Emerald Ltd a manufacturing company commenced operations on

Emerald Ltd, a manufacturing company, commenced operations on 1 July 2016 by issuing 350 000 $5.00 shares, payable in full on application on a first-come, first-served basis. By 31 July 2016 the shares were fully subscribed and duly allotted. There were share issue costs of $10 000. No additional shares were issued during the year ending 30 June 2017.

For the year ending 30 June 2018, the company recorded the following aggregate transactions:

$

Sales

5 120 000

Interest income

34 000

Sundry income

25 000

Cost of Sales

2 465 000

Employee benefit expenses

856 000

Depreciation expense

244 000

Amortisation - franchise

25 000

Rental expense

120 000

Advertising expense

147 000

Insurance expense

48 000

Freight out expense

110 000

Doubtful debts expense

16 000

Interest expense

36 000

Borrowing Costs

9 000

Other expenses

8 000

Income tax expense

320 000

The following additional information was noted during the preparation of financial statements for the year ended 30 June 2018:

75 000 fully paid ordinary shares have been issued on 1 October 2017 at the price of $4.00.

$135 000 dividends (31.76 cents per share) were declared and paid during the 2018 financial year. A final dividend for 2018 of $51 850 was proposed but not recognised in the financial statements.

There was a gain of $20 000 from the cash flow hedge arrangement during the 2018 financial year. Any gain or loss associated with the cash flow hedge is directly recognised in equity. There was no previously recognised cash flow hedge reserve before the 2018 financial year.

$25 000 of bank loans is repayable within 1 year.

$90 000 of other loans is repayable within 1 year.

The employee benefits of $32 000 are expected to be settled wholly within 12 months.

Emerald Ltd measures inventory at the lower of cost and net realizable value and property, plant and equipment using a cost model.

The summarised balances are provided below:

Year-end balances, 30 June 2018

$

Cash on hand

960 000

Cash on deposit, at call

82 000

Accounts Receivables

665 000

Allowance for doubtful debts/ Impairments

24 000

Other debtors

27 000

Finished goods inventories, 30 June 2018

600 000

Work in Progress inventories 30 June 2018

105 000

Land

94 000

Buildings

230 000

Accumulated depreciation – buildings

60 000

Plant and equipment

1 385 000

Accumulated depreciation – plant and equipment

330 000

Franchises

140 000

Accumulated amortisation of franchise

50 000

Goodwill

620 000

Bank loans

92 000

Other loans

440 000

Accounts payable

696 000

Provision for employee benefits

116 000

Income tax payable

35 000

Deferred tax liability

140 000

Retained earnings, 30 June 2017

225 000

Dividends paid

135 000

Cash flow hedge reserve (equity)

20 000

Required:

For the year ending 30 June, 2018,

Using the pro forma table supplied in appendix B, prepare a preliminary trial balance for Emerald Ltd;   (5 Marks)

APPENDIX B

Emerald Ltd - Trial Balance as at 30 June 2018

DR

CR

Sales

$’000

$’000

Interest income

Sundry income

Cost of sales

Employee benefit expenses

Depreciation expense

Amortisation - franchise

Rental expense

Advertising expense (selling)

Insurance expense

Freight out expense

Doubtful debts expense

Interest expense

Borrowing costs

Other expenses

Income tax expense

Cash on hand

Cash on deposit, at call

Accounts Receivables

Allowance for doubtful debts/ Impairments

Other debtors

Finished goods inventories, 30 June 2018

Work in Progress inventories 30 June 2018

Land

Buildings

Accumulated depreciation – buildings

Plant and equipment

Accumulated depreciation – plant and equipment

Franchise

Accumulated amortisation of franchise

Goodwill

Bank loans

Other loans

Accounts payable

Provision for employee benefits

Income tax payable

Deferred tax liability

Retained earnings, 30 June 2017

Dividends paid

Cash flow hedge reserve

Share capital

Totals

	$
Sales	5 120 000
Interest income	34 000
Sundry income	25 000
Cost of Sales	2 465 000
Employee benefit expenses	856 000
Depreciation expense	244 000
Amortisation - franchise	25 000
Rental expense	120 000
Advertising expense	147 000
Insurance expense	48 000
Freight out expense	110 000
Doubtful debts expense	16 000
Interest expense	36 000
Borrowing Costs	9 000
Other expenses	8 000
Income tax expense	320 000

Solution

Workings :

Emerald Ltd - Trial Balance as at 30 June 2018	DR	CR
	$’000	$’000
Sales		5120000.00
Interest income		34000.00
Sundry income		25000.00
Cost of sales	2465000.00
Employee benefit expenses	856000.00
Depreciation expense	244000.00
Amortisation - franchise	25000.00
Rental expense	120000.00
Advertising expense (selling)	147000.00
Insurance expense	48000.00
Freight out expense	110000.00
Doubtful debts expense	16000.00
Interest expense	36000.00
Borrowing costs	9000.00
Other expenses	8000.00
Income tax expense	320000.00
Cash on hand	960000.00
Cash on deposit, at call	82000.00
Accounts Receivables	665000.00
Allowance for doubtful debts/ Impairments		24000.00
Other debtors	27000.00
Finished goods inventories, 30 June 2018	600000.00
Work in Progress inventories 30 June 2018	105000.00
Land	94000.00
Buildings	230000.00
Accumulated depreciation – buildings		60000.00
Plant and equipment	1385000.00
Accumulated depreciation – plant and equipment		330000.00
Franchise	140000.00
Accumulated amortisation of franchise		50000.00
Goodwill	620000.00
Bank loans		92000.00
Other loans		440000.00
Accounts payable		696000.00
Provision for employee benefits		116000.00
Income tax payable		35000.00
Deferred tax liability		140000.00
Retained earnings, 30 June 2017		225000.00
Dividends paid	135000.00	0.00
Cash flow hedge reserve		20000.00
Share capital		2050000.00
Share Cost Expense	10000.00
Totals	9457000.00	9457000.00
Workings :
Share Capital
350000 Shares at $ 5 each		1750000.00
75000 Shares at $ 4 each		300000.00
		2050000.00