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BIBM602 Financial Accounting


Assignment Details:

  • Words: 2200




Healthy Living Ltd is an NZX-listed company based in Nelson. The company specialises in developing, manufacturing and distributing natural health products. The company has no subsidiaries or associates.


You have been employed as the financial accountant since January 2022.  One of your first tasks is to prepare the company’s annual financial statements for presentation to shareholders.  These statements must be prepared in accordance with the Companies Act 1993 and relevant International Financial Reporting Standards as issued by the External Reporting Board (XRB).


The directors intend to approve and sign the financial reports for the financial year ending 31 January 2022 at their Board meeting to be held on Friday 20 May 2022.




Prepare the annual financial statements of Healthy Living Ltd for approval by the directors and subsequent presentation to the shareholders. Your presentation should take the following order:


Statement Profit or Loss and Other Comprehensive Income

Statement of Changes in Equity

Statement of Financial Position

Accounting Policies (Note 1 to Financial Statements)

Supporting notes as required (Note 2 to ???)




Statement of Cash Flows is not required

Round any calculations to the nearest $000


The Trial Balance shown below was taken from the company’s general ledger on 31 January 2022 after all the normal balance day adjustments had been taken into account.


Adjustments may need to be made for items described in the additional information.


Healthy Living Ltd    
Trial Balance        
As at 31 January        
2021     2022
($000’s) ($000’s)   ($000’s) ($000’s)
Dr Cr     Dr Cr
  2,365   Accounts payable   2,052
3,454     Accounts receivable 5,232  
  350   Accumulated amortisation – Intangible Assets   660
      Accumulated depreciation:    
  528       Land & Buildings   740
  1,045       Manufacturing Equipment   1,430
  682       Office Equipment   920
  253       Vehicles   352
  280   Accumulated Impairment – Goodwill   500
  1,020   Asset revaluation reserve   1,020
  225   Bank overdraft   180
  4,530   Borrowings   4,115
  825   Commissions and Royalties Received   816
660     Dividends paid 245  
1,200     Goodwill 1,200  
  528   GST liability   636
1,364     Income Tax paid 1,560  
  121   Income Tax payable    
2,800     Intangible Assets 3,660  
6,952     Inventory 8,328  
  275   Investment income (Dividends Received)   330
1,620     Investments (at cost) 1,620  
  12,100   Issued & Paid up capital   13,500
38,251     Operating expenses 45,892  
7,950         Land & Buildings 8,600  
2,590         Manufacturing Equipment 2,840  
1,420         Office Equipment 1,630  
610         Vehicles 700  
  440   Provision for impairment of trade receivables   600
  2,975   Retained earnings (Opening balance)   4,129
  40,329   Sales   49,527
68,871 68,871   81,507 81,507


Additional Information:


1. The paid-up capital on 31 January 2022 comprises 2,450,000 ordinary shares. During the year, a public offering resulted in the issuing of 250,000 shares at $5.60 per share. All shares issued during this offering are fully paid up.


2. Operating expenses trial balance include:


2021       2022
($000’s)       ($000’s)
1,230   Administration expenses   1,680
250   Amortisation of Intangibles   310
400   Audit fees   460
60   Bad debts 90
17,350   Cost of Goods Sold   19,120
676   Depreciation 934
310   Directors’ fees 340
    Donations to  
20      Cancer Society of NZ   40
15      Ronald McDonald House 30
15      St John Ambulance   30
180   Impairment – Goodwill 220
175   Insurance   220
200   Interest expense (mortgage)   185
93   Interest expense (other)   85
6,307   Other expenses   9,838
370   Rates 410
1,120   Repairs and maintenance 1,570
860   Research and development expenditure 1,200
8,620   Wages & salaries 9,130
38,251   45,892


3. Annual depreciation charges (already recorded for the 2022 financial year) are calculated using the straight-line method and are based on the following useful lives:


i) Land & Buildings up to 50 years

ii) Manufacturing equipment 5 to 15 years

iii) Office equipment 5 to 10 years

iv) Vehicles 5 to 10 years


Depreciation expense recorded: 2021   2022
  ($000’s)   ($000’s)
Land & Buildings 160   212
Manufacturing equipment 255   385
Office equipment 178   238
Vehicles 83   99


Additions at cost price recorded were as follows: 2021   2022
  ($000’s)   ($000’s)
Land & Buildings 0   650
Manufacturing equipment 480   480
Office equipment 80   250
Vehicles 60   90


4. At a directors’ meeting held on 15 January 2022, it was resolved that land and buildings, recorded at modified historic cost, should be revalued in the financial statements as at 31 January 2020.


Smart, Wong & Pearce (SWP Ltd) performed an independent valuation in accordance with the Australia and New Zealand Property Institute Valuation Standards with an effective date of 31 January 2022:
Land & Buildings $8,300,000


5. The company’s auditors provided additional services to the statutory audit and half-yearly review. These other services include tax compliance services and advisory services in relation to accounting standards of $200,000 in 2022 ($170,000 in 2021). (These additional expenses are included in the Audit fees in note 2).


6. An employee sacked on 18 December 2021 has lodged a claim against the company under the Employment Relations Act for unfair dismissal and job reinstatement. The company’s legal advisors are confident that, because the employee breached her employment contract, the company will be able to defend the case successfully. The Company has decided to make a provision for legal fees associated with the defense of these matters to the value of $30,000.


7. On 6 February 2022, a major customer of Healthy Living Ltd was placed into receivership. The debtor owes the company $340,000 and there appears little likelihood that the debt will be collected.


8. On 26 February 2022, a leaking fire hose in a section of the company’s main storeroom caused an uninsured inventory loss of $470,000.


9. The senior executives have been with the company for between two and six years. The CEO, Hugh Brett, earns a salary of $210,000.  The General Manager, Sales and Marketing, Colin Scott, has had extensive overseas experience. His salary is $195,000. Rex Salter, General Manager, Technical, has a salary of $197,000. The CFO, Adrian Hall, and the General Manager, Supply Chain, Neville Smith, have salaries of $159,000 and $156,000 respectively. Four staff members are paid between $120,000 and $130,000. Five staff members receive between $100,000 and $110,000 including you, the financial accountant. You have been appointed on a starting salary of $105,000, the same as was paid to your predecessor. After a satisfactory six-month probationary period, it will be increased to $112,000.
10. Healthy Living Ltd has provided a guarantee to ASB Banking Corporation for up to $1.5 million to secure ASB’s facilities as per an arrangement with Fresh Foods Ltd (a supplier of Healthy Living). Healthy Living Ltd’s position is secured by a registered charge over the assets of Fresh Foods Ltd, which ranks behind a charge in favour of the bank.

11. On 7 February 2022, a large quantity of inventory product was sold for $285,000 – this is considerably lower than the cost in the draft statements (trial balance) of $355,000.


12. Inventory is valued at the lower of cost or net realisable value, on a FIFO basis. At 31 January 2022, finished goods made up 40% and raw materials 25% of total inventory. The remainder is comprised of work in process (unfinished goods).


13. Borrowings consist of a Mortgage loan and other borrowings:


The mortgage loan (current balance $3,450,000) is secured over land and buildings, at an interest rate of 8.75% p.a. Annual payments of principal of $345,000 are made on 1 July each year.

The other borrowings are Bank loans (ASB Bank) with effective interest rates ranging from 9.6% to 9.9%. $70,000 of these loans is due for repayment on 2 September 2022.

14. The company has a bank overdraft facility of $500,000, secured by a general security arrangement over the assets of the company. The interest rate is currently 8.3% (2021: 8.7%).


15. Satisfied that the requirements of the Solvency Test were met, the directors approved a final dividend 20ȼ per share (all shares issued at this date) for the year at their meeting on 19 February 2022.


16. Because the company is no longer producing a particular product line, some items of manufacturing equipment, currently carried at $64,000, are not expected to produce further economic benefits.


17. On 17 February 2022, the company entered into a contract for extensions to its existing buildings at the headquarters in Nelson. The contract price is $1,150,000 and work is expected to commence on 18 May 2022.


18. Goodwill, originally costing $1,200,000, was considered to be further impaired by $220,000 in the 2022 year ($180,000 in the 2021 financial year).


19. Intangible assets:


Capitalised product development costs:

• Product development costs capitalised up to the 2021-year = $2,800,000. This had been amortised to a carrying amount of $2,450,000.

• Additional product development costs of $560,000 have been capitalised in the 2022 financial year.

• $310,000 has already been amortised for the 2022 financial year.

• You review the situation and decide that the maximum future revenue to be generated as a result of these costs is $2,300,000 (all product development costs).


As well as product development costs, intangible assets are comprised of purchased patents $300,000 (purchased on 1 August 2021 to be amortised over 5 years on the straight-line method). To date no amortisation has been recorded for patents.


20. Investments (at cost) have been held all year and comprise shares in other companies. At balance date the shares were valued on the stock exchange at a total of $1,700,000. In keeping with IFRS 9 it is decided that Healthy Living Ltd will classify financial assets at fair value through profit or loss.


21. After making any necessary adjustments, you determine the total 2022 income tax expense to be $1,480,000.




In the “real world” you would need to adjust the various income tax accounts as a result of the changes you will need to make to the final accounts. Because we do not cover NZ IAS 12 in this course, treat the balances given in the Trial Balance as the correct figures.


It is also not necessary to prove the depreciation, accumulated depreciation and interest figures.


You may find it useful to do a Statement of Profit or Loss and Other Comprehensive Income, a Statement of Changes in Equity and Position Statement from the Trial Balance as it is, (i.e., before any adjustments) leaving plenty of space for adjustments, corrections, changes etc., required as per the additional information. You may find it useful to use an Excel spreadsheet for this.


You do not need to quote the relevant accounting standards – this assignment is about applying them, but if it helps, you may wish to indicate them in a left-hand margin.


Marks will be awarded for appropriate presentation, as well as for the “correctness” of the financial statements.


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