Changes in assets- The current assets have how a positive change from year one to year two. The difference could be a change in inventory levels, debtors, or the cash at hand. The fixed assets show a negative change, which may be attributable to the company’s plant property and equipment depreciation.
Liabilities-the current liabilities show a negative change, which may be caused by the reduction of the company’s creditors. The long term liabilities show a positive change from year one to year two, which may be caused by the acquisition of a long term debt such as a mortgage.
Equity- the owners’ equity shows a positive change from year one to year two, which may be caused by the acquisition of new company shares.
ECDK INCOME STATEMENT FOR THE YEAR ENDED 0000
Year 1
Year 2
Change
Sales
5000
7000
2000
Less cost of goods sold
2515
3305
790
Total Revenue
2485
3695
1210
Less expenses
700
2000
1300
Net income
1785
1695
-90
Total revenue-from the table we can observe that the total revenue change is positive. However, this does not give the profit/loss position of the company until expenses and taxes are paid out
Net income- from the table, the net income is negative, implying that the company made a loss.
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The income and balance and sheets are important statements in the financial realm, citing that they give into detail the financial accounting of any given company within a certain accounting period either quarterly, monthly, yearly, or within the two halves of a company’s accounting period.
Income and Balance Sheets
Beginning with the balance sheet, a balance sheet’s role is for detailing the liabilities and assets of a company, and hence the shareholder’s equity borne out of the difference between the value of an asset and the subsequent liability that it is attached with, within any specified period of time. Acclimatized by the above, poor performance of a company, as may be evidenced within the balance sheet, results in low asset valuation, high liability for shareholders, and a representation of low equity or low value of the company based on the differences between asset and liability value. This represents a negative connotation to the investor. On the other hand, high asset valuation, low liability of shareholders, and consequent high company equity is a positive articulation for the shareholder.
On the other hand, an income statement details the number of expenses and income over a certain period of time. It also details the amount of revenue the organisation amasses from its operations. In this light, an increase in the amount of income, and a consequent increase in the amount of revenue raised by an organization is a positive connotation from the stakeholder’s perspective. Nevertheless, an increase in the amount of income, and a consequent decreased in the amount of revenue raised, and then it has a negative connotation from the stakeholder’s perspective. On the other hand, a decrease in the amount of income and amount of revenue raised also augurs negativity from stakeholders. However, a decrease in the amount of revenue and an increase in the amount of fo revenue is a positive connotation for stakeholders.
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The effects of dependency ratio and income growth on savings level in the developing countries in South East Asia from 2000 to 2011 (Cambodia, Indonesia, Lao PDR, Malaysia, Philippines, Thailand, Vietnam)
The effects of dependency ratio and income growth on savings level in the developing countries in South East Asia from 2000 to 2011 (Cambodia, Indonesia, Lao PDR, Malaysia, Philippines, Thailand, Vietnam)
Dissertation Chapter: Results
Introduction
The main objective of this study is to examine the influences or effects of dependency ratio and income growth on the saving levels with reference to developing nations in South East Asia between 2000 and 2011. The research focuses on nations such as Cambodia, Lao PDR, Philippines, Malaysia, Vietnam, and Indonesia. This is through utilization of the gross saving as the dependent variable while GDP growth and the age dependency ratio as independent variables. There are various reasons illustrating the fact that dependency ratio is central towards explaining or demonstrating differences in savings behavior and economic growth across the nations. The theoretical underpinnings with reference to this belief relate ti the life-cycle hypothesis. It is critical to illustrate that economic agents possess negative savings when young. In addition, they have low or no income, and positive savings during their productive years. Moreover, these economic agents have negative savings when they are old or retired from their productive roles in the growth and development of the economy.
Effects of Age Dependency on Savings Levels
Children, as economic agents, constitute a heavy charge for the parents in spite of the fact that they do not contribute to production. Increase in the production or generation of children in the society would indicate a reduction in the private savings rate. Similarly, an increase in the proportion of the elderly within the population of developing nations will hamper the aggregate savings rate. This is because of the tendency of the retired economic agents to project negative saving.
Contrary to the expectations, increases in the dependency ratio might have significant upward pressure on the government spending with reference to activities and projects such as education and health programs essential in the improvement of the quality of lives of the citizens. The consequence of this approach is the reduction in the public savings in accordance with the maintenance of the status quo of the fiscal policies within the context of the relevant nation. This is an indication that the age structure of the population within a nation is vital in the illustration of the overall national savings rates (Rusnák, M 2013, p. 246).
Productivity growth, which is associated with dependency ratio, has a strong and positive effect on the saving levels. This is in accordance with the implications or influences of the theory of savings behavior. It is vital to understand that the relative price of investment goods is positive, but small and insignificant from a statistical perspective. In spite of this development, the estimated coefficient does imply that higher investment prices will have an opportunity and tendency to depress the real saving rate defined as the S/RPI (Hamadi,, 2011, p. 32).
In addition, the age distribution coefficients for investment are strongly concentrated in the context of the younger tail of the age distribution. This concentration reaches its peak between the ages of 15 and 19 years. Moreover, the concentration turns negative between the ages of 40 and 44. This pattern is in accordance with the intuition that the young and the growing population require substantive additions to the social overhead capital. It is also critical to note that the positive coefficient for the last period of life (70 year and above) is insignificant from a statistical perspective. This makes it ideal not to reject the null hypothesis illustrating that the age distribution coefficients remain flat after the age of 60 years (‘GDP and the Economy’ 2011, p. 4).
In the case of Cambodia, the age dependency ratio was approximately 80.6 in 2000. This is an indication that the saving rate or level of insignificant from a statistical perspective. The majority of the population during this period included the youths. From this analysis, Cambodia experienced low saving rates under the influence of high age dependency ratio. The age dependency ratio of Cambodia has experienced a rapid reduction in the period of 11 years. This is evident in the rapid growth or increase in the saving levels within the nation as more of the population of the country become productive toward the achievement of the growth and development of the economy (Jilani et al, 2013, p. 257). In the case of Indonesia, it is vital to note the age dependency ratio has been consistent between 2000 and 2011. This is through a projection of approximately 54 percent in the age dependency.
It is vital to demonstrate that Indonesia experiences stable population growth thus an extensive rate of savings towards the growth and development of the economy. Lao PDR proves to have the highest age dependency ratio in which most of the population is children. This is an indication that children contribute less towards the development and growth of the economy thus depending greatly on the services of their parents. This reduces the rate or levels at which their parents save for the future projects and activities. From this region, Thailand proves to have the lowest tendency ratio of about 38 by 2011. This is vital towards increasing the growth and development of the economy as consumers and economic agents have adequate opportunities to save part of their income. Vietnam has also realized rapid reduction in the age dependency ratio between 2000 and 2011. This is evident in the lowest age dependency of about 42 percent thus massive contribution to the growth and development of the economy (Dhanasekaran, 2010, p. 87).
GDP and Saving Levels
There is a close relationship between savings and GDP growth or the economic. The economic growth of a nation is the economy’s capacity to increase the productivity of services as well as goods in comparison to the previous year of operation. GDP is vital in the comparison of the economic growth between two or more nations across the globe or within the relevant region. Economic growth or development in the form of GDP growth has the ability and tendency to increase personal income and income per capita with reference to consumption. This indicates that the economic growth or GDP growth has the ability to influence the disposable income of an individual with an upward pressure (Andrei & Huidumac-Petrescu, 2013, p. 47). This provides an opportunity for the individuals or economic agents to save the excess income under the influence of GDP growth. In most cases, government agencies offer various saving and investment schemes in relation to the increase in the GDP. The saving and investment mechanisms or schemes are always exempted from taxation system thus an increase in the number of economic agents involved in such activities. This is an indication that the consumers or economic agents with the factors of production will engage in saving and investment activities.
In the context of South East Asia, there is a positive relationship between the GDP growth and the gross saving. For instance, in the case of Vietnam, an increase in the GDP growth leads to an increase in the gross saving. This makes it vital to illustrate the influence of the GDP growth in increasing the individual income. An increase in the disposable income is vital in increasing the ability and behavior of the economic agents to engage in the saving and investment schemes and mechanisms by the governments and private sectors. This is vital in enhancing the growth and development of the economy with reference to nations such as Indonesia and Vietnam in the southern part of Asia. The savings are applicable in enhancing the growth and development of the economy of the relevant nations. This is evident in the increase in the number of employment positions or opportunities as well as improvement in the living conditions of the economic agents in the relevant nations.
List of references
Ang, James. (2008). Financial Development and Economic Growth in Malaysia. New York: Routledge
Drake, P. J. (2003). Currency, credit and commerce: early growth in Southeast Asia. Burlington, VT, Ashgate.
Feldstein, M. (2003). International Capital Flows. Chicago, University of Chicago
Green, C. J., Kirkpatrick, C. H., & Murinde, V. (2005). Finance and development surveys of theory, evidence, and policy. Cheltenham, UK, E. Elgar Pub.
Hill, H. (2002). The economic development of Southeast Asia. Cheltenham, UK, Edward Elgar.
Lloyd, C. B. (2005). The changing transitions to adulthood in developing countries selected studies. Washington, D.C., National Academies
Mason, A. (2001). Population change and economic development in East Asia: challenges met, opportunities seized. Stanford, Calif, Stanford Univ. Press.
Montiel, P. J. (2003). Macroeconomics in emerging markets. Cambridge [u.a.], Cambridge Univ. Press.
United Nations. (2005). Banking sector lending behaviour and efficiency in selected ESCWA member countries. New York, United Nations.
World Bank. (2001). Global economic prospects and the developing countries. Washington, DC, World Bank.
‘Net household savings ratio unchanged from Q1 at 5.3% of GDP’ 2013, Hungary A.M, pp. 4- 5,
Jilani, S, Ahmed Sheikh, S, Cheema, F, & Shaik, A 2013, ‘Determinants of National Savings in Pakistan: an Exploratory Study’, Asian Social Science, 9, 5, pp. 254-262.
Andrei, E, & Huidumac-Petrescu, C 2013, ‘Saving and economic growth: An empirical, analysis for Euro area countries’, Theoretical & Applied Economics, 20, 7, pp. 43-58,
Rusnák, M 2013, ‘Revisions to the Czech National Accounts: Properties and Predictability’, Finance A Uver: Czech Journal Of Economics & Finance, 63, 3, pp. 244-261,
Dhanasekaran, KK 2010, ‘Testing of Savings-Growth Relationship in India: An Application of Cointegration and Error Correction Techniques’, IUP Journal Of Applied Economics, 9, 3, pp. 85-96,
‘Philippines Business Forecast Report: Includes 10-Year Forecast to 2022’ 2013, Philippines Business Forecast Report, 4, pp. 2-45.
Hamadi, H, Hamadeh, M, & Khoueiri, R 2011, ‘Determinants of Saving In Lebanon: 1980- 2009’, International Journal Of Business, Accounting, & Finance, 5, 2, pp. 31-43
Prasad, ES 2011, ‘Rebalancing Growth in Asia’, International Finance, 14, 1, pp. 27-66,
‘Corporate Saving And Investment: Recent Trends and Prospects’ 2007, OECD Economic Outlook, 82, pp. 191-212
‘GDP and the Economy’ 2011, Survey Of Current Business, 91, 8, pp. 1-5.
Appendix
GDP
Nation/Time
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Cambodia
8.76
8.03
6.68
8.50
10.34
13.25
10.77
10.21
6.69
0.08
5.96
7.06
Indonesia
4.9
3.6
4.4
4.7
5.0
5.6
5.5
6.3
6.0
4.6
6.2
6.4
Lao PDR
5.7
5.7
5.9
6.0
6.3
7.1
8.6
7.5
7.8
7.5
8.5
8.0
Malaysia
8.8
0.5
5.3
5.7
6.7
5.3
5.5
6.2
4.8
-1.5
7.1
5.0
Philippines
4.4
2.8
3.6
4.9
6.6
4.7
5.2
6.6
4.1
1.14
7.63
3.6
Thailand
4.7
2.1
5.3
7.1
6.3
4.6
5.0
5.0
2.4
-2.3
7.8
0.07
Vietnam
6.7
6.8
7.08
7.3
7.7
8.4
8.2
8.4
6.3
5.3
6.7
5.9
Gross Savings
Nation/Time
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Cambodia
509. 7 M
656.7 M
704 M
689.6 M
849.9 M
1279 M
1391 M
1802 M
1612 M
1452 M
1360 M
1253 M
Indonesia
411 M
339 M
326 M
701 M
631 M
744 M
1016 M
1125 M
1345 M
1680 M
2260 M
2709 M
Lao PDR
42.2 M
49.1 M
17.2 M
13.6 M
16.2 M
29.5 M
67.9 M
82.0 M
97.0 M
119 M
128 M
142 M
Malaysia
336 M
229 M
330 M
384 M
438 M
528 M
631 M
750 M
889 M
674 M
844 M
996 M
Philippines
188 M
184 M
198 M
210 M
238 M
275 M
317 M
390 M
445 M
421 M
545 M
569 M
Thailand
372 M
329 M
349 M
403 M
459 M
491 M
621 M
825 M
833 M
788 M
987 M
1062 M
Vietnam
97 M
102 M
111 M
123 M
149 M
189 M
219 M
236 M
266 M
288 M
339 M
408 M
Age Dependency
Nation/Time
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Cambodia
80.5
77.4
74.7
72.4
70.2
67.92
65.65
63.32
61.25
59.57
58.39
57.71
Indonesia
54.6
54.04
53.71
53.56
53.53
53.56
53.6
53.69
53.75
53.69
53.46
53.03
Lao PDR
89.04
87.4
85.6
83.5
81.2
78.9
76.6
74.2
72.02
69.94
68.08
66.40
Malaysia
59.13
57.85
56.56
55.30
54.08
52.93
51.8
50.8
49.9
49.04
48.19
47.40
Philippines
71.65
70.95
70.26
69.55
68.83
68.07
67.2
66.4
65.6
64.7
63.9
63.08
Thailand
44.39
43.99
43.7
43.6
43.3
42.95
42.32
41.5
40.66
39.88
39.27
38.88
Vietnam
61.27
59.12
56.98
54.86
52.80
50.80
48.87
47.04
45.39
43.99
42.91
42.16
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What is agricultural Income Section 2(1A) (a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes; (b). any income derived from such land by agricultural or by the process employed to render the produce fit for market or by sale of such produce by a cultivator or receiver of rent-in-kind; (c). any income derived from a building provided following conditions are satisfied: – The building is situated on or immediate vicinity (surrounding area) of the agricultural land. It is occupied by the cultivator or receiver of rent – in-kind. iii). It is used as dwelling house, store house or out house and (iv). The land is assessed to land revenue or it is not situated in specified area. What is specified area (A) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or B) in any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (A), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette. Points to Note 1. The Land must be an agricultural land and it should be situated in India. If agricultural Land is not situated in India then the income will be chargeable as business income and not agricultural Income. 2.
The agricultural income of the cultivator as well as the rent (both in money and in kind) received by the owner of the Agricultural land is exempt from tax. 3. The agricultural income of the cultivator or the receiver of rent in kind to make the agricultural produce fit to market is also exempt from tax. See here the tobacco can not be sold without drying it hence the activities till drying of tobacco will be treated as agricultural activity but the Industrial activity like ginning and pressing of cotton can not be included because cotton can be sold in the market without separating it from the cotton seed. . The agricultural activity involves the basic operation as well as subsequent operations also. The operation on land by the cultivator on the land like tilling (Plough, dig, cultivate), Sowing the seeds and similar operation of the land are called basic operations. See here that the Basic agricultural operations are made on the land itself and not on the growth of the land i. e. on the crop. The subsequent operation on the crop are weeding (removing the wild plants), digging the soil around the growth and operations to preserve the growth.
The basic operations performed by the cultivator on the land are surely the part of agricultural activity for the purpose of this exemption but subsequent operations will only form part of the agricultural activity if these are performed in continuation of the basic operations by the cultivator or the receiver of rent in kind. If the standing crop is purchased by a person and subsequent operations are done by him then the income will not be treated as agricultural income. The principal for determination of basic and subsequent operations have been described in the case of CIT vs. Raja Benoy Kumar Sahas Roy by Hon.
Supreme court of India . What is added by Finance Act. 2008 The finance Act, 2008 has added the following two types of nursery activities in the definition of Agricultural income for which there was a controversy before this enactment:-
Sapling:-Develop the small trees and sale them for further growth.
Seedling: – Develop the seeds. Income which is partially agricultural and partially from business Rule 7If agricultural produce cultivated is used as raw material in the business of cultivator, he can deduct the market price of such raw material from the income of his business. here agricultural produce is not ordinarily sold in the market in its raw state or after application to it of any process aforesaid, the aggregate of— (i)the expenses of cultivation; (ii)the land revenue or rent paid for the area in which it was grown; and (iii)such amount as the Assessing Officer finds, having regard to all the circumstances in each case, to represent a reasonable profit. Special treatment for Rubber, Coffee and Tea In respect of composite activity of Growing and manufacturing of certain products the ratio of Agricultural Income and the Business income is determined by the Income Tax Rules and these are as under:-
Rule Produce
Agricultural IncomeBusiness Income 7ARubber65%35% 7BCoffee Grown and cured75%25% 7BCoffee Grown, cured, roasted and grounded60%40% 8Tea60%40% Partial integration of Agricultural Income for Tax Purpose The Finance Act, 1973 introduced for the first time a scheme of partially integrated taxation of non-agricultural income with incomes derived from agriculture for the purposes of determining the rate of income-tax that will apply to certain non-corporate assessees. The scheme is since continued by the Annual Finance Acts.
The provisions applicable for the assessment year 2008-09 are contained Part IV of the First Schedule to the Finance Act, 2008. How to calculate Tax (a). Tax on total Income + Agricultural Income (b). Tax Agricultural Income + Basic Exemption Limit. (c). Tax payable by assessee= (a) – (b). Points to Note 1. If Total Income is below taxable limit then agricultural Income will not be included even for calculation of tax purpose.
In case of Individual , HUF , AOP/BOI and Every other artificial person (except where taxability is on maximum marginal rate) the agricultural income is included to calculate the tax with total Income 2.
In case of Companies, firm and other assesses where taxability is on fixed rate there is no need to calculate the tax on Agricultural Income. Rate of Tax For Individual, HUF, AOP/BOI and other artificial person the rate of tax for assessment year 2008-09 is as under:- Up to 1. 10 Lakhs (This is the Basic exemption Limit*)NIL Above 1. 10 Lakhs to 1. 50 lakhs10% Above 1. 50 Lakhs to 2. 50 lakhs 20% Above 2. 50 lakhs 30% The basic exemption Limit for Female(Lady ) assesses1. 45 lakhs The basic exemption Limit for senior citizens(having age of 65 years or more )1. 95 Lakhs The net effect of calculation
The net effect of calculation of tax when the agricultural income is also earned by the assessee along with the total income (in excess of Basic exemption Limit) is to tax the Total income at higher rate if the total income got the second or third slab due to inclusion of the Agricultural Income. Let us try to understand this with the help of an example. The total Income is 1. 35 lakhs and Agricultural income is Rs. 50000. 00. Now the Total income and Ag. Income is Rs. 1. 85 lakhs and the Basic exemption limit and Ag. Income is Rs. 1. 60 Lakhs. First we consider the Basic exemption Limit and Ag.
Income and after that tax the Balance of Total Income which is Rs. 25000. 00 and Taxable now @ 20% hence the net tax is payable Rs. 5000. 00 instead of Rs. 2500. 00 which is payable on 1. 35 lakhs of Income. This is alternate method of calculating and understanding the tax on agricultural Income. The tax can be calculated as under:- Tax on Ag. Income and Total Income i. e. on 1. 85 lakhs= 11000. 00 Less:-Tax on Basic Ex. Limit + Ag. Income = 1. 60 lakhs= 6000. 00 Tax payable= 5000. 00 This result can be tallied from the result mentioned in alternate method. Instances of Agricultural income
Sale of Replanted trees. . Fees for Grazing: – The fees colleted from the owners of cattle normally used for agricultural purpose for allowing them to graze on forest land covered by jungle and grass grown spontaneously.
Rent for agricultural land received from sub-tenant by mortgagee in possession.
Compensation received from Insurance companies for destruction of Crop.
Income from growing Flowers and creepers (climbing plants). Examples Ex. 1:-Mr. Kishan Singh has total Income of Rs. 1, 40,000. 00 and his agricultural Income is Rs. 2. 50 Lakhs. Calculate his tax Liability. Ans. Total Income + Agricultural Income= 1. 40 Lakhs + 2. 0 Lakhs= 3. 90 Lakhs Basic Exemption Limit + Agricultural Income = 1. 10 Lakhs + 2. 50 Lakhs=3. 60 Lakhs (a). Tax on Agricultural Income+ Total Income= 66000. 00 (b). Tax on Basic Exemption + Total Income= 57000. 00 (c) Tax payable = (a) – (b)= 6000. 00 Ans. – 9000. 00 Ex. 2:- Mr. Ram singh has income from Business as Rs. 60000. 00 and besides this he is working as a part timer with a company and getting 45000. 00 annually from there. His agricultural Income is Rs. 1 lakh. Calculate his tax liability for the assessment year 2008-09. Ans. If the Total Income (Other than agricultural Income) is below taxable Limit then the gricultural income is not taken into account for calculation of Tax. Here the income of Mr. Ram Singh is below taxable limit because income from Business is Rs. 60000. 00 and Salary Income is Rs. 45000. 00 hence is total income is Rs. 105000. 00 which is below the taxable limit hence there is no need to calculate the tax on Ag. Income. Ans. NIL Ex. 3:- Tata tea Ltd. is in the business of Growing and manufacturing of Tea. The Income of the Company is 50 Crores. Compute the taxable income of the Company. What will be the difference in your answer if the company is only involved Manufacturing of Tea. Ans.
The income is to be calculated as per Rule 8 of the Income tax Rules 1962 and according to it 40% income of the company is Rs. Business income i. e. Rs. 20 Crores is Business income and rest of 60% is Agricultural Income i. e. Rs. 30 Crores is Agricultural Income. Since the profit of partial agricultural and business income is applicable for the assesses engaged in Growing or manufacturing of tea hence if the company is only involved in Manufacturing of Tea and growing it then the whole income of Rs. 50 Crores will be treated as business income . Ex. 4:- Hindustan Latex limited derived income of Rs. 0 Crores from sale of centrifuged latex. Compute the taxable income. Ans: – The income in the case of Rubber growing and manufacturing companies is to be calculated 65% Agricultural Income and 35% Business income hence in this case 3. 50 Crores as agricultural income and Rs. 6. 50 Crores as Business income- Rule 7A. Example Total Income= 4. 50 Lakhs Agricultural Income = 2. 00 Lakhs (a). Tax on 4. 50 lakhs + 2. 00 Lakhs(i. e. on Rs. 6. 50 Lakhs)= 1. 44 Lakhs (b). Tax on 2. 00 Lakhs + 1. 10 Lakhs= (i. e. on Rs. 3. 10 Lakhs)= 0. 42 Lakhs (c). Tax payable by the assessee= (a) – (b) = 1. 4 Lakhs-0. 42 Lakhs= 1. 02 Lakhs Here see that the assessee has to pay Rs. 0. 84 Lakhs as tax on his total income but due to aggregation of the Agricultural income the excess Tax required to be paid is Rs. 0. 18 Lakhs i. e. Rs. 18000. 00 and see this amount of 18000 is nothing but a amount of higher slab taxation on Rs. 40000. 00 @ 20% (10% Tax on 1. 50 lakhs – 1. 10 Lakhs Basic Exemption Limit and 30% tax over income Rs. 2. 50 Lakhs ) i. e. Rs. 8000. 00 and 10% Rs. 1 Lakhs (Since the highest tax rate is on Income over 2. 50 Lakhs hence on Rs. 1 lakh the tax is paid by 10% more rate).
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From the Income Statement, complete the missing information for entries A, B and C.
From the Income Statement, complete the missing information for entries A, B and C
John McLean is a sole trader who operates a small business. He has produced the following Income Statement for Year 2. Income Statement for John McLean For the year ended 31 December Year 2 £ £ A 70,000
Less Cost of Sales 40,000 Gross Profit B Less Expenses Electricity 1,000 Rent 4,000 Wages 5,000 10,000 PROFIT FOR THE YEAR C (a) From the Income Statement, complete the missing information for entries A, B and C. (b) (i) Describe the sources of finance available to a private limited company for expansion. (ii) Justify the use of sources of finance outlined in (b)(i). (A different justification should be given for each source.) (c) Outline the benefits of budgeting to an organisation.
Prepare the consolidated income statement and the consolidated statement of financial position of Tan Berhad for the year ended 31 December 2011, using the proportionate consolidation method for Ausland Sdn Bhd..
Prepare the consolidated income statement and the consolidated statement of financial position of Tan Berhad for the year ended 31 December 2011, using the proportionate consolidation method for Ausland Sdn Bhd.
Question 5 (Total: 25 marks) Tan Berhad acquired a 45% interest in Liew Berhad on 1 January 2009 for a sum of RM13 million. The retained profits of Liew Berhad at the time of the 45% acquisition were RM9 million. Tan Berhad had no subsidiaries at this time and used equity accounting to account for Liew Berhad in its accounts. On 1 January 2011, Tan Berhad acquired control of Liew Berhad by acquiring another 30% of the company for RM14 million. The price paid reflected the fair value of the shares acquired on that date. On 1 January 2011, Tan Berhad and a foreign company incorporated a joint venture entity, Ausland Sdn Bhd with a paid up capital of RM16 million. Both Tan Berhad and the foreign company hold a 50% equity interest in Ausland Sdn Bhd and they both have joint control under the contractual terms over the joint venture. The draft financial statements for each of the three companies are as follows: Statement of Comprehensive Income and Retained Profits for the year ending 31 December 2011 Tan Berhad Liew Berhad Ausland Sdn Bhd RM000 RM000 RM000 Sales 70,000 40,000 34,000 Cost of sales (45,000) (27,000) (20,000) Gross Profit 25,000 13,000 14,000 Operating expenses (9,000) (5,000) (5,000) Profit from operations 16,000 8,000 9,000 Finance costs (5,000) (1,200) (2,000) Dividend received 2,520 – – Interest income 2,000 – – Profit before taxation 15,520 6800 7,000 Taxation (3875) (1,500) (1,600) Profit after taxation 11,645 5,300 5,400 Retained profits b/fwd 18,500 11,368 – Dividends paid (4,128) (1,776) (2,376) Retained profits c/fwd 26,017 14,892 3,024 Statements of Financial Position as at 31 December 2011 Tan Berhad Liew Berhad Ausland Sdn Bhd RM000 RM000 RM000 Non current assets Sunway University Business School Sample ACC3054 Final Examination 12 Freehold land at cost 70,000 10,000 6,000 Plant and equipment 80,000 25,000 26,000 Investment in Liew Berhad, at cost 27,000 – – Investment in Ausland Sdn Bhd, at cost 10,000 – – Loan to Ausland Sdn Bhd 20,000 – – 207,000 35,000 32,000 Current assets Inventories 25,000 11,000 3,524 Trade receivables 32,020 12,000 3,500 Amount due from Tan Berhad – – 1,200 Bank and cash balances – 500 1,000 57,020 23,500 9,224 Total Assets 264,020 58,500 41,224 Current liabilities Bank overdraft 13,203 – – Trade payables 26,000 11,508 – Amount due to Ausland Sdn Bhd 1,200 – – Taxation 3,500 2,100 (1,800) Bills payables 4,100 – – 48,003 13,608 (1,800) Non current liabilites Long term liabilities 80,000 20,000 – Loan from Tan Berhad (10% interest) – – 20,000 80,000 20,000 20,000 Total liabilities 128,003 33,608 18,200 Equity Share capital 60,000 10,000 20,000 Share premium 30,000 – – Revaluation reserves 20,000 – – Retained Profits 26,017 14,892 3,024 264,020 58,500 41,224 (i) At 1st January 2011, the freehold land of Liew Berhad had a fair value of RM25 million. No adjustment has been made in the accounts of Liew Berhad. (ii) During the year ended 31 December 2011, Tan Berhad sold to Ausland Sdn Bhd inventories with an invoice value of RM8 million. Of these inventories, RM2 million remained in inventories as at 31 December 2011. The profit margin to Tan Berhad was 25% on sales value. Sunway University Business School Sample ACC3054 Final Examination 13 (iii) The unsecured loan to Ausland Sdn Bhd from Tan Berhad has an interest rate of 10%. (iv) There has been no impairment in the carrying cost of goodwill. (v) Ignore any tax effects. Required (a) Calculate the goodwill on the business combination for the year ended 31 December 2011 in accordance with MFRS 3 para 32. (5 marks) (b) What is the gain/(loss) on the remeasurement of the previously held equity interest in Liew Berhad? How should this gain/(loss) be recognized in the consolidated financial statements? (3 marks) (c) Prepare the consolidated income statement and the consolidated statement of financial position of Tan Berhad for the year ended 31 December 2011, using the proportionate consolidation method for Ausland Sdn Bhd. (12 marks) (d) Under MFRS 11 – Joint Arrangements (effective 1 January 2013), only equity accounting for joint ventures will be permissible. Critically discuss the implications of this change. (5 marks)
Prepare the income statement for Fuller Bhd. for the year ended 31 December 2013vii. Inventory as at 31 December 2013 is RM250,000..
Prepare the income statement for Fuller Bhd. for the year ended 31 December 2013vii. Inventory as at 31 December 2013 is RM250,000.
Question 3 (Total: 20 marks) The following balances have been extracted from the books of Fuller Bhd., a cloth manufacturer and wholesaler, at 31 December 2013: Debit (RM’000) Credit (RM’000) Plant and machinery at cost 3,000 Accumulated depreciation at 1 January 2013 – plant and machinery 1,200 Motor vehicles at cost 800 Accumulated depreciation at 1 January 2013 – motor Vehicles 400 Trade receivables 1,050 Purchases 4,550 Sales returns 150 Trade payables 500 Finance expense 110 Purchase returns 80 Administration expenses 700 Bank overdraft 200 Selling and distribution expenses 1,000 Sales 7,750 Discount received 125 Loan 1,000 Discount allowed 200 Retained earnings at 1 January 2013 545 Inventory at 1 January 2013 300 Provision for doubtful debts 1 January 2013 60 11,860 11,860 Additional information: i. Audit and accountancy fees of RM10,000 have not been taken into account at 31 December 2013. ii. Payments for insurance premiums of RM30,000 have been made on 1 July 2013 but have not been included in the account. These premiums provide insurance cover for the business up to 30 June 2014. iii. A customer of Fuller Bhd. has gone into liquidation, owing Fuller RM50,000 and this amount will be treated as a bad debt. iv. The provision for doubtful debts is to be adjusted to 4% of trade receivables after the deduction of debts which are irrecoverable. v. Depreciation for the year to 31 December 2013 has not been calculated yet. Plant and machinery is to be depreciated at 20% per annum on a straight-line basis and motor vehicles are to be depreciated at 25% per annum on a reducing balance basis. vi. Taxation on profit for the year is to be calculated as 25% of the profit before tax. viii. The classification of the expenses is as follows: Items Selling and distribution Administration Discount allowed 50% 50% Provision for doubtful debts and bad debts, insurance premiums and audit and accountancy fees – 100% Depreciation – plant and machinery 20% 80% Depreciation – motor vehicles 70% 30% Required: Prepare the income statement for Fuller Bhd. for the year ended 31 December 2013vii. Inventory as at 31 December 2013 is RM250,000.
