University of Technology
School of Business Administration
FRA
Tutorial #2 - Corporate Financial Statements - Individual - Part A
What three elements are contained in a balance sheet?
How are revenues and expenses different from gains and losses?
Using
the definition of an asset from IASB’s
Framework, indicate whether each of the following should be
listed as an asset by Devon Company.
(a)
Devon has legal title to a silver mine in a remote
location. Historically, the mine has yielded over $100 million in
silver. Engineering estimates suggest that no further minerals are
economically extractable from the mine.
(b)
Devon is currently negotiating the purchase of an oil field
with proven oil reserves totaling 2 billion barrels.
(c)
Devon employs a team of five geologists who are widely
recognized as world• wide leaders in their field.
(d)
Devon claims ownership of a large piece of real estate in a
foreign country. The real estate has a current market value of
over $650 million. The country expropriated the land 35 years ago,
and no representative of Devon has been allowed on the property
since.
(e) Several years ago, Devon purchased a large meteor crater on the advice of a geologist who had developed a theory claiming that vast deposits of iron ore lay underneath the crater. The crater has no other economic use. No ore has been found, and the geologist’s theory is not generally accepted.
Using the definition of a liability from IASB’s Framework, indicate whether each of the following should be listed as a liability by Devon Company.
(a) Pauli was involved in a highly publicized lawsuit last year. Pauli lost and was ordered to pay damages of $125 million. The payment has been made.
(b) In exchange for television advertising services that Pauli received last month, Pauli is obligated to provide the television station with building maintenance service for the next 4 months.
(c) Pauli contractually guarantees to replace any of its stain-resistant carpets if they are stained and can't be cleaned.
(d) Pauli estimates that its total payroll for the coming year will exceed $35 million.
(e) In the past, Pauli has suffered frequent vandalism at its storage warehouses. Pauli estimates that losses due to vandalism during the coming year will total $3 million.
You
are the chief accountant of Scout Company, and on January 10, 2001,
the assistant accountant presented you with the following adjusted
trial balance as at December 31, 2000, the end of the company’s
annual accounting period.
The
additional information below is available:
1.
The company’s income tax rate is 33.33% and the adjustment
for income tax expense (which is payable in the following year) has
not yet been made.
2.
The authorized share capital consists of 20,000 ordinary shares
with a par value of $10 each, out of which 5,000 had been issued on
June 30, 2000 at a price of $15.
3.
The Foreign Currency Reserve had not changed since January 1,
2000.
Required:
(a)
In preparation for the annual audit, you are asked to prepare 'proper'
financial statements (as per IAS1) for presentation to the board of
directors on March 31, 2001. In meeting this obligation, you are to
consider the additional information mentioned above, and for the year
ended December 31, 2000.
i.
Prepare an Income Statement (by function).
ii. Prepare a Statement of Changes in Equity (All changes)
iii. Balance Sheet