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MikeLittle.
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Malcolm
- Topics: 11
- Replies: 9
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Hi, sir
I have 2 questions from Chapter 4
1. in page 19 where there is a proforma disclosure as a note, in the statement income tax is added instead of deducted, can I know why? Because to the best of my knowledge, shouldn’t tax be deducted?
2. In Chapter 4 example 1, the costs attributable to the closure ($5000) has been netted off against the $7000 gains in disposal of non-current assets of the discontinued operation, so shouldn’t the administrative expenses be $62000? In the answer it is $60000, so where did the surplus of $2000 go? or in which statement is it in?
I have 1 question from Chapter 5 Example 1
In the answer, the retained earnings for the year 2009 and 2008 are $2700 and $1500 respectively in the statement of financial position. May I know how did these figures come about?
While looking at the statement of changes in equity on the next page of the answer, I did roughly get an idea, but the retained earnings from the balance at 31 December 2009, is $2000 which is derived from the Non-Current Assets from the year 2008. I was lost at this part, how did non current assets become retained earnings, and if they didn’t , how do I get the figures for retained earnings?
Thank you!
MikeLittle
- Topics: 26
- Replies: 22602
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“Because to the best of my knowledge, shouldn’t tax be deducted?” – just very occasionally the taxman will give a refund. This is particularly the case where a company has been successful in the past but has now fallen on hard times. By carrying back the losses into prior years we may find (as in this case) that the tax is a credit and is refunded by the taxman
“so shouldn’t the administrative expenses be $62000? In the answer it is $60000” – the $70,000 in the question includes $10,000 administrative expenses incurred by the discontinued operation. The results of the discontinued operation are disclosed separately as “Loss on discontinued operations $(3)”
The $60,000 to which you refer requiring your adjustment of $2,000 is the figure for administrative expenses for last year and is unaffected by this year’s figures. It is however restated to $48,000 in order to make last year’s figures comparable with this year’s as a result of the discontinuance
“In the answer, the retained earnings for the year 2009 and 2008 are $2700 and $1500 respectively in the statement of financial position. May I know how did these figures come about?” – the derivation of both these figures is clearly shown in the Statement of Changes in Equity. In addition, the retained earnings are not “for the year 2009 and 2008” These values that you are querying are accumulated values since the date the company was incorporated. The retained earnings for the two separate years are in fact $800 and $1,200
“but the retained earnings from the balance at 31 December 2009, is $2000 which is derived from the Non-Current Assets from the year 2008.” – you’re lost? So am I with that observation! The $2,000 to which you refer is the reserves figure as shown in the 2008 statement of financial position and from there the workings shown in the answer will lead you to Nirvana – hopefully
Have a good new year!
Malcolm
- Topics: 11
- Replies: 9
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Hi, thanks for the quick reply,
Just 1 last clarification on the retained earnings part for chapter 5 example 1,
what I was trying to ask is that in the answer, in the statement of changes in equity, under the column retained earnings for Balance at 31 December 2008, the figure was $2000, may I know why? As in, I understand it is the figure from the reserves, but why in the statement of changes in equity, it is placed in retained earnings for Balance at 31 December 2008?
Would that mean that reserves for the year 2008 = retained earnings in the balance for 2008?
Thank you for the explanations!
MikeLittle
- Topics: 26
- Replies: 22602
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At the end of 2008, when the financial statements were being prepared, the figure for reserves / retained earnings was $2,000
How do I know this? Because it’s given in the question! The fifth figure down in the statement of financial position, immediately below $600 share capital, you’ll see the legend “Reserves” and against that, in the figures column, you’ll see $2,000
OK now?
Malcolm
- Topics: 11
- Replies: 9
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Okay, yes, I understand now, thanks for the explanation, have a happy new year!
MikeLittle
- Topics: 26
- Replies: 22602
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And the same to you too, Malcolm
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