Given:
Cost of inventory: $20,000
Estimated selling price: $22,000
Cost to complete and sell: $7,000
NRV = Estimated Selling Price – Costs to complete and sell
NRV = $22,000 – $7,000 = $15,000
Conclusion: Cellnetics Ltd should record its inventory at $15,000
Given:
Profit for the year: $45,000
Retained Earnings (1st, January 2013): $89,000
Prior year adjustments (depreciation expense understatement):
$10,000 (before tax)
Cumulative decrease in income from changes in inventory valuation
method: $9,000 (before tax)
Interim dividend (dividend paid): $4,000
Dividend declared: $15,000
Effective tax rate: 32%
Tax on prior year adjustment:
Tax = Prior year adjustment x Tax Rate = $10,000 * 32% = $3,200
Adjusted Prior Year Adjustment = $10,000 - $3,200 = $6,800
Tax on cumulative decrease:
Tax = $9,000 * 32% = $2,880
Adjusted cumulative decrease after tax:
Adjusted cumulative decrease = $9,000 – $2,880 = $6,120
Total Adjusted Profit = Profit - Adjusted Prior Year Adjustment – Adjusted
Cumulative Decrease
Total Adjusted Profit = 45,000 – 6,800 – 6,120 = 32,080
Statement of Retained Earnings for the period ended 31st, December
2013
Description Amount ($)
Income:
Profit for the year 45,000
Retained earnings 1st, January 2013 89,000
Total Income: 134,000
Adjustments:
Depreciation (6,800)
Inventory (6,120)
Total Adjustments: (12,920)
Dividend Declared:
Dividend Paid (4,000)
Proposed Dividend (11,000)
Total Dividend: (15,000)
Retained earnings 31st, 106,080
December 2013
A) Multi-step method
ADE Company – Statement of Comprehensive Income
Sales revenue 109,800
Cost of goods sold (57,630)
Gross profit 52,170
Other revenues
Rent revenue 23,130
Total revenue 75,300
Selling expenses
Transportation out 2,110
Depreciation on sales equipment 5,920
Sales commissions 6,570
Total selling expenses 14,600
Administrative expenses
Office salaries 4,600
Depreciation of office furniture and 3,620
equipment
Total administrative expenses 8,220
Other expenses
Loss on sale of motor vehicles 12,000
Total other expenses 12,000
Finance costs
Interest expense 2,540
Bank charges 1,070
Total finance costs 3,610
Profit before tax 36,870
Income tax expense (9,920)
Profit for the year 26,950
Retained earnings 01 January 2013 61,000
Total available for distribution 87,950
Dividend declared
Dividend paid (13,500)
Retained earnings 31 December 74,450
2013
B) Single-step format
ADE Company – Statement of Comprehensive Income
Sales revenue 109,800
Cost of goods sold (57,630)
Gross profit 52,170
Other revenues
Rent revenue 23,130
Total other revenues 23,130
Total revenue 75,300
Selling expenses 14,600
Administrative expenses 8,220
Other expenses 12,000
Finance costs 3,610
Total expenses (38,430)
Profit before tax 36,870
Income tax expense (9,920)
Profit for the year 26,950
Retained earnings 01 January 2013 61,000
Total available for distribution 87,950
Dividend declared
Dividend paid (13,500)
Retained earnings 31 December 74,450
2013
