Presentation of Financial Statements Examples

Question 1: Maxwell Limited

The following account balances are taken from the ledger of Maxwell Limited on 31
December of year 2, the end of its fiscal year:
Maxwell Limited
Trial Balance
As at 31 December of year 2
$’m $’m
Investment property 336
Buildings (at cost) 100
Accumulated depreciation – buildings 20
Plant and machinery (at cost) 140
Accumulated depreciation – plant and machinery 22
Cash 40
Accounts receivable 120
Allowance for bad debts 10
Inventories 130
Accounts payable 40
Salary payable 37
Loans 200
Share capital (400 million shares) 400
Retained earnings 32
Sales 450
Cost of goods sold 180
Salaries expense 50
Distribution costs 60
Rent expense (office building) 30
Utilities expense (office building) 15
Other operating expense 10
Total 1,211 1,211

Information necessary to prepare the year-end adjusting entries and the Year 2’s financial
statements:

1. Depreciation is to be provided on a straight-line basis as follows: 5% per annum on cost

for buildings and 10% per annum on cost for plant and machinery.

2. There were no additions or disposals to buildings during the year. Included in the $140
million “Plant and machinery” account is one machine for operating use (cost: $40
million) purchased on 1 July of year 1 which was sold at year-end for $31 million with
cash to be received in January of year 3. No entry has been recorded for this disposal
transaction.

3. It was determined that the “Allowance for bad debts” account at year-end should be $12
million.

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4. Maxwell Limited adopted the fair value model for its investment property. The fair value
of the investment property held by Maxwell Limited at 31 December of year 2 was $350
million.

5. The Loans used in financing the operations are due to a bank. According to the terms of
the loan agreement, Maxwell Limited will have to repay $50 million of the total by 30
June of year 3. The interest rate of the loan is stipulated at 8% per annum calculated on 31
December each year and is payable in January in the following year.

6. The amount of tax to be provided for the year is $12 million.

7. The bad debt expenses should be classified as administrative expenses. The depreciation
expenses should be allocated to other operating expenses. The salaries expense should be
allocated 50% to administrative expenses and 40% to distribution costs and 10% to
operating expenses.

REQUIRED

(a) Prepare journal entries necessary for the preparation of Maxwell’s Year 2’s financial
statements.

(b) Prepare the statement of profit or loss and other comprehensive income (single statement
approach - classifying costs by function) and the statement of changes in equity
(columnar format) for the year ended 31 December of year 2 and also the classified
statement of financial position (format A – L = E) as at 31 December of year 2 for
Maxwell Limited.