exercises lesson 6 0809 solucionados - us

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DEPARTAMENTO DE CONTABILIDAD Y ECONOMÍA FINANCIERA

ESCUELA UNIVERSITARIA DE ESTUDIOS EMPRESARIALES

FINANCIAL ACCOUNTING

(DIPLOMATURA EN CIENCIAS EMPRESARIALES, 2º CURSO, GRUPO 5)

2008-2009

EXERCISES LESSON 6 STATEMENT OF

CHANGES IN EQUITY

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STATEMENT OF CHANGES IN EQUITY: LESSON 6

EXERCISE 1 LESSON 6 Company FP, Ltd has performed the following transactions with financial instruments: Year 2007: 30th of January: Acquisition of 1,000 shares of FCC at a price of 60.5 € per share. The shares are paid in cash.

31st of December: The market price of the FCC’s shares is 65 €. Year 2008: 30th of June: The shares of FCC are sold in cash at a price of 68 €.

Company FP, Ltd. has also received at the beginning of 2007 a grant of 2,500,000 € from the regional government for the acquisition of new premises with a cost of 5,000,000 € (Constructions; 2,500,000 €; Land: 2,500,000 €). The useful life of the premises is 40 years (linear). The premises are bought the 4th of January and the subvention is collected in cash the 1st of February. REQUIRED: Prepare the Statement of Recognized Revenues and Expenses for 2008, including the comparative information of 2007 (tax rate 30%). SOLUTION PORTFOLIO OF AVAILABLE FOR SALE FINANCIAL ASSETS Year 2007: 30th of January: Acquisition of 1,000 shares of FCC at a price of 60.5 € per share. The shares are paid in cash and classified by the company in the portfolio of “available for sale” financial assets. Nº Accounts Debit Credit 250 Long term holdings in equity instruments 60.500 572 Cash 60.500 31st of December: The market price of the FCC’s shares is 65 €. Nº Accounts Debit Credit 250 Long term holdings in equity instruments 4.500 900 Profits from available for sale financial assets 4.500 Nº Accounts Debit Credit 8301 Deferred tax 1.350 479 Tax liability for taxable temporary differences 1.350 At the end of each of the years, accounts of group 8 and 9 are closed:

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Nº Accounts Debit Credit 900 Profits from available for sale financial assets 4.500 8301 Deferred tax 1.350 1330 Adjustments for changes in value of financial instruments

available for sale 3.150

Year 2008: 30th of June: The shares of FCC are sold in cash at a price of 68 €. Nº Accounts Debit Credit 250 Long term holdings in equity instruments 3.000 900 Profits from available for sale financial assets 3.000 Nº Accounts Debit Credit 8301 Deferred tax 900 479 Tax liability for taxable temporary differences 900 Nº Accounts Debit Credit 572 Cash 68.000 250 Long term holdings in equity instruments 68.000 Nº Accounts Debit Credit 802 Transfer of profits from available for sale financial assets 7.500 7632 Profits from available for sale portfolio 7.500 Nº Accounts Debit Credit 479 Tax liability for taxable temporary differences 2.250 8301 Deferred tax 2.250 At the end of each of the years, accounts of group 8 and 9 are closed: Nº Accounts Debit Credit 900 Profits from available for sale financial assets 3.000 8301 Deferred tax 900 1330 Adjustments for changes in value of financial instruments


Nº Accounts Debit Credit 8301 Deferred tax 2.250 1330 Adjustments for changes in value of financial instruments


802 Transfer of profits from available for sale financial assets 7.500 CAPITAL GRANT Year 2007: - 02/01/01: Recognition of the grant as revenue directly in equity.

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Nº Accounts Debit Credit 4708 Receivable from public authorities (capital grants) 2.500.000 940 Revenues of official capital grants 2.500.000 Nº Accounts Debit Credit 8301 Deferred tax 750.000 479 Tax liability for taxable temporary differences 750.000 - 04/01/01: Acquisition of the premises Nº Accounts Debit Credit 210 211

Land Constructions

2.500.000 2.500.000

572 Cash 5.000.000 - 01/02/01: Collection of the grant Nº Accounts Debit Credit 572 Cash 2.500.000 4708 Receivable from public authorities (capital grants) 2.500.000 31st of December: Treatment of operations related to the grant. - Depreciation of the premises 2.500.000/40=62.500 Nº Accounts Debit Credit 681 Tangible fixed assets depreciation expense 62.500 281 Tangible fixed assets accumulated depreciation 62.500 - For the transfer of the grant to income for the year (the grant is only financing 50%

of the construction and 50% of the land) Nº Accounts Debit Credit 840 Transfers of official capital grants 31.250

746 Capital grants, donations and legacies transferred to income for the year 31.250

Nº Accounts Debit Credit 479 Tax liability for taxable temporary differences 9.375 8301 Deferred tax 9.375 At the end of each of the years, accounts of group 8 and 9 are closed: Nº Accounts Debit Credit 940 Revenues of official capital grants 2.500.000 8301 Deferred tax 750.000130 Official capital grants 1.750.000

Nº Accounts Debit Credit 8301 Deferred tax 9.375 130 Official capital grants 21.875 840 Transfers of official capital grants 31.250

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Year 2008: 31st of December: Treatment of operations related to the grant. - Depreciation of the premises 2.500.000/40=62.500 Nº Accounts Debit Credit 681 Tangible fixed assets depreciation expense 62.500 281 Tangible fixed assets accumulated depreciation 62.500 - For the transfer of the grant to income for the year (the grant is only financing 50%

of the construction and 50% of the land) Nº Accounts Debit Credit 840 Transfers of official capital grants 31.250

746 Capital grants, donations and legacies transferred to income for the year 31.250

Nº Accounts Debit Credit 479 Tax liability for taxable temporary differences 9.375 8301 Deferred tax 9.375 Nº Accounts Debit Credit 8301 Deferred tax 9.375 130 Official capital grants 21.875 840 Transfers of official capital grants 31.250

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EXERCISE 2 LESSON 6 Company ECPN, Ltd. has published the following financial statements at the end of 200X.

BALANCE SHEET ASSETS 200X 200X-1 LIABILITIES 200X 200X-1 A) NON-CURRENT ASSETS 50.800 45.850 A) EQUITY 73.097 61.340 I. Intangible assets. 16.000 2.800 A-1) Shareholders' equity. 69.597 59.100 5. Computer software. 16.000 2.800 I. Capital. 62.000 50.000 II. Tangible fixed assets. 34.800 40.500 1. Registered capital. 64.000 50.000 1. Land and structures. 26.800 32.500 2. (Uncalled subscribed capital). - 2.000 - 2. Plant and machinery, tools, furniture and other tangible assets. 8.000 8.000 III. Reserves. 8.000 7.000

V. Long-term financial investments. - 2.550 1. Legal and statutory. 8.000 7.000 1. Holdings in equity. - 2.550 VII. Income for the year. - 403 2.100

B) CURRENT ASSETS 37.440 28.368 A-2) Adjustments for changes in value. - 140

I. Non-current assets held for sale. - 3.000 I. Financial instruments available for sale. - 140

II. Inventories. 14.250 13.100 A-3) Grants, donations and legacies received. 3.500 2.100

1. Commercial (goods for sale). 13.750 12.300 B) NON-CURRENT LIABILITIES 13.051 9.828 6. Advances to suppliers. 500 800 I. Long-term provisions. 350 - III. Trade accounts receivables and other receivables. 6.340 2.068 4. Other provisions. 350 -

1. Trade accounts receivables for sale and services. 990 2.068 II. Long-term debt. 11.201 8.868

3. Sundry accounts receivables. 3.000 - 1. Debentures and other negotiable securities. 3.000 1.000

5. Assets for current tax. 350 - 2. Long-term debt payable to credit institutions. 550 550

7. Called subscribed capital receivable. 2.000 - 5. Other financial liabilities. 7.651 7.318

V. Short-term financial investments. 1.350 1.000 IV. Deferred tax liability 1.500 960 1. Holdings in equity. 1.350 1.000 C) CURRENT LIABILITIES 2.092 3.050 VII. Cash and cash equivalents. 15.500 9.200 III. Short-term debt. 200 500

1. Cash. 15.500 9.200 1. Debentures and other negotiable securities. - 500

TOTAL ASSETS 88.240 74.218 5. Other financial liabilities. 200 -

V. Trade accounts payables and other payables. 1.392 1.800

1. Trade accounts payables for purchases and services. 892 950

4. Salary payable. 500 300 5. Liability for current tax. - 550 VI. Short term accrual accounts. 500 750 TOTAL LIABILITIES 88.240 74.218

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INCOME STATEMENT 200X

A) CONTINUING OPERATIONS 1. Net turnover. 5.125 4. Procurements. - 1.080 a) Consumption of goods for sale. - 830 d) Impairment of goods for sale, raw materials and other consumables. - 250 5. Other operating revenues. 1.475 a) Accesory and other ordinary income. 1.350 b) Operating subventions included in income for the year. 125 6. Personnel expenses. - 5.950 a) Wages, salaries and similar expenses. - 5.600 b) Employee welfare expenses. - 350 7. Other operating expenses. 920 a) Outside services. - 180 c) Losses, impairment and change in provisions for trade operations. 1.100 8. Fixed assets depreciation expense. - 1.700 9. Transfer of grants of non-financial non-current assets and others. 800 11. Impairment and income from disposal of non-current assets. - 500 b) Income from disposals and others. - 500 A.1) OPERATING INCOME (1+2+3+4+5+6+7+8+9+10+11) - 910 12. Financial revenues. 320 a) From holdings in equity instruments. 320 a2) Of third parties. 320 13. Financial expenses. - 483 b) Of third parties. - 483 14. Change in fair value of financial instruments. 550 a) Held for trading and others. 350 b) Transfer to income for the year for available for sale financial instruments. 200 A.2) FINANCIAL INCOME (12+13+14+15+16) 387 A.3) INCOME BEFORE TAXES (A.1+A.2) - 523 17. Income tax. - A.4) INCOME FROM CONTINUING OPERATIONS (A.3+17) - 523 B) DISCONTINUED OPERATIONS 120 18. Post-tax income of discontinued operations. 120 A.5) INCOME FOR THE YEAR (A.4+18) - 403

The following information about transactions that are relevant for the Statement of Changes in Equity is also available: During the year the company has sold the portfolio of financial assets classified as “available for sale” for a price of 2,550 € received in cash. As it can be inferred from the information in the balance sheet there were positive adjustments in value for this asset shown that had been recognized directly in equity in previous years. As it can be seen in the Income Statement this profit has been transferred to income for the year in 200X.

A new grant of 2,800€ has been received at the end of the year for the acquisition of computer software. A portion (800€) of the grant that has been received a previous year has also been transferred to income for the year.

Several transactions have been made with the shareholders (capital increase and distribution of income of 200X-1) as it can be inferred form the changes in the components of shareholders equity.

REQUIRED: Prepare the Statement of Changes in Equity for year 200X according to the model established by the P.G.C.

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SOLUTION EXERCISE 2 LESSON 6 During the year the company has sold the portfolio of financial assets classified as “available for sale” for a price of 2,550 € received in cash. As it can be inferred from the information in the balance sheet there were positive adjustments in value for this asset shown that had been recognized directly in equity in previous years. As it can be seen in the Income Statement this profit has been transferred to income for the year in 200X.

Information from the Balance Sheet: Accounting value of the financial asset at the beginning of the year: 2,550 Previous increases in value recognized in equity: 200 Sale: Nº Accounts Debit Credit 572 Cash 2,550 250 Long term holdings in equity instruments 2,550 Transfer of the profit that was recognized in equity in previous years: Nº Accounts Debit Credit 802 Transfer of profits from available for sale financial assets 200 7632 Profits from available for sale portfolio 200 Nº Accounts Debit Credit 479 Tax liability for taxable temporary differences 60 8301 Deferred tax 60 Nº Accounts Debit Credit 8301 Deferred tax 60 1330 Adjustments for changes in value of financial instruments

available for sale 140

802 Transfer of profits from available for sale financial assets 200 A new grant of 2,800 € has been received at the end of the year for the acquisition of computer software. A portion (800€) of the grant that has been received a previous year has also been transferred to income for the year.

Reception of the new capital grant (because it has been received at the end of the year no transfer will be registered this year): Nº Accounts Debit Credit 572 Cash 2,800 940 Revenues of official capital grants 2,800 Nº Accounts Debit Credit 8301 Deferred tax 840 479 Tax liability for taxable temporary differences 840

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Nº Accounts Debit Credit 940 Revenues of official capital grants 2,800 8301 Deferred tax 840 130 Official capital grants 1,960 Transfer of a portion of the capital grants from previous years: Nº Accounts Debit Credit 840 Transfers of official capital grants 800

746 Capital grants, donations and legacies transferred to income for the year 800

Nº Accounts Debit Credit 479 Tax liability for taxable temporary differences 240 8301 Deferred tax 240 Nº Accounts Debit Credit 8301 Deferred tax 240 130 Official capital grants 560 840 Transfers of official capital grants 800 Several transactions have been made with the shareholders (capital increase and distribution of income of 200X-1) as it can be inferred form the changes in the components of shareholders equity.

Capital increase Information in the balance sheet: Increase in registered capital: 14,000 Increase in uncalled subscribed capital: - 2,000 Increase in called subscribed capital receivable (current asset): 2,000 Nº Accounts Debit Credit 572 Cash 10,000 103 Uncalled subscribed capital receivable 2,000 5580 Called subscribed capital receivable 2,000 100 Capital stock 14,000 Income distribution Information in the balance sheet: Income of X-1: 2,100 Increase in reserves: 1,000 Therefore, the payment of dividends has been 1,100 euros. Nº Accounts Debit Credit 129 Income for the year (X-1) 2,100 526 Dividend payable 1,100

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112 Legal reserves 1,000 Nº Accounts Debit Credit 526 Dividend payable 1,100 572 Cash 1,100 STATEMENT OF RECOGNIZED REVENUES AND EXPENSES

Notes 200X 200X-1

A) Income for the year (403)

Revenues and expenses recognized directly in equity

I. From valuation of financial instruments

1. Gains/losses from available for sale financial assets

2. Other revenues/expenses

II. From hegding operations

III. Grants, donations and legacies 2,800

IV. From actuarial gains and losses and other adjustments

V. Tax effect (840) B) Total revenues and expenses recognized directly in equity (I+II+III+IV+V) 1,960

Transfers to the income statement

VI. From valuation of financial instruments (200)

1. Revenues/expenses from available for sale financial assets (200)


VII. From hegding operations

VIII. Grants, donations and legacies (800)

IX. Tax effect 300 C) Total transfers to the income statement (VI+VII+VIII+IX) (700) TOTAL RECOGNIZED REVENUES AND EXPENSES (+A+B+C) 857

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STATEMENT OF ALL CHANGES IN EQUITY

Capital

STATEMENT OF ALL CHANGES IN EQUITY Registered Un-called

Additional paid-in capital

Reserves (Shares in the entity)

Prior years' income

Other owners'

contributions

Income for the year

(Dividend paid in

advance)

Other equity

instruments

Adjustments for

changes in value

Grants, donations and

legacies received

TOTAL

A. BALANCE, END OF YEAR 200X – 2 I. Adjustments for changes in accounting policies, 200X-2 and preceding. II. Adjustments for errors, 200X-2 and preceding. B. ADJUSTED BALANCE, BEGINING OF YEAR 200X-1 I. Total recognized revenues and expenses. II. Transactions with equity holders. 1. Capital increases. 2. ( - ) Capital reductions. 3. Conversion of financial liabilities in equity. 4. ( - ) Dividends distributions. 5. Transactions with the entity's shares (net). 6. Increase (reduction) of equity from a business combination. 7. Issues and cancelations of other equity instruments. III. Other changes in equity. C. BALANCE, END OF YEAR 200X – 1 50,000 7,000 2,100 140 2,100 61,340 I. Adjustments for changes in accounting policies, 200X-1. II. Adjustments for errors, 200X-1. D. ADJUSTED BALANCE, BEGINNING OF YEAR 200X 50,000 7,000 2,100 0 140 2,100 61,340 I. Total recognized revenues and expenses. (403) (140) 1,400 857 II. Transactions with equity holders. 1. Capital increases. 14,000 (2,000) 12,000 2. ( - ) Capital reductions. 3. Conversion of financial liabilities in equity. 4. ( - ) Dividends distributions. (1,100) (1,100) 5. Transactions with the entity's shares (net). 6. Increase (reduction) of equity from a business combination. 7. Issues and cancelations of other equity instruments. III. Other changes in equity. 1,000 (1,000) 0 E. BALANCE, END OF YEAR 200X 64,000 (2,000) 8,000 0 (403) 0 3,500 73,097

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EXERCISE 3 LESSON 6 The following table shows the composition of Equity in the Balance Sheet of company ECPN, Ltd. at the end of 200X-1 and 200X. 200X 200X-1 A) EQUITY 32,332,850 21,999,300 A-1) Shareholders' equity. 32,000,700 22,000,000 I. Capital. 17,500,000 15,000,000 1. Registered capital. 25,000,000 15,000,000 2. (Uncalled subscribed capital). (7,500,000) II. Additional paid-in capital (share premium). 4,000,000 III. Reserves. 5,500,700 4,500,000 1. Legal and statutory. 5,500,700 4,500,000 2. Other reserves. IV. Shares in the entity held by the entity. V. Prior years' income. 1. Non-distributed income. 2. (Prior years' negative income). VI. Other owners' contributions. VII. Income for the year. 5,000,000 3,000,000 VIII. (Dividends paid in advance). (500,000) IX. Other equity instruments. A-2) Adjustments for changes in value. (350) (700) I. Financial instruments available for sale. (350) (700) II. Hedging operations. III. Other. A-3) Grants, donations and legacies received. 332,500 The following information about transactions that affect equity is also available: Year 200X-1: 30th of June: Acquisition of a portfolio of shares of company Y. The shares are paid in cash and classified by the company in the portfolio of “available for sale” financial assets. The values of these equity holdings at that date is 10,000.

1st of October: a dividend of 500,000 € has been paid in advance of the income that is going to be obtained in X-1.

31st of December: The fair value of the equity holdings is 9,000. Año 200X: 1st of April: the company has issued 1,000,000 of new shares with an issuing value of 14 € (nominal value 10 €). All the shares have been subscribed and the required portion has been paid by the shareholders at the moment of the subscription.

30th of June: The company has received (in cash) a grant of 500,000 € from the regional government for the acquisition of a new machinery with the same cost. The useful life of the machinery is 10 years (linear). The machinery is bought that same day.

30th of June: Income of X-1 is distributed to dividends (2,000,000) and reserves (1,000,000). 31st of December: The fair value of the equity holdings is 9,500. 31st of December: the company bought a new vehicle in year X-1 for 10,000 €, with a useful life of 10 years. Due to an error, the depreciation expense registered in year X-1 was 2,000. The error is corrected in year X.

REQUIRED: Prepare the Statement of Changes in Equity for year 200X according to the model established by the P.G.C.

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SOLUTION Year 200X-1: 30th of June: Acquisition of 2 portfolios of shares of companies X and Y. The shares are paid in cash and classified by the company in the portfolio of “available for sale” financial assets. The values of these equity holdings at that date is 10,000

Nº Accounts Debit Credit 250 Long term holdings in equity instruments (shares of Y) 10,000 572 Cash 10,000 1st of October: a dividend of 500,000 € has been paid in advance of the income that is going to be obtained in X-1.

Nº Accounts Debit Credit 557 Dividend paid in advance 500,000 526 Dividend payable 500,000 31st of December: The fair value of the equity holdings 9,000

Nº Accounts Debit Credit 800 Losses from available for sale financial assets 1,000 250 Long term holdings in equity instruments (shares of Y) 1,000 Nº Accounts Debit Credit 4740 Tax asset for deductible temporary differences 300 8301 Deferred tax 300 Nº Accounts Debit Credit 8301 Deferred tax 300 1330 Adjustments for changes in value of financial instruments


800 Losses from available for sale financial assets 1,000 Year 200X: 1st of April: the company has issued 1,000,000 of new shares with an issuing value of 14 € (nominal value 10 €). All the shares have been subscribed and the required portion has been paid by the shareholders at the moment of the subscription.

Nº Accounts Debit Credit 572 Cash 6,500,000 103 Uncalled subscribed capital receivable 7,500,000 100 Capital stock 10,000,000110 Additional paid in capital 4,000,000 30th of June: The company has received (in cash) a grant of 500,000 € from the regional government for the acquisition of a new machinery with the same cost. The useful life of

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the machinery is 10 years (linear). The machinery is bought that same day. - 30/6: Recognition of the grant as revenue directly in equity. Nº Accounts Debit Credit 572 Cash 500,000 940 Revenues of official capital grants 500,000 Nº Accounts Debit Credit 8301 Deferred tax 150,000 479 Tax liability for taxable temporary differences 150,000 Acquisition of the machinery: Nº Accounts Debit Credit 213 Machinery 500,000 572 Cash 500,000 30th of June: Income of X-1 is distributed to dividends (2,000,000) and reserves (1,000,000).

Nº Accounts Debit Credit 129 Income for the year (X-1) 3,000,000 557 526 112

Dividend paid in advance Dividend payable Legal reserves

500,000 1,500,0001,000,000

o 31st of December: The fair value of the equity holdings is 9,500

Nº Accounts Debit Credit 250 Long term holdings in equity instruments (shares of Y) 500 900 Profits from available for sale financial assets 500 Nº Accounts Debit Credit 8301 Deferred tax 150 4740 Tax asset for deductible temporary differences 150 Nº Accounts Debit Credit 900 Profits from available for sale financial assets 500 8301 Deferred tax 150 1330 Adjustments for changes in value of financial instruments


31st of December: Treatment of operations related to the grant. - Depreciation of the machinery 500,000/10 * 6/12=25,000 Nº Accounts Debit Credit 681 Tangible fixed assets depreciation expense 25,000 281 Tangible fixed assets accumulated depreciation 25,000

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- For the transfer of the grant to income for the year Nº Accounts Debit Credit 840 Transfers of official capital grants 25,000

746 Capital grants, donations and legacies transferred to income for the year 25,000

Nº Accounts Debit Credit 479 Tax liability for taxable temporary differences 7,500 8301 Deferred tax 7,500 Nº Accounts Debit Credit 940 Revenues of official capital grants 500,000 8301 Deferred tax 150,000 130 Official capital grants 350,000 Nº Accounts Debit Credit 8301 Deferred tax 7,500 130 Official capital grants 17,500 840 Transfers of official capital grants 25,000

31st of December: the company bought a new vehicle in year X-1 for 10,000 €, with a useful life of 10 years. Due to an error, the depreciation expense registered in year X-1 was 2,000. The error is corrected in year X.

Nº Accounts Debit Credit 281 Tangible fixed assets accumulated depreciation 1,000 112 Legal reserves 1,000 Nº Accounts Debit Credit 112 Legal reserves 300 Tax liability for the current tax 300

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STATEMENT OF RECOGNIZED REVENUES AND EXPENSES

Notes 200X 200X-1

A) Income for the year 5,000,000 3,000,000


I. From valuation of financial instruments 500 (1,000)

1. Gains/losses from available for sale financial assets 500 (1,000)



III. Grants, donations and legacies 500,000


V. Tax effect (150,150) 300 B) Total revenues and expenses recognized directly in equity (I+II+III+IV+V) 350,350 (700)


VI. From valuation of financial instruments

1. Revenues/expenses from available for sale financial assets



VIII. Grants, donations and legacies (25,000)

IX. Tax effect 7,500 C) Total transfers to the income statement (VI+VII+VIII+IX) (17,500) TOTAL RECOGNIZED REVENUES AND EXPENSES (+A+B+C) 5,332,850 2,999,300

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Capital

STATEMENT OF ALL CHANGES IN EQUITY Registered Un-called



Prior years' income

Other owners'

contributions

Income for the year

(Dividend paid in

advance)

Other equity

instruments

Adjustments for

changes in value


legacies received

TOTAL

A. BALANCE, END OF YEAR 200X – 2 15,000,000 4,500,000 19,500,000 I. Adjustments for changes in accounting policies, 200X-2 and preceding. II. Adjustments for errors, 200X-2 and preceding. B. ADJUSTED BALANCE, BEGINING OF YEAR 200X-1 15,000,000 4,500,000 19,500,000 I. Total recognized revenues and expenses. 3,000,000 (700) 2,999,300 II. Transactions with equity holders. 1. Capital increases. 2. ( - ) Capital reductions. 3. Conversion of financial liabilities in equity. 4. ( - ) Dividends distributions. (500,000) (500,000) 5. Transactions with the entity's shares (net). 6. Increase (reduction) of equity from a business combination. 7. Issues and cancelations of other equity instruments. III. Other changes in equity. C. BALANCE, END OF YEAR 200X – 1 15,000,000 4,500,000 3,000,000 (500,000) (700) 21,999,300 I. Adjustments for changes in accounting policies, 200X-1. II. Adjustments for errors, 200X-1. 700 700 D. ADJUSTED BALANCE, BEGINNING OF YEAR 200X 15,000,000 4,500,700 3,000,000 (500,000) (700) 22,000,000 I. Total recognized revenues and expenses. 5,000,000 350 332,500 5,332,850 II. Transactions with equity holders. 1. Capital increases. 10,000,000 (7,500,000) 4,000,000 6,500,000 2. ( - ) Capital reductions. 3. Conversion of financial liabilities in equity. 4. ( - ) Dividends distributions. (2,000,000) 500,000 (1,500,000) 5. Transactions with the entity's shares (net). 6. Increase (reduction) of equity from a business combination. 7. Issues and cancelations of other equity instruments. III. Other changes in equity. 1,000,000 (1,000,000) 0 E. BALANCE, END OF YEAR 200X 25,000,000 (7,500,000) 4,000,000 5,500,700 0 5,000,000 0 (350) 332,500 32,332,850

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EXERCISE 4 LESSON 6 (From exam of course 07/08) The following table shows the composition of Equity in the Balance Sheet of company SCE, Ltd. at the end of 200X-1 and 200X. 200X 200X-1 200X-2 A) EQUITY 28,611,600 16,869,650 14,303,500 A-1) Shareholders' equity. 28,550,000 16,800,000 14,300,000 I. Capital. 15,000,000 10,000,000 10,000,000 1. Registered capital. 30,000,000 10,000,000 10,000,000 2. (Uncalled subscribed capital). (15,000,000) II. Additional paid-in capital (share premium). 5,000,000

III. Reserves. 5,300,000 4,300,000 4,000,000 1. Legal and statutory. 5,300,000 4,300,000 4,000,000 VII. Income for the year. 3,250,000 2,850,000 300,000 VIII. (Dividends paid in advance). (350,000) A-2) Adjustments for changes in value. (1,400) (350) 3,500 I. Financial instruments available for sale. (1,400) (350) 3,500

A-3) Grants, donations and legacies received. 63,000 70,000

The following information about transactions that affect equity is also available: Year 200X-1: 15th of January: During the year the company has sold a portfolio of shares of company Z classified as “available for sale” for a price of 18,000 € received in cash. The accounting value at the end of 200X-1 was 18,000 €. There were positive adjustments in value of 5,000 € for this asset that had been recognized directly in equity in year X-2.

30th of June: Acquisition of a portfolio of shares of company X for 15,000 €. The shares are paid in cash and classified by the company in the portfolio of “available for sale” financial assets.

30th of June: Income of year X-2 is distributed to reserves. 1st of October: a dividend of 350,000 € has been paid in advance of the income that is going to be obtained in X-1.

31st of December: The company has received (in cash) a grant of 100,000 € from the regional government for the acquisition of a new machinery with the same cost. The useful life of the machinery is 10 years (linear). The machinery is bought that same day.

31st of December: The fair value of the equity holdings (shares of company X) is 14,500 €. Año 200X: As it can be inferred form the changes in the components of shareholders equity, several transactions have been made with the shareholders:

o Capital increase: all the shares have been subscribed and the required portion has been paid in cash by the shareholders at the moment of the subscription.

o Distribution of income of 200X-1 to reserves and dividends. 31st of December: The fair value of the equity holdings (shares of company X) is 13,000 €.

REQUIRED: Register the referred operations of years X-1 and X, and prepare the Statement of Changes in Equity for year 200X according to the model established by the P.G.C.

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SOLUTION Year 200X-1: 15th of January: During the year the company has sold a portfolio of shares of company Z classified as “available for sale” for a price of 18,000 € received in cash. The accounting value at the end of 200X-1 was 18,000 €. There were positive adjustments in value of 5,000 € for this asset that had been recognized directly in equity in year X-2.

Sale: Nº Accounts Debit Credit 572 Cash 18,000 250 Long term holdings in equity instruments 18,000 Transfer of the profit that was recognized in equity in previous years: Nº Accounts Debit Credit 802 Transfer of profits from available for sale financial assets 5,000 7632 Profits from available for sale portfolio 5,000 Nº Accounts Debit Credit 479 Tax liability for taxable temporary differences 1,500 8301 Deferred tax 1,500 Nº Accounts Debit Credit 8301 Deferred tax 1,500 1330 Adjustments for changes in value of financial instruments

available for sale 3,500

802 Transfer of profits from available for sale financial assets 5,000 30th of June: Acquisition of a portfolio of shares of company X for 15,000 €. The shares are paid in cash and classified by the company in the portfolio of “available for sale” financial assets.

Nº Accounts Debit Credit 250 Long term holdings in equity instruments (shares of Y) 15,000 572 Cash 15,000 30th of June: Income of year X-2 is distributed to reserves.

Nº Accounts Debit Credit 129 Income for the year (X-1) 300,000 112 Legal reserves 300,000 1st of October: a dividend of 350,000 € has been paid in advance of the income that is going to be obtained in X-1.

Nº Accounts Debit Credit 557 Dividend paid in advance 350,000 526 Dividend payable 350,000

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31st of December: The company has received (in cash) a grant of 100,000 € from the regional government for the acquisition of a new machinery with the same cost. The useful life of the machinery is 10 years (linear). The machinery is bought that same day.

- Recognition of the grant as revenue directly in equity. Nº Accounts Debit Credit 572 Cash 100,000 940 Revenues of official capital grants 100,000 Nº Accounts Debit Credit 8301 Deferred tax 30,000 479 Tax liability for taxable temporary differences 30,000 Nº Accounts Debit Credit 940 Revenues of official capital grants 100,000 8301 Deferred tax 30,000 130 Official capital grants 70,000 Acquisition of the machinery: Nº Accounts Debit Credit 213 Machinery 100,000 572 Cash 100,000 31st of December: The fair value of the equity holdings (shares of company X) is 14,500 €.

Nº Accounts Debit Credit 800 Losses from available for sale financial assets 500 250 Long term holdings in equity instruments (shares of X) 500 Nº Accounts Debit Credit 4740 Tax asset for deductible temporary differences 150 8301 Deferred tax 150 Nº Accounts Debit Credit 8301 Deferred tax 150 1330 Adjustments for changes in value of financial instruments


800 Losses from available for sale financial assets 500 Year 200X: As it can be inferred form the changes in the components of shareholders equity, several transactions have been made with the shareholders:

o Capital increase: all the shares have been subscribed and the required portion has been paid in cash by the shareholders at the moment of the subscription

o Distribution of income of 200X-1. Nº Accounts Debit Credit 572 Cash 10,000,000 103 Uncalled subscribed capital receivable 15,000,000

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100 Capital stock 20,000,000110 Additional paid in capital 5,000,000 Nº Accounts Debit Credit 129 Income for the year (X-1) 2,850,000 557 526 112

Dividend paid in advance Dividend payable Legal reserves

350,000 1,500,000 1,000,000

31st of December: The fair value of the equity holdings (shares of company X) is 13,000 €.

Nº Accounts Debit Credit 800 Losses from available for sale financial assets 1,500 250 Long term holdings in equity instruments (shares of X) 1,500 Nº Accounts Debit Credit 4740 Tax asset for deductible temporary differences 450 8301 Deferred tax 450 Nº Accounts Debit Credit 8301 Deferred tax 450 1330 Adjustments for changes in value of financial instruments


800 Losses from available for sale financial assets 1,500 31st of December: Treatment of operations related to the grant. - Depreciation of the machinery 500,000/10 * 6/12=25,000 Nº Accounts Debit Credit 681 Tangible fixed assets depreciation expense 10,000 281 Tangible fixed assets accumulated depreciation 10,000 - For the transfer of the grant to income for the year Nº Accounts Debit Credit 840 Transfers of official capital grants 10,000

746 Capital grants, donations and legacies transferred to income for the year 10,000

Nº Accounts Debit Credit 479 Tax liability for taxable temporary differences 3,000 8301 Deferred tax 3,000 Nº Accounts Debit Credit 8301 Deferred tax 3,000 130 Official capital grants 7,000 840 Transfers of official capital grants 10,000

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STATEMENT OF RECOGNIZED REVENUES AND EXPENSES

Notes 200X 200X-1

A) Income for the year 3,250,000 2,850,000


I. From valuation of financial instruments (1,500) (500)

1. Gains/losses from available for sale financial assets (1,500) (500)

III. Grants, donations and legacies 100,000 V. Tax effect 450 (29,850) B) Total revenues and expenses recognized directly in equity (I+II+III+IV+V) (1,050) 69,650


VI. From valuation of financial instruments (5,000)

1. Gains/losses from available for sale financial assets (5,000)

VIII. Grants, donations and legacies (10,000)

IX. Tax effect 3,000 1,500 C) Total transfers to the income statement (VI+VII+VIII+IX) (7,000) (3,500)

TOTAL RECOGNIZED REVENUES AND EXPENSES (+A+B+C) 3,241,950 2,916,150

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STATEMENT OF ALL CHANGES IN EQUITY Capital


Registered Un-called



Prior years' income

Other owners' contribu

-tion

Income for the year

(Dividend paid in

advance)

Other equity

instrums

Adjustment for

changes in value


legacies received

TOTAL

A. BALANCE, END OF YEAR 200X – 2 10,000,000 4,000,000 300,000 3,500 14,303,500 I. Adjustments for changes in accounting policies, 200X-2 and preceding. II. Adjustments for errors, 200X-2 and preceding. B. ADJUSTED BALANCE, BEGINING OF YEAR 200X-1 10,000,000 4,000,000 300,000 0 3,500 14,305,000 I. Total recognized revenues and expenses. 2,850,000 (3,850) 70,000 2,916,150 II. Transactions with equity holders. 1. Capital increases. 2. ( - ) Capital reductions. 3. Conversion of financial liabilities in equity. 4. ( - ) Dividends distributions. (350,000) (350,000) 5. Transactions with the entity's shares (net). 6. Increase (reduction) of equity from a business combination. 7. Issues and cancelations of other equity instruments. III. Other changes in equity. 300,000 (300,000) 0 C. BALANCE, END OF YEAR 200X – 1 10,000,000 4,300,000 0 2,850,000 (350,000) (350) 70,000 16,869,650 I. Adjustments for changes in accounting policies, 200X-1. II. Adjustments for errors, 200X-1. D. ADJUSTED BALANCE, BEGINNING OF YEAR 200X 10,000,000 4,300,000 2,850,000 0 (350,000) (350) 70,000 16,869,650 I. Total recognized revenues and expenses. 3,250,000 (1,050) (7,000) II. Transactions with equity holders. 1. Capital increases. 20,000,000 (15,000,000) 5,000,000 10,000,000 2. ( - ) Capital reductions. 3. Conversion of financial liabilities in equity. 4. ( - ) Dividends distributions. (1,850,000) 350,000 (1,500,000) 5. Transactions with the entity's shares (net). 6. Increase (reduction) of equity from a business combination. 7. Issues and cancelations of other equity instruments. III. Other changes in equity. 1,000,000 (1,000,000) 0 E. BALANCE, END OF YEAR 200X 30,000,000 (15,000,000) 5,000,000 5,300,000 0 3,250,000 0 (1,400) 63,000 28,611,600

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EXERCISE 5 LESSON 6 – From exam of course 0708 Company XYZ, Ltd. has prepared the following financial Statements at the end of 2009: ASSETS 2009 2008 LIABILITIES 2009 2008

A) NON-CURRENT ASSETS 27.150 21.050 A) EQUITY 25.714,5 19.510

I. Intangible assets. 3.000 3.050 A-1) Shareholders' equity. 24.297 18.425

3. Intelectual property, trademarks and others. 3.000 3.050 I. Capital. 20.000 14.700

II. Tangible fixed assets. 20.800 13.500 1. Registered capital. 20.000 20.000

1. Land and structures. 5.800 2.500 2. (Uncalled subscribed capital). - - 5.300

2. Plant and machinery, tools, furniture and other. 15.000 11.000 III. Reserves. 3.270 2.800

III. Investment property. 1.900 2.000 1. Legal and statutory. 1.800 1.800

2. Structures. 1.900 2.000 2. Other reserves. 1.470 1.000

V. Long-term financial investments. 1.450 2.500 VII. Income for the year. 1.027 925

1. Holdings in equity. 1.450 2.500 A-2) Adjustments for changes in value. 157,5 35

B) CURRENT ASSETS 3.222 4.025 I. Financial instruments available for sale. 225 35

II. Inventories. 1.400 900 A-3) Grants, donations and legacies received. 1.260 1.050

1. Commercial (goods for sale). 1.400 900 B) NON-CURRENT LIABILITIES 2.107,5 2.965 III. Trade accounts receivables and other receivables. 440 500 I. Long-term provisions. 500 500

1. Trade accounts receivables for sale and services. 100 200 2. Environmental actions. 500 500

3. Sundry accounts receivables. 300 250 II. Long-term debt. 1.000 2.000

4. Employee receivables. 40 50 2. Long-term debt payable to credit institutions. 1.000 2.000

V. Short-term financial investments. 60 1.050 IV. Deferred tax liability 607,5 465

1. Holdings in equity. 600 500 C) CURRENT LIABILITIES 2.550 2.600

2. Loans to companies. 550 III. Short-term debt. 2.010 2.010

VI. Accrual accounts. 10 20 2. Short-term debt payable to credit institutions. 2.010 2.010

VII. Cash and cash equivalents. 772 1.555 V. Trade accounts payables and other. 540 590

TOTAL ASSETS 30.372 25.075 1. Trade accounts payables for purchases & s. 80 50

3. Sundry accounts payable. 50 20

5. Liability for current tax. 330 200

6. Other payables to public authorities. 80 220

7. Customer advances. - 100

TOTAL LIABILITIES 30.372 25.075

2009 A) CONTINUING OPERATIONS 1. Net turnover. 4.500 a) Sales. 4.500 4. Procurements. - 1.150 a) Consumption of goods for sale. - 1.250 d) Impairment of goods for sale, raw materials and other consumables. 100 5. Other operating revenues. 350 a) Accessory and other ordinary income. 200 b) Operating subventions included in income for the year. 150

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6. Personnel expenses. - 650 a) Wages, salaries and similar expenses. - 500 b) Employee welfare expenses. - 150 7. Other operating expenses. - 450 a) Outside services. - 450 8. Fixed assets depreciation expense. - 2.100 9. Transfer of grants of non-financial non-current assets and others. 500 11. Impairment and income from disposal of non-current assets. 350 a) Impairment and losses - 50 b) Income from disposals and others. 400 A.1) OPERATING INCOME (1+2+3+4+5+6+7+8+9+10+11) 1.350 12. Financial revenues. 75 a) From holdings in equity instruments. 50 a2) Of third parties. 50 b) From marketable securities and other financial instruments. 25 b 2) Of third parties. 25 13. Financial expenses. - 111 b) Of third parties. - 111 14. Change in fair value of financial instruments. 175 b) Transfer to income for the year for available for sale financial instruments. 175 A.2) FINANCIAL INCOME (12+13+14+15+16) 139 A.3) INCOME BEFORE TAXES (A.1+A.2) 1.489 17. Income tax. - 462 A.4) INCOME FROM CONTINUING OPERATIONS (A.3+17) 1.027 A.5) INCOME FOR THE YEAR (A.4+18) 1.027

Additional information (transactions of 2009): 1. Short-term holdings in equity are a portfolio of stocks classified as “held for trading”. There has been no

profit or loss due to a change in the fair value of these stocks. 2. Long-term holdings in equity are a portfolio of stocks classified as “available for sale”. The portfolio

includes 100 shares acquired in October of 2008 for a price of 24,5 m.u. per share. The fair value at the end of 2008 was 25 m.u. In June of 2009 half of the portfolio has been sold for a price of 28 m.u. per share. The fair value at the end of 2009 is 29 m.u.

3. The distribution of income of year 2008 is the following: 400 m.u. are distributed to reserves and 525 m.u. were paid as dividends.

4. The uncalled subscribed capital has been called and the company has collected in cash the outstanding amount from the shareholders during 2009.

5. A new capital subvention has been received at the end of the year. 6. The 31st of December 2009 an error was detected. The depreciation expense of constructions (tangible

fixed assets) registered in year 2008 was 500. The correct amount should have been 400 m.u. The error was corrected in year 2009.

REQUIRED: • Register the operations of 2009 described in the additional information. • Prepare the Statement of Changes in Equity of year 2009.

SOLUTION Short-term holdings in equity are a portfolio of stocks classified as “held for trading”. There has been no profit or loss due to a change in the fair value of these stocks.

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Not relevant Long-term holdings in equity are a portfolio of stocks classified as “available for sale”. The portfolio includes 100 shares acquired in October of 2008 for a price of 24,5 m.u. per share. The fair value at the end of 2008 was 25 m.u. In June of 2009 half of the portfolio has been sold for a price of 28 m.u. per share. The fair value at the end of 2009 is 29 m.u.

(250) Long term holdings in equity 2.450 Purchase 50 Adjustment 150 Adjustment 200 Adjustment

1.400 Sale

1.450 Final balance

(133) Adjustments for changes in value

122,5 Sale

35 105 ∆ FV 140 ∆ FV

157,5Final balance

(479) Tax liability 52,5 Sale

15 45 60

67,5 Final balance 2009 transactions: Increase in value of the 50 shares that are going to be sold: Nº Debit Credit 250 Long term holdings in equity 150 900 Profits from available for sale financial assets 150 Nº Accounts Debit Credit 8301 Deferred tax 45 479 Tax liability for taxable temporary differences 45 Sale of 50 shares: Nº Debit Credit 572 Cash 1.400 250 Long term holdings in equity 1.400 Nº Debit Credit 802 Transfers of profits from available for sale financial

assets 175

7632 Profits from available for sale portfolio 175 Nº Accounts Debit Credit 479 Tax liability for taxable temporary differences 52,5

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8301 Deferred tax 52,5 Change in fair value (50 shares than remain): Nº Debit Credit 250 Long term holdings in equity 200 900 Profits from available for sale financial assets 200 Nº Accounts Debit Credit 8301 Deferred tax 60 479 Tax liability for taxable temporary differences 60 Regularization of group 8 & 9 accounts: Nº Debit Credit 900 Profits from available for sale financial assets 150 8301 Deferred tax 45 1330 Adjustments for changes in value of financial instruments


Nº Debit Credit 8301 Deferred tax 52,5 1330 Adjustments for changes in value of financial instruments


802 Transfers of profits from available for sale financial assets

175

Nº Debit Credit 900 Profits from available for sale financial assets 200 8301 Deferred tax 60 1330 Adjustments for changes in value of financial instruments


The distribution of income of year 2008 is the following: 400 m.u. are distributed to reserves and 525 m.u. were paid as dividends. Nº Accounts Debit Credit 129 Income for the year (X-1) 925 526 112

Dividend payable Voluntary reserves

525 400

Nº Accounts Debit Credit 526 Dividend payable 525 572 Cash 525 The uncalled subscribed capital has been called and the company has collected in cash the outstanding amount from the shareholders during 2009. Nº Accounts Debit Credit 5580 Called subscribed capital receivable 5,300 103 Uncalled subscribed capital receivable 5,300 Nº Accounts Debit Credit

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572 Cash 5,300 5580 Called subscribed capital receivable 5,300 A new capital subvention has been received at the end of the year.

(130) Grants, donations and legacies 350 transfer 1.050 Previous grant

560 New grant

1.800 Final Balance

(479) Tax liability 150

450 240

540 Final balance Nº Debit Credit 4708 Receivable from public authorities 800 940 Revenues of official capital grants 800 Nº Accounts Debit Credit 8301 Deferred tax 240 479 Tax liability for taxable temporary differences 240 Nº Debit Credit 572 Cash 800 4708 Receivable from public authorities 800 Moreover, 500 have been transfer of the former grant: Nº Debit Credit 840 Transfer of official capital grants 500

746 Capital grants, donations, and legacies transferred to income for the year 500

Nº Accounts Debit Credit 479 Tax liability for taxable temporary differences 150 8301 Deferred tax 150 Regularization of group 8 & 9 accounts: Nº Debit Credit 940 Revenues of oficial capital grants 800 8301 Deferred tax 240 130 Grants, donations and legacies 560 Nº Debit Credit 8301 Deferred tax 150 130 Grants, donations and legacies 350

29

840 Transfer of official capital grants 500 The 31st of December 2009 an error is detected. The depreciation expense of constructions (tangible fixed assets) registered in year 2008 was 500. The correct amount should have been 400 m.u. The error was corrected in year 2009. Nº Accounts Debit Credit 281 Tangible fixed assets accumulated depreciation 100 112 Voluntary reserves 100 The company will have to pay 30% as taxes. Adjustment in reserves net of taxes = 100 * (1-0,3) = 70

STATEMENT OF RECOGNIZED REVENUES AND EXPENSES 2009

A) Income for the year 1.027


I. From valuation of financial instruments

1. Gains/losses from available for sale financial assets 350



III. Grants, donations and legacies 800


V. Tax effect (345) B) Total revenues and expenses recognized directly in equity (I+II+III+IV+V) 805


VI. From valuation of financial instruments

1. Revenues/expenses from available for sale financial assets (175)



VIII. Grants, donations and legacies (500)

IX. Tax effect 202,5

C) Total transfers to the income statement (VI+VII+VIII+IX) (472,5)

TOTAL RECOGNIZED REVENUES AND EXPENSES (+A+B+C) 1.359,5

30

Capital


Registered Uncalled

Reserves (Shares in the entity held by

the entity) Prior years'

income Income for

the year Adjustments for changes in value


legacies received

TOTAL

C. BALANCE, END OF YEAR 2008 20000 -5300 2800 925 35 1050 19510 I. Adjustments for changes in accounting policies, 2008. II. Adjustments for errors, 2008. 70 70 D. ADJUSTED BALANCE, BEGINNING OF YEAR 2009 20000 -5300 2870 925 35 1050 19580 I. Total recognized revenues and expenses. 1027 122,5 210 1359,5 II. Transactions with equity holders. 1. Capital increases. 2. ( - ) Capital reductions. 3. Conversion of financial liabilities in equity.

(conversion of debentures, debts writting off).

4. ( - ) Dividends distributions. -525 -525 5. Transactions with the entity's shares (net).

6. Increase (reduction) of equity from a business combination.

7. Other transactions with equity holders 5300 5300 III. Other changes in equity. 400 -400 E. BALANCE, END OF YEAR 2009 20000 0 3270 0 0 1027 157,5 1260 25714,5

exercises lesson 6 0809 solucionados - us

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