Question

ACCOUNTING

Compute the following transactions, for year XO. After computing them, present the Income
Statement, Balance Sheet and Cash Flow Statement as of December 31 st , X0, and answer to
the following questions:
a) Which is the shareholders’ equity value at the end of year X0?
b) What’s the financial position of the firm at the end of year X0? (Compare SHE and
Liabilities)
c) What’s the asset composition of the firm at the end of the year?
d) What’s the EBITDA, EBIT and Net income at the end of the year?
1. On January 1 st , X0, Company “X” is funded issuing 30.000 new shares with a nominal value
of 10 €, totaling 300.000 as Common Stock. The new shareholders pay 250.000 € and give
machinery & equipment to the firm valued at 50.000 €.
2. The operational startup expenses coming from legal fees and taxes are of 5.000 €.
3. a) “X” buys during the year automobile components on 1 st February X0. It buys 10.000 units
at 30 € per unit. Our supplier charges to “X” an output tax (sales tax) of 21%. The purchase
was paid 50% in cash, and the rest on credit.

b) During the year, it sells 8.000 units at 40 € per unit. 25% of such sales have not been
collected yet. The output tax (sales tax) is of 21%.
c) One month later, €75.000 of money owed to suppliers is paid.
4. “X” pays salary expenses of 30.000 €, rent for two full years, on 1 st February X0 (30.000 €)
(compute the full payment and then allocate the proper Rent expense for year X0). “X” has
also paid utility expenses of 6.000 €.
5. On March 31 st , X0, “X” issues a 200.000 € bond, at 6% annual interest rate payable
semiannually (i.e., on the 30 th September and 31 st March), with termination in X5, and no
repayment until such date. Market rate is 6%.
6.a) On 1 st April, X0, “X” buys 100 Telefonica shares at 15 € per share. These will be considered
as a Trading security asset.
b) On 30 th June, X0, Telefonica share price is 12.5€ per share. Adjust the investment
accordingly.
c) On 31 st July X0, “X” sells the shares at 12 € per share.
7. Compute as of 31 st December X0, the interest expenses accrued and paid referred to point 5.
8. Depreciation of the machinery is done in 5 years, using the straight line method.
9. “X” applies the allowance method to estimate potential bad debts. It has estimated that a 1%
of the sales on credit will be unpaid.
10. Corporate tax rate for the period: 30%

Answer 1

a. Shareholder equity Value at the end of the year is 3,01,050

b. Liabilty is 3,14,150 (refer balance sheet below)

c. Asset composition is 6,15,200 (refer balance sheet below)

d. EBITDA 20,500 , EBIT is 10,500 , Net Income befor tax s 1500, Net Income after tax is 1050.

Refer Transactions, Income statement, Balance sheet and Cash flow below

	Transactions in the books of XO for the year ended 31st December
	Journal Entries
		Amount in €
Q. Ref	Particulars	Dr.	Cr.
1	Cash and bank a/c Dr.	2,50,000
	Machinery and AMP a/c Dr.	50,000
	To Equity Share Capital Cr.		3,00,000
	On January 1 st , X0, Company “X” is funded issuing 30.000 new shares with a nominal value
	of 10 €, totaling 300.000 as Common Stock. The new shareholders pay 250.000 € and give
	machinery & equipment to the firm valued at 50.000 €
2	Legal Fees a/c Dr.	5,000
	Cash and bank a/c		5,000
	The operational startup expenses coming from legal fees and taxes are of 5.000 €
3	Purchases a/c Dr. (10,000 * 30)	300000
	Input Sales tax a/c Dr. (10,000*30*21%)	63000
	To Supplier a/c		181500
	Cash and bank a/c		181500
a	“X” buys during the year automobile components on 1 st February X0. It buys 10.000 units
	at 30 € per unit. Our supplier charges to “X” an output tax (sales tax) of 21%. The purchase
	was paid 50% in cash, and the rest on credit.
	Cash and Bank a/c Dr. (75% of 40*8000*121%)	290400
	Debtors a/c Dr. (25% of 40*8000*121%)	96800
	To Sales a/c		320000
	Output tax a/c		67200
b	During the year, it sells 8.000 units at 40 € per unit. 25% of such sales have not been
	collected yet. The output tax (sales tax) is of 21%.
	Supplier a/c	75000
	To Cash and bank a/c		75000
c	One month later, €75.000 of money owed to suppliers is paid.
4	Salary A/c	30000
	Rent a/c	15000
	Prepaid rent a/c	15000
	Utility a/c	6000
	To Cash and bank a/c		66000
	X” pays salary expenses of 30.000 €, rent for two full years, on 1 st February X0 (30.000 €)
	(compute the full payment and then allocate the proper Rent expense for year X0). “X” has
	also paid utility expenses of 6.000 €.
5	Cash and Bank A/c	200000
	To Debenture a/c		200000
	On March 31 st , X0, “X” issues a 200.000 € bond, at 6% annual interest rate payable
	semiannually (i.e., on the 30 th September and 31 st March), with termination in X5, and no
	repayment until such date. Market rate is 6%.
6	Investment (Held for Trading a/c) Dr.	1500
	To Cash and Bank A/c		1500
a	On 1 st April, X0, “X” buys 100 Telefonica shares at 15 € per share. These will be considered
	as a Trading security asset.
	Loss on Fair valuation of Assets a/c Dr.	250
	TO Investment (Held for Trading a/c)		250
b	On 30 th June, X0, Telefonica share price is 12.5€ per share. Adjust the investment
	accordingly.
	Cash and Bank a/c	1200
	Loss on Sales of Investment a/c	300
	To Investment ( Held for Trading a/c)		1250
	Loss on Fair valuation of assets a/c		250
c	On 31 st July X0, “X” sells the shares at 12 € per share.
7	Interest expenses a/c Dr. (200000*6%/2 + 200000*6%/2*3/6)	9000
	To Cash and Bank A/c		6000
	To Interest Payable a/c		3000
	Compute as of 31 st December X0, the interest expenses accrued and paid referred to point 5.
8	Depreciation A/c (50,000/5)	10,000
	To Accumulated Dep on Plant and Machinery		10,000
	Depreciation of the machinery is done in 5 years, using the straight line method.
9	Expected Credit loss a/c	3200
	To Allowance for Bad debts a/c		3200
	“X” applies the allowance method to estimate potential bad debts. It has estimated that a 1%
	of the sales on credit will be unpaid.
10
	Income Statement of XO for the year ended 31st December
	Particulars	Amount
	Revenue from Operations	3,20,000
	Purchases	3,00,000
	(Increase)/ decrease in Inventories	-60,000
	Other expenses	56,300
	Expected credit loss	3,200
		-2,99,500
	EBITDA	20,500
	Depreciation	10,000
	EBIT	10,500
	Finance cost	9,000
	Net Income before tax	1,500
	Tax expenses @ 30%	450
	Net Income	1,050
	Balancesheet of X0 Limited
	Particulars	Amount
	Shareholder fund
	Equity	3,00,000
	Other Equity	1,050
	Non Current Liabilities
	Debentures 6%	200000
	Current Liabilities
	Interest payable	3000
	Trade payables	106500
	Sales tax payables	4200
	Tax payable	450
	Total Share holders fund and Liabilities	6,15,200
	Assets
	Non Current Assets
	Plant and Machinery	40,000
	Current Asstes
	Inventories	60,000
	Trade receivables	93,600
	Cash and Bank balances	4,06,600
	Prepaid Rental	15000
		6,15,200	-