Professional Documents
Culture Documents
Ltd has entered into the following transactions during the year ended 31 December 2018.
i. Friends Int. Ltd made a major sale on 1 January 2018 for a fee of Tk. 1.35 million which related to
a completed sale and after-sales support for four years. The cost of providing the after-sales support
is estimated at Tk. 150,000 per annum and the mark-up on similar after-sales only contracts is 25%
on cost.
ii. The agro division of Friends Int. Ltd operates its retail outlets on a franchise basis. On 1 January
2018 a new outlet was opened, the franchisee paying a fee of Tk. 1.5 million to cover the initial
services. The franchise is for five years, and the franchisee will pay an additional annual fee of Tk.
180,000 commencing on 1 January 2018 to cover marketing and other support services provided by
Friends Int. Ltd during the franchise period. Friends Int. Ltd has estimated that the cost of providing
these services is Tk. 240,000 per annum, and has achieved a gross margin of 25% on providing
similar services on other contracts.
iii. On 1 October 2018 Friends Int. Ltd received Tk. 1.2 million in advance subscriptions. The
subscriptions are for 60 monthly issues of a magazine published by Friends Int. Ltd. Nine issues of
the magazine had been dispatched by the year end. Each magazine is of the same value and costs
approximately the same to produce.
iv. A batch of unseasoned timber, which had cost Tk. 750,000, was sold to Wasi Inc. Ltd for Tk.
300,000 on 1 January 2018. Friends Int. Ltd has an option to repurchase the timber in 10 years' time.
The repurchase price will be Tk. 300,000 plus interest charged at 12% per annum from 1 January
2018 to the date of repurchase. The market value of the timber is expected to increase as it seasons.
Required:
Prepare extracts from Friends Int. Ltd's financial statements for the year ended 31 December 2018, clearly
showing how each of the above would be reflected. Notes to the financial statements are not required. 10
3. ABC Limited is an IT service provider and has been into operation only for last five years. The industry is
highly competitive and volatile. Being new into the industry, the company is currently trying to aggressively
acquire new customers, even if it is at the cost of initial subsidy in service price.
The company builds customized software and provides implementation and maintenance service to its
customers. The company has also started off-the-shelf software sale business (for both internally developed
and software purchased from third parties) and maintenance service for third party software. Below was the
trial balance (unadjusted) of the company as of the close of 30 June 2019-
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