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Financial Reporting

ONLINE ASSESSMENT – OPEN BOOK EXAM

This assessment replaces the end of year examination. It is a pre-seen open book assessment and you may complete it in your own time, at any point up to the submission date.

 Please follow all instructions carefully.

  • You may either type or write your answers by hand
  • If you write by hand, please either scan or take photos of your work for submission. These should be saved as a single document for submission.
  • Submit your document by Turnitin if you have access. If you do not have access, please contact your module leader (Margaret Poulton) for approval to submit by alternative means. (Note that your answer will still be uploaded to Turnitin by your module leader)
  • You may submit your answers at any time up to the submission date, but you may not resubmit once your answers have been sent.

There are three (3) questions in this assessment. All are compulsory.

Question 1 (35 marks)

Question 2(7 marks)

Question 3 (40 marks)

Maximum word count is listed against each question part where applicable. This does not include any calculations.

Question 1

The following draft trial balance has been produced for Ladram plc for the year to 30 April 2020.

£000£000
Revenue6,475
Opening inventory1,200 
Purchases2,570
Administrative expenses420
Distribution costs227
Cash at bank112
6% Bank loan repayable in 20261,050
Bank loan interest paid63
Interim dividend paid170
Land cost2,100
Buildings cost2,350
Plant and equipment cost1,077
Motor vehicles cost252
Accumulated depreciation at 1 May 2019:
 Buildings564
 Plant and equipment621
 Motor vehicles84
Retained earnings at 1 May 2019333
Ordinary share capital2,310
Trade receivables/payables1,400677
Intangible assets400
Intangible amortisation at 1 May 201980
Under provision of income tax in the previous year19
Deferred tax at 1 May 2019133
Suspense33
12,36012,360

You are given the following information:

  1. Depreciation for the year has not been provided. The depreciation policy is as follows:

Plant and equipment        25% reducing balance, charged to cost of sales

Buildings                           2% straight-line, charged to administrative expenses

Motor vehicles                  Straight line over a 6-year life, charged to distribution costs

Depreciation is charged in full in the year of purchase, but none is charged in the year of disposal

  1. The directors of Ladram plc have decided to adopt a policy of revaluing all its buildings to reflect current fair values.  The fair value of the buildings is determined by an independent surveyor to be £2,625,000 as at 30 April 2020.  The revaluation does not give rise to a deferred tax liability.
  1. Intangible assets, representing a customer list acquired in the year to 30 April 2019, are being amortised straight-line over their remaining life of 5 years. Amortisation is to be charged to administrative expenses.
  1. Corporation tax for the year to 30 April 2020 is to be provided at £220,000, and the deferred tax liability should be decreased by £28,000.
  • At 30 April 2020 Ladram plc disposed of an item of plant for £33,000.  The disposed plant had a cost of £131,000 and a carrying value of £56,000. The only entry made into the accounts were the disposal proceeds recorded in the cash at bank account with the corresponding entry into the suspense account.
  • At 30 April 2020 the company adopted a new accounting policy regarding the measurement of inventories. If the new policy had been applied last year, the company’s inventory at 30 April 2019 would have been £350,000 higher than the amount originally calculated.  This new policy has not been updated in the account balances above.
  • Inventory at 30 April 2020 is £1,200,000 reflecting the new valuation policy.

YOU ARE REQUIRED TO:

Prepare in a format suitable for publication for Ladram plc:

  1. A Statement of profit or loss and other comprehensive income for the year ended 30 April 2020;

                                                                                       (15 marks)

  • A Statement of changes in equity for the year ended 30 April 2020;

                                                                                      (5 marks)

  • A Statement of financial position at 30 April 2020.

                                                                                      (15 marks)

All calculations should be to the nearest £000

Total 35 marks

Question 2

The statement of comprehensive income of Oak plc, a publicly listed company, is as follows:

Statement of comprehensive income for the year ended 31 March 2020

   £000
    
Revenue  33,600
Cost of sales  (22,500)
Gross profit  11,100
Distribution costs  (3,600)
Administrative expenses  (3,450)
Finance costs  (300)
Profit before tax  3,750
Income tax expense  (150)
Profit for the year  3,600
Gain on revaluation  250
Total comprehensive income  3,850

The following supporting information is available:

  1. Depreciation of £965,000 was charged (to cost of sales) for property, plant and equipment in the year ended 31 March 2020.An item of plant with a carrying value of £750,000 was sold at a profit of £65,000 during the year. 
  1. The following extracts from the statements of financial position for the years ended 31 March 2020 and 31 March 2019 are relevant:
 20202019
 £000£000
Inventory4,3504,050
Trade receivables1,800900
Trade payables8502,625
Current tax payable8251,800

YOU ARE REQUIRED TO:

  1. Calculate the net cash flow from operating activities for Oak plc for the year to 31 March 2020 in accordance with IAS 7 Statement of cash flows using the indirect method.

                                                                                           (7 marks)

Total 7 marks

Question 3

You work for a large accounting firm KMPG as a Senior Accountant. Your client Paddington plc acquired shares in Winnie plc several years back and you are responsible for the preparation of the year end work.

The following are the Statements of financial position for Paddington plc and Winnie plc as at 31 March 2020, together with the additional information provided below.

  Paddington plcWinnie plc
  ££
Non-Current Assets   
Land and buildings 975,000220,000
Plant and equipment 245,00075,000
Fixtures and fittings 375,00054,500
Intangibles: Development costs 30,000 
Investment in Winnie plc 350,000 
Total Non-Current Assets 1,975,000349,500
    
Current Assets   
Inventory 625,000165,000
Trade and other receivables 105,00076,450
Cash and cash equivalents 65,20024,500
Total Current Assets 795,200265,950
    
Total Assets 2,770,200615,450
    
Equity   
Ordinary shares (£1) 700,000120,000
Preference shares (£1) 300,00030,000
Retained earnings 1,427,750335,000
Total Equity 2,427,750485,000
    
Current Liabilities   
Trade payables 105,00042,500
Taxation 82,45033,450
Dividends 95,00032,000
Total Current Liabilities 282,450107,950
    
Non-Current Liabilities   
Bank Loan 60,00022,500
Total Non-Current Liabilities 60,00022,500
    
    
Total Equity and Liabilities 2,770,200615,450
    

Notes to the above financial statements:

  1. Paddington acquired 84,000 ordinary shares in Winnie on 31 March 2017. They also acquired 15% of the preference shares.
  1. At the date of acquisition, the retained earnings of Winnie plc were £205,000.
  1. During the year, Paddington sold goods to Winnie for £10,400 which included a mark-up on cost of 30%. At the end of the year, 50% of this stock was still held by Winnie plc.
  1. At the date of acquisition, the land and buildings of Winnie plc had a fair value of £50,000 more than their book value. This fair value increase has not been incorporated into the statement of financial position for Winnie plc. Land accounts for 20% of this amount. Winnie acquired the building on 1 April 2012. The group policy is to depreciate buildings over a period of 50 years.
  • Winnie spent £42,000 on developing a new and innovative product. Winnie’s policy is to expense development costs, however, it is Paddington’s policy to capitalise development costs (i.e. treat it as an asset). The following provides a breakdown of expenditure by Winnie:

Development costs up to 31 March 2017     £32,000

Development costs after 31 March 2017     £10,000

  • On the 31March 2020, an impairment test was carried out on the goodwill arising from the acquisition of Winnie plc. The report indicated that the goodwill needs to be written down by £10,000.
  • Winnie declared a dividend to its ordinary shareholders on 15 March 2020 which remained unpaid by 31 March 2020. Paddington has not accounted for this income in their financial statements.

YOU ARE REQUIRED TO:

  1. Prepare the consolidation schedule for Winnie plc at 31 March 2020.

                                                                                           (20 marks)

  • Calculate the equity and non-controlling interest that will appear in the consolidated statement of financial position for the Paddington Group plc at 31 March 2020.

                                                                                           (7 marks)

  • Prepare a memorandum for the attention of the financial director of Paddington Plc explaining why consolidated accounts are necessary and what are the criteria regarding exemption and exclusion from preparing consolidated accounts.

(maximum word count 100 words)

                                                                                           (5 marks)

  • Prepare a memorandum for the financial director of Paddington plc explaining the limitations of group accounts.

(maximum word count 200 words)

                                                                                           (8 marks)

                                                                                 TOTAL 40 marks

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