7001 Assignment #3

HKU Business School – Master of Accounting Programme 2022-23
MACC 7001 Financial Accounting Foundation

Assignment #3 (5% of full course marks)
Instructions:
1. Fill in your name and UID below.
2. Type or write your answers in the spaces provided.
3. Upload completed work to Moodle by 11pm of Oct 9, 2022. Late submission will not be graded.
Student Name Chen Zhaoxu

Student UID 3036008709
Question #1 – IAS 10 Events After the Reporting Period
Each of the following events occurred after the reporting date of 31 March 2022, but before the financial
statements were authorised for issue.
(a) Destruction of a major production plant by a fire in April 2022.

(b) A final dividend is proposed on 30 March 2022 to the shareholders. Subsequently, the dividends
were declared on 19 April 2022 and payable on 30 April 2022.
(c) On April 10, 2022, the credit department discovered that a major customer owing $2 million has
gone into liquidation.
(d) A public announcement in April 2022 of a formal plan to discontinue an operation which had
been approved by the board in February 2022.
Required:
According to IAS 10 Events After the Reporting Period,
1. Determine, for each of the above events, whether they would be treated as an adjusting or non-
adjusting event. No explanations are required.
2. Explain how adjusting and non-adjusting events should be accounted for in the financial statements.
No calculations and journal entries are required.
Page 1 of 9
Answers
[Please type or write your answers here.]
Answer:
1. a) non-adjusting
b) non-adjusting
c) adjusting
d) non-adjusting
2. According to IAS 10, an entity shall adjust the amounts recognized in its financial statements to
reflect adjustments made after the reporting period. However, it may not adjust the amount recognized
in its financial statements to reflect non-adjusted events after the reporting period.
Page 2 of 9
Question #2 – IAS 1 Presentation of Financial Statements
The trial balance of Peak Limited (Peak) at 30 June 2022 was as follows:
DEBIT CREDIT
HK$’000 HK$’000
Share capital (HK$2 ordinary shares fully paid) 400
General reserve 50
Retained earnings (1/7/2021) 257
Revaluation surplus 170
Mortgage loan 500
Bank overdraft (at call) 138
7% debentures 160
Interest payable 5
Accounts payable 140
Dividend payable 20
Current tax liability 104
Provision for employee benefits 68
Deferred tax liability 37
Allowance for doubtful debts 26
Accumulated depreciation – plant and equipment 85
Accumulated impairment – goodwill 20
Cash 1
Accounts receivable 116
Inventory 175
Prepaid insurance 14
Plant and equipment 445
Land 440
Buildings 760
Goodwill 210
Deferred tax asset 20
Sales revenue 1,650
Cost of sales 900
Administration expenses 530
Other expenses 20
Interest revenue 5
Dividends revenue 7
Income tax expense 101
Dividends paid 40
Dividends declared 20
Transfer to general reserve 50
3,842 3,842
Page 3 of 9
Additional information:
1. Administrative expenses for the year included interest expense of HK$57,000.
2. All assets were carried at cost, except for land and buildings which were carried at valuation.
3. On 30 June 2022, the directors revalued land and buildings. The revaluation was based on an
independent valuation and was based on fair values. The carrying amounts of land and buildings
before the revaluation were HK$390,000 and HK$700,000 respectively. The income tax related to
the revaluations amounted to HK$18,000.
4. The mortgage loan was repayable in annual instalments of HK$100,000 due on 1 November each
year.
5. The 7% debentures were to be redeemed on 31 December 2022. There was no plan to refinance
these debentures in the future.
6. The provision for employee benefits consisted of HK$36,000 expected to be paid in the next 12
months and HK$32,000 expected to be paid beyond the next 12 months.
7. The deferred tax asset and liability were classified as non-current items.
Required:
a) Prepare a statement of profit or loss and other comprehensive income for Peak for the year ended 30
June 2022 in accordance with IAS 1.
b) Prepare a statement of financial position for Peak as at 30 June 2022 to comply with IAS 1.
Page 4 of 9
Answers
a) Other income = Interest revenue + Dividends revenue
= 5,000 + 7,000 = 12,000
Statement of Profit or loss and other comprehensive income for Peak for the year ended 30 June 2022
HK $
Sales revenue 1,650,000
Cost of sales (90,000)
Gross profit 750,000
Other income 12,000
Administration expense (530,000)
Other expenses (20,000)
Finance costs (57,000)
Profit before income tax 155,000
Income tax expense (101,000)
Profit for the year 54,000
Other comprehensive income
Gain on revaluation of land 50,000
Gain on revaluation of buildings 60,000
Income tax relating to tiems not reclassified (18,000)
Other comprehensive income for the year 92,000
Total comprehensive income for the year 146,000
b)
Statement of financial position for Peak as at 30 June 2022
Page 5 of 9
Page 6 of 9
Question #3 – IAS 7 Statement of Cash Flows

Use the following financial statements and additional information to:
(i) prepare the operating activity section of the statement of cash flows for the year ended
December 31, 2021 using the indirect method.
(ii) calculate the cash paid for dividends.
Wescott Company
Statements of Financial Position
At December 31
2021 2020
Page 7 of 9
Wescott Company
Statement of Profit or Loss
For Year Ended December 31, 2021
Additional Information
a. A $20,000 note payable is retired at its carrying amount in exchange for cash.
b. The only changes affecting retained earnings are net income and cash dividends paid. Cash
dividends paid is to be classified under financing activities.
c. New equipment is acquired for $120,000 cash.
d. Received cash for the sale of equipment that had cost $85,000, yielding a gain of $4,700.
e. Prepaid expenses relate to other operating expenses on the income statement.
f. All purchases and sales of merchandise inventory are on credit.
Page 8 of 9
Answers
i)
Decrease in prepaid expenses = Prepaid expenses(2020) - Prepaid expenses(2021)
= 12,680 – 6,080 = 6,600
Increase in accounts payable = Accounts payable (2021) - Accounts payable (2020)
= 52,850 – 45,450 = 7,400
Increase in accounts receivable = Accounts receivable (2021) - Accounts receivable (2020)
= 72,850 – 56,750 = 16,100
Increase in merchandise inventory = Merchandise inventory (2021) - Merchandise inventory (2020)
= 157,750 – 144,850 = 12,900
Income taxes paid = Income tax expense + Income tax payable (2020) - Income tax payable (2021)
= 41,100 + 12,240 – 15,240 = 38,100
Statement of cash flows for Wescott Company at the year ended December 31, 2021
$ $
Net income 83,400
Adjustments:
Income tax expense 41,100
Interest expense 6,400
Depreciation expense 43,000
Gain on sale of equipment (4,700)
Decrease in prepaid expenses 6,600
Increase in accounts payable 7,400
Increase in accounts receivable (16,100)
Increase in merchandise inventory (12,900)
Cash generated from operations 154,200
Interest paid (6,400)
Income taxes paid (38,100)
Net cash from operating activities 109,700
ii)
Beginning Retained Earnings (Retained Earnings 2020) + Net Income – Dividends = Ending Retained
Earnings
100,590 + 83,400 – X = 141,990
→ X = 42,000
So, Cash dividends paid amounts to $42,000.
~ End ~
Page 9 of 9

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HKU Business School – Master of Accounting Programme 2022-23

MACC 7001 Financial Accounting Foundation

Student Name Chen Zhaoxu

Question #1 – IAS 10 Events After the Reporting Period

(a) Destruction of a major production plant by a fire in April 2022.

According to IAS 10 Events After the Reporting Period,

Question #2 – IAS 1 Presentation of Financial Statements

Question #3 – IAS 7 Statement of Cash Flows

(ii) calculate the cash paid for dividends.

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