Allowance for bad debts
The ledger balances at 31 March 2017 extracted from the books of Tiger Limited are as follows:
| Debit | Credit | ||
| $’000 | $’000 | ||
| Sales | 288,522 | ||
| Inventories, 31 March 2017 | 40,825 | ||
| Cost of goods sold | 184,087 | ||
| Distribution costs | 18,526 | ||
| Administrative expenses | 9,490 | ||
| Other income – investment income | 7,597 | ||
| Finance costs | 7,709 | ||
| Other operating expenses | 2,177 | ||
| Depreciation expenses | 3,470 | ||
| Bank loan | 100,000 | ||
| Accounts and other receivables | 43,319 | ||
| Allowance for bad debts | 2,500 | ||
| Cash | 60,754 | ||
| Intangible assets | 12,693 | ||
| Property, plant and equipment, at cost | 341,125 | ||
| Accumulated depreciation
– Property, plant and equipment |
100,028 | ||
| Investment property | 12,216 | ||
| Retained earnings, 1 April 2016 | 116,971 | ||
| Share capital | 40,000 | ||
| Short-term borrowings | 57,183 | ||
| Accounts and other payables | 23,590 | ||
| Total | 736,391 | 736,391 | |
Additional information:
(1) Included in item “Property, plant and equipment” was a piece of machinery, machinery A, acquired on 1 April 2016 at a cost of $40,000,000 with no estimated residual value and useful life of 5 years.
Additional information is also available:
(a) The revalued amount of machinery A as of 31 March 2017 was $34,000,000. Revalued amounts of all other items in property, plant and equipment are close to the costs.
(b) Tiger Limited uses revaluation model to measure property, plant and equipment subsequently, and there is no balance of revaluation surplus on 1 April 2016.
(c) Depreciation charge on machinery A for the year ended 31 March 2017 was not made, while depreciation charges on all other items of property, plant and equipment for the year ended 31 March 2017 were made before the extraction of ledger balances.
(2) It was determined that the “Allowance for bad debts” account at year-end should be $3,200,000.
(3) The bank loan was first obtained at 1 April 2015 with a term of twelve years.Annual repayment of principal is $10 million. Interest rate of the loan is 5% per annum calculated on 31 March each year and is payable in April of the same year.
(4) The amount of tax to be provided for the year is $12,848,000.
(5) Fair value of investment property at 31 March 2017 is estimated to be $14,500,000.
(6) Depreciation expense on machinery A should be classified as “Distribution costs” in the presentation in financial statement. The depreciation expenses of other items in property, plant and equipment should be allocated 50% to “Administrative expense” and 50% to “Distribution costs”. The bad debt expenses should be classified as “Administrative expenses”.
Required:
- Prepare journal entries necessary for the preparation of the 2017 financial statements.
- Prepare the Statement of profit or loss and other comprehensive income (single statement approach) (classification of expenses by function) for the year ended 31 March 2017.
- Prepare the Statement of changes in equity for the year ended 31 March 2017.
- Prepare the classified Statement of financial position (format A – L = E) as at 31 March 2017.