NAMA : WAHYUDI SYAPUTRA

NIM : 042111333061
TUGAS : Presentation and Disclosure in Financial Reporting

E24.3 (LO 2) (Segment Reporting)

LaGreca SpA is involved in four separate industries. The following information is available for each of the
four segments.

Instructions

Determine which of the operating segments are reportable based on the:

a. Revenue test.
b. Operating profit (loss) test.
c. Identifiable assets test.

Answer :

a. Revenue test: 10% X €102,000 = €10,200.

Segments W (€60,000) and Y (€23,000) both meet this test.
b. Operating profit test: 10% X (€15,000 + €1,500 + €1,000) = €1,750.
Segments W (€15,000) and Y (€2,000 absolute amount) both meet this test.
c. Identifiable assets test: 10% X €290,000 = €29,000.
Segments W (€167,000) and X (€83,000) both meet this test.
E24.4 (LO 5) (Ratio Computation and Analysis; Liquidity)

As loan analyst for Murray Bank, you have been given the following information.

Each of these companies has requested a loan of £50,000 for 6 months with no collateral offered. Since
your bank has reached its quota for loans of this type, only one of these requests is to be granted.

Instructions

Judging from the information above, which of the two companies would you recommend as the better risk
and why? Assume that the ending account balances are representative of the entire year.

Answer :

Computations are given below which furnish some basis of comparison of the two companies:

Plunkett Co. Herring Co.

Composition of current assets

Inventories 63% 45%
Receivables 24% 27%
Cash 13% 28%
100% 100%
Computation of various ratios
Current ratio ($910 ÷ $300) 3.03 to 1 ($1,140 ÷ $350) 3.26 to 1
Acid-test ratio ($120 + $220) ÷ $300 1.13 to 1 ($320 + $302) ÷ $350 1.78 to 1
Accounts receivable turnover ($930 ÷ $220) 4.23 times ($1,500 ÷ $302) 4.97 times
Inventory turnover 1.14a times 1.74b times
Cash to current liabilities ($120 ÷ $300) 0.40 to 1 ($320 ÷ $350) 0.91 to 1
a($930 X .70) ÷ $570 b($1,500 X .60) ÷ $518

Herring Co. appears to be a better short-term credit risk than Plunkett Co. Analysis of various liquidity
ratios demonstrates that Herring Co. is stronger financially, all other factors being equal, in the short-term.
Comparative risk could be judged better if additional information were available relating to such items as
net income, purpose of the loan, due date of current and noncurrent liabilities, future prospects, etc.

P24.1 (LO 2) (Subsequent Events)

Your firm has been engaged to examine the financial statements of Almaden AG for the year 2022. The
bookkeeper who maintains the financial records has prepared all the unaudited financial statements for the
company since its organization on January 2, 2017. The client provides you with the following information.
The supplementary information below is also provided.

1. On May 1, 2022, the company issued at par €750,000 of bonds to finance plant expansion. The
long-term bond agreement provided for the annual payment of interest every May 1. The existing
plant was pledged as security for the loan.
2. The bookkeeper made the following mistakes.
a. In 2020, the ending inventory was overstated by €183,000. The ending inventories for 2021
and 2022 were correctly computed.
b. In 2022, accrued wages in the amount of €225,000 were omitted from the statement of
financial position, and these expenses were not charged on the income statement.
c. In 2022, a gain of €175,000 (net of tax) on the sale of certain plant assets was credited
directly to retained earnings.
3. A major competitor has introduced a line of products that will compete directly with Almaden’s
primary line, now being produced in a specially designed new plant. Because of manufacturing
innovations, the competitor’s line will be of comparable quality but priced 50% below Almaden’s
line. The competitor announced its new line on January 14, 2023. Almaden indicates that the
company will meet the lower prices, which are high enough to cover variable manufacturing and
selling expenses, but permit recovery of only a portion of fixed costs.
4. You learned on January 28, 2023, prior to completion of the audit, of heavy damage because of a
recent fire in one of Almaden’s two plants; the loss will not be reimbursed by insurance. The
newspapers described the event in detail.

Instructions

Analyze the preceding information to prepare a corrected statement of financial position for Almaden in
accordance with IFRS. Prepare a description of any notes that might need to be prepared. The books are
closed, and adjustments to income are to be made through retained earnings.

Answer :
 Almaden Corporation
Statement of Financial Position
December 31, 2020
Assets
Non current assets
Long term investment
Investment in land € 185.000
Cash restricted for plant expansion € 300.000 € 485.000

Property, plant, and equipment

Plant and equipment € 5.560.000
Less accumulated depreciation -€ 1.430.000 € 4.130.000
Land € 564.700 € 4.694.700

Intangible assets
Goodwill, at cost € 252.000

Current assets € 62.400

Prepaid expenses € 645.100
Inventories € 162.300
Notes receivable € 510.000
Accounts receivable
Less allowance for doubtful account € 30.000 € 480.000
Cash € 271.000
Total current assets € 1.620.800
Total assets € 7.052.500

Equity and Liabilities

Equity
Share capital—ordinary € 1.840.000
Share premium—ordinary € 150.000 € 1.990.000
Retained earnings € 2.545.600
Total equity € 4.535.600

Non current liabilities

Notes payable € 157.000
8% bonds payable € 750.000 € 907.000

Current liabilities
Accounts payable € 510.000
Unearned revenue € 489.500
Dividends payable € 200.000
Accrued wages payable € 225.000
Estimated income taxes payable € 145.000
Accrued interest payable € 40.000
Total current liabilities € 1.609.500
Total liabilities € 2.516.500
Total equity and liabilities € 7.052.100

Retained earnings € 2.810.600

Accrued wages omitted -€ 225.000
Accrued interest -€ 40.000
€ 2.545.600
Additional comments:

1. The information related to the competitor should be disclosed because this innovation may have a
significant effect on the company. The value of the inventory is overstated because of the need to
reduce selling prices. This factor along with the net realizable value of the inventory should be
disclosed.
2. The pledged assets should be described in the statement of financial position as indicated or in a
footnote.
3. The error in calculating inventory will have been offset, so no adjustment is needed.
4. Accrued wages is included as a liability and retained earnings is reduced.
5. The fact that the gain on sale of certain plant assets was credited directly to retained earnings has no
effect on the statement of financial position presentation.
6. Technically, the plant and equipment account should be separately disclosed and depreciation
computed on each item individually. However, the information to divide the accounts was not given
in this problem.
7. Accrued interest on the bonds ($750,000 X 8% X 8/12 = $40,000) was never recorded. This amount
will also reduce retained earnings.
8. Since the loss from heavy damage was caused by a fire after the financial statement date, this event
does not reflect conditions existing at that date. Thus, adjustment of the financial statements is not
necessary. However, the loss should be disclosed in a note, especially since users of the financial
statements who may have read about the fire in the newspaper, would likely be looking for
disclosure of the financial implications.

P24.2 (LO 2) (Segment Reporting)

Cineplex Corporation is a diversified company that operates in five different industries: A, B, C, D, and E.
The following information relating to each segment is available for 2022.

Sales of segments B and C included intersegment sales of $20,000 and $100,000, respectively.

Instructions

a. Determine which of the segments are reportable based on the:

1. Revenue test.
2. Operating profit (loss) test.
3. Identifiable assets test.
b. Prepare the necessary disclosures required by IFRS.
Answer :

(a) Determination of reportable segments:

1. Revenue test: 10% X $785,000* = $78,500. Only Segment C ($580,000) meets this test.
*$40,000 + $75,000 + $580,000 + $35,000 + $55,000
2. Operating profit test: 10% X ($11,000 + $75,000 + $4,000 + $7,000) = $9,700. Segments A
($11,000), B ($15,000 absolute value), and C ($75,000) all meet this test.
3. Identifiable assets test: 10% X $730,000** = $73,000. Segments B ($80,000) and C ($500,000)
meet this test.
**$35,000 + $80,000 + $500,000 + $65,000 + $50,000

(b) Disclosures required by IFRS:

A B C Other Totals
External Revenues $ 40.000 $ 55.000 $480.000 $ 90.000 $665.000
Intersegment Revenues $ 20.000 $100.000 $120.000
Total Revenues $ 40.000 $ 75.000 $580.000 $ 90.000 $785.000
Cost of Goods Sold $ 19.000 $ 50.000 $270.000 $ 49.000
Operating Expenses $ 10.000 $ 40.000 $235.000 $ 30.000
Total Expenses $ 29.000 $ 90.000 $505.000 $ 79.000
Operating Profit (Loss) $ 11.000 $-15.000 $ 75.000 $ 11.000 $ 82.000
Identifiable Assets $ 35.000 $ 80.000 $ 500.000 $ 115.000 $ 730.000

Reconciliation of revenues

Total segment revenues $785,000

Revenues of immaterial segments (90,000)
Elimination of intersegment revenues (120,000)
Revenues from reportable segments $575,000

Reconciliation of profit or loss

Total segment operating profit $ 82,000

Profits of immaterial segments (11,000)
Profits from reportable segments $ 71,000

Reconciliation of assets

Total segment assets $730,000

Assets of immaterial segments (115,000)
Assets from reportable segments $615,000
P24.3 (LO 5) (Ratio Computations and Additional Analysis)

Bradburn plc was formed 5 years ago through a public subscription of ordinary shares. Daniel Brown, who
owns 15% of the ordinary shares, was one of the organizers of Bradburn and is its current president. The
company has been successful but is currently experiencing a shortage of funds. On June 10, Daniel Brown
approached the Hibernia Bank, asking for a 24-month extension on two £35,000 notes, which are due on
June 30, 2022, and September 30, 2022. Another note of £6,000 is due on March 31, 2023, but he expects
no difficulty in paying this note on its due date. Brown explained that Bradburn’s cash flow problems are
due primarily to the company’s desire to finance a £300,000 plant expansion over the next 2 fiscal years
through internally generated funds.

The commercial loan officer of Hibernia Bank requested financial reports for the last 2 fiscal years. These
reports are reproduced below.
Instructions

a) Compute the following items for Bradburn plc.

1. Current ratio for fiscal years 2021 and 2022.
2. Acid-test (quick) ratio for fiscal years 2021 and 2022.
3. Inventory turnover for fiscal year 2022.
4. Return on assets for fiscal years 2021 and 2022. (Assume total assets were £1,688,500 at
3/31/20.)
5. Percentage change in sales, cost of goods sold, gross margin, and net income after taxes
from fiscal year 2021 to 2022.
b) Identify and explain what other financial reports and/or financial analyses might be helpful to the
commercial loan officer of Hibernia Bank in evaluating Daniel Brown’s request for a time extension
on Bradburn’s notes.
a) Assume that the percentage changes experienced in fiscal year 2022 as compared with fiscal year
2021 for sales, cost of goods sold, and expenses will be repeated in each of the next 2 years and that
the dividend amount will be held constant at the 2022 rate. Is Bradburn’s desire to finance the plant
expansion from internally generated funds realistic? Discuss.
b) Should Hibernia Bank grant the extension on Bradburn’s notes considering Daniel Brown’s
statement about financing the plant expansion through internally generated funds? Discuss.

Answer :

(a)

BRADBURN CORPORATION
Financial Statistics
1. Current ratio = Current assets
Current liabilities
2022: $320,000 = 2.02 to 1 2023: $403,000 = 2.46 to 1
$158,500 $164,000

2. Quick ratio = Current assets – Inventories

Current liabilities
2022: $270,000 = 1.70 to 1 2023: $298,000 = 1.82 to 1
$158,500 $164,000

3. Inventory turnover = Cost of goods sold

Average inventory
$1,530,000
2022: $50,000 + $105,000 = 19.7 times (every 18.5 days)
2
 4. Return on assets = Net income
Average total assets

$297,000
2022: $1,688,500 + $1,740,500 = 17.3%
2

$366,000
2023: $1,740,500 + $1,852,000 = 20.4%
2

5.
Sales $300 = 11.11%
$2,700
Cost of goods sold $105 = 7.37%
$1,425
Gross margin $195 = 15.29%
$1,275
Net income after taxes $69 = 23.23%
$297

(b) Other financial reports and financial analyses which might be helpful to the commercial loan officer of
Hibernia Bank include:

1. The Statement of Cash Flows would highlight the amount of cash provided by operating activities,
the other sources of cash, and the uses of cash for the acquisition of long-term assets and long-term
debt requirement.
2. Projected financial statements for 2023 including a projected Statement of Cash Flows. In addition,
a review of Bradburn’s comprehensive budgets might be useful. These items would present
management’s estimates of operations for the coming year.
3. A closer examination of Bradburn’s liquidity by calculating some additional ratios, such as day’s
sales in receivables, accounts receivable turnover, and day’s sales in inventory.
4. An examination as to the extent that leverage is being used by Bradburn.

(c) Bradburn Corporation should be able to finance the plant expansion from internally generated funds as
shown in the calculations presented on the next page.
 2021 2022 2023
Sales $ 3.000,0 $ 3.333,3 $ 3.703,6
Cost of goods sold $ 1.530,0 $ 1.642,8 $ 1.763,8
Gross margin $ 1.470,0 $ 1.690,5 $ 1.939,8
Operating expenses $ 860,0 $ 948,2 $ 1.045,5
Income before taxes $ 610,0 $ 742,3 $ 894,3
Income taxes (40%) $ 244,0 $ 296,9 $ 357,7
Net income $ 366,0 $ 445,4 $ 536,6

Add : Depreciation $ 102,5 $ 102,5

Deduct : Dividend $ -260,0 $ -260,0
Note repayment $ -6,0
Funds available expansion $ 281,9 $ 379,1
plant expansion $ -150,0 $ -150,0
excess funds $ 131,9 $ 229,1

(d) Hibernia Bank should probably grant the extension of the loan, if it is really required, because the
projected cash flows for 2022 and 2023 indicate that an adequate amount of cash will be generated from
operations to finance the plant expansion and repay the loan. In actuality, there is some question whether
Bradburn needs the extension because the excess funds generated from 2023 operations might cover the
$70,000 loan repayment. However, Bradburn may want the loan extension to provide a cushion because its
cash balance is low. The financial ratios indicate that Bradburn has a solid financial structure. If the bank
wanted some extra protection, it could require Bradburn to appropriate retained earnings for the amount of
the loan and/or restrict cash dividends for the next two years to the 2022 amount of $2.00 per share.