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 | |
| Revenue | 6,475 | |
| Opening inventory | 1,200 | |
| Purchases | 2,570 | |
| Administrative expenses | 420 | |
| Distribution costs | 227 | |
| Cash at bank | 112 | |
| 6% Bank loan repayable in 2026 | 1,050 | |
| Bank loan interest paid | 63 | |
| Interim dividend paid | 170 | |
| Land cost | 2,100 | |
| Buildings cost | 2,350 | |
| Plant and equipment cost | 1,077 | |
| Motor vehicles cost | 252 | |
| Accumulated depreciation at 1 May 2019: | ||
| Buildings | 564 | |
| Plant and equipment | 621 | |
| Motor vehicles | 84 | |
| Retained earnings at 1 May 2019 | 333 | |
| Ordinary share capital | 2,310 | |
| Trade receivables/payables | 1,400 | 677 |
| Intangible assets | 400 | |
| Intangible amortisation at 1 May 2019 | 80 | |
| Under provision of income tax in the previous year | 19 | |
| Deferred tax at 1 May 2019 | 133 | |
| Suspense | 33 | |
| 12,360 | 12,360 |
You are given the following information:
- 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
- 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.
- 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.
- 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:
- 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:
- 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.
- The following extracts from the statements of financial position for the years ended 31 March 2020 and 31 March 2019 are relevant:
| 2020 | 2019 | |
| £000 | £000 | |
| Inventory | 4,350 | 4,050 |
| Trade receivables | 1,800 | 900 |
| Trade payables | 850 | 2,625 |
| Current tax payable | 825 | 1,800 |
YOU ARE REQUIRED TO:
- 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 plc | Winnie plc | ||
| £ | £ | ||
| Non-Current Assets | |||
| Land and buildings | 975,000 | 220,000 | |
| Plant and equipment | 245,000 | 75,000 | |
| Fixtures and fittings | 375,000 | 54,500 | |
| Intangibles: Development costs | 30,000 | ||
| Investment in Winnie plc | 350,000 | ||
| Total Non-Current Assets | 1,975,000 | 349,500 | |
| Current Assets | |||
| Inventory | 625,000 | 165,000 | |
| Trade and other receivables | 105,000 | 76,450 | |
| Cash and cash equivalents | 65,200 | 24,500 | |
| Total Current Assets | 795,200 | 265,950 | |
| Total Assets | 2,770,200 | 615,450 | |
| Equity | |||
| Ordinary shares (£1) | 700,000 | 120,000 | |
| Preference shares (£1) | 300,000 | 30,000 | |
| Retained earnings | 1,427,750 | 335,000 | |
| Total Equity | 2,427,750 | 485,000 | |
| Current Liabilities | |||
| Trade payables | 105,000 | 42,500 | |
| Taxation | 82,450 | 33,450 | |
| Dividends | 95,000 | 32,000 | |
| Total Current Liabilities | 282,450 | 107,950 | |
| Non-Current Liabilities | |||
| Bank Loan | 60,000 | 22,500 | |
| Total Non-Current Liabilities | 60,000 | 22,500 | |
| Total Equity and Liabilities | 2,770,200 | 615,450 | |
Notes to the above financial statements:
- Paddington acquired 84,000 ordinary shares in Winnie on 31 March 2017. They also acquired 15% of the preference shares.
- At the date of acquisition, the retained earnings of Winnie plc were £205,000.
- 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.
- 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:
- 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