to the company’s policy. On the day of declaration, the cost and the
fair value of the olive oil inventory were $200,000 and $300,000 respectively. The dividend
was distributed on 25 November 2020 and the fair value of the olive oil inventory was
$320,000 on the date of distribution.

Identify the accounting issue and discuss how Elia should account for this event in the
financial year 2019/2020. Provide all the necessary journal entries, if any.
Q2 of AC1104 Sem 1 Exam 2020/2021
Key ans: (i)DR Office equipment (PPE) $12,000;
(ii) NBV @ 30 Sep 2020: Leasehold land $0, Office units $340,000, Motor vehicles $39,600, Office equipment $30,000;
(iii) Cash flows generated from operating activities $295,000 #,
Cash flows generated from investing activities $1,137,000, Cash flows used in financing activities ($700,000);
(iv) Cash receipts from customers $528,000, Cash paid to suppliers ($58,000), (v) No JE
# interest paid and dividends paid are classified under operating activities;

Question 12 (Abadar)

Abadar Pte Ltd (Abadar) is a company selling comic toys and medicom toys online in Singapore.
The drafted Statement of Financial Position and Income Statement are presented as follows:

Abadar Pte Ltd

Statement of Financial Position as at 31 March
Draft Audited
2023 2022
$ $
Property, plant and equipment (Notes 1 & 2) 23,850 18,000
Cash and bank balances 1,500 5,000
Inventories 11,000 13,450
Trade receivables 8,800 6,800
Prepayments (Note 3) 300 280
Total Assets 45,450 43,530

Bank overdraft 800 0

Borrowings (Note 4) 12,700 14,500
Trade payables 9,300 10,050
Interest payable 1,800 2,100
Income tax payable 2,740 2,300
Share capital 1,000 1,000
Retained earnings 17,110 13,580
Total Liabilities and Equity 45,450 43,530

AC1104 S12 to S13 -45

 Abadar Pte Ltd
Draft Income Statement for the financial year ended 31 March 2023
$
Revenue 19,530
Cost of goods sold (8,330)
Gross profit 11,200
Loss on disposal of non-current asset held for sale (Note 2) (120)
Impairment loss of non-current asset held for sale (Note 2) (100)
Depreciation (350)
Salaries expense (4,100)
Other expenses (Note 3) (400)
Interest expense (1,800)
Profit before tax 4,330
Tax expense (800)
Profit for the year 3,530

Some relevant information obtained from the management of Abadar is listed as follows:

(1) Abadar acquired two new laptops with accessories at a total cost of $6,800 by cash at the
end of the financial year 2022/2023.

(2) Abadar’s old laptops were correctly classified as held for sale and accounted for the loss
on disposal during the financial year 2022/2023. The old laptops were disposed of at its
carrying amount of $500.

(3) Abadar prepaid $120 for its insurance in the financial year 2022/2023.

(4) The borrowings of $12,700 will be due within two years.

Required

(i) Determine the cash inflow from the sale of the non-current asset held for sale.

(ii) Determine the insurance expense incurred for the financial year ended 31 March 2023.

(iii) Prepare a statement of cash flows for Abadar for the financial year ended 31 March 2023
using the direct method in compliance with SFRS(I) 1-7 Statement of Cash Flows.

(iv) Abadar’s CEO was concerned that the company may not survive in the long run because
of the substantial decrease in the cash and bank balances in the financial year 2022/2023.
Do you agree with the CEO’s concern? Briefly comment with justifications.
Q3 of AC1104 Sem 2 Exam 2022/2023
Key ans: (i) $300; (ii) $100; (iii) Cash flows generated from operating activities $3,920 #,
Cash flows used in investing activities ($6,420), Cash flows used in financing activities ($1,800);
# interest paid is classified under operating activities

AC1104 S12 to S13 -46

Question 13 (Gardin)

Gardin Pte Ltd (Gardin) is a Singapore-based company which sells curtains, blinds and
accessories.

Gardin Pte Ltd

Statement of Financial Position as at 30 June
Draft Audited
2023 2022
$ $
Property, plant and equipment (Note 1) 34,400 92,000
Investment properties (Note 2) 103,000 80,000
Cash and bank balances 7,500 6,000
Inventories 4,600 5,050
Trade and other receivables 3,300 3,800
Prepayments 700 680
Total Assets 153,500 187,530

Bank overdraft 500 100

Bank loan (Note 3) 40,700 55,500
Trade and other payables 4,300 4,080
Payments received in advance from customers 4,800 3,700
Interest payable 2,400 3,000
Tax payable 440 300
Share capital (Note 4) 13,000 8,000
Retained earnings 87,360 112,850
Total Liabilities and Equity 153,500 187,530

Draft profit for the financial year ended 30 June 2023 was arrived at after
recording:
$
Depreciation 32,600
Fair value gain 23,000
Staff costs 8,300
Interest expense 2,800
Tax expense 320

Some relevant information is as follows:

(1) Property, plant and equipment (PPE) was carried at cost model. Gardin disposed of one of
its PPE items, Van, during the financial year 2022/2023 and recognised a loss of $5,000.
The carrying amount of the Van was $25,000 on the day of disposal. There was no other
PPE sale or purchase transaction during the financial year 2022/2023 except for Van.

AC1104 S12 to S13 -47

(2) Investment properties are carried at fair value. There was no sale or purchase of investment
properties during the financial year 2022/2023.

(3) Gardin repaid $24,000 of bank loan during the financial year 2022/2023.

(4) Gardin issued 10,000 ordinary shares at $0.80 per share upon incorporation. On 1 January
2023, Gardin issued additional shares at $1 per share.

(5) In early February 2023, Gardin declared and paid an interim tax-exempt (one-tier) dividend
of $0.08 per share. No final dividend was declared after 30 June 2023.

(6) The 2022/2023 financial statements were approved and issued on 18 October 2023.

Required

(i) Determine the interim tax-exempt (one-tier) dividend paid during the financial year
2022/2023.

(ii) Determine the profit or loss for the financial year 2022/2023.

(iii) Prepare Gardin’s statement of cash flows for the financial year ended 30 June 2023 in
compliance with SFRS(I) 1-7 Statement of Cash Flows.

(iv) Briefly explain what a statement of cash flows is and how the cash flows information can
help Gardin in its business decisions.
Q3 of AC1104 Sem 1 Exam 2023/2024
Key ans: (i) $1,200; (ii) Loss ($24,290); (iii) Cash flows used in operating activities ($7,900) #,
Cash flows generated from investing activities $20,000, Cash flows used in financing activities ($11,000);
# interest paid is classified under operating activities

- END -

AC1104 S12 to S13 -48