Questions

1. You are presented with the following trial balance of Portsmere, a limited liability
company, at 31 May 2009.
Dr Cr
$000 $000
Intangible assets .…………………………………………………… 50
Plant at cost .………………………………………………………... 176
Plant, accumulated depreciation, at 1 June 2008…………………… 88
Buildings at cost .…………………………………………………… 592
Buildings, accumulated depreciation, at 1 June 2008 48
Land at cost .………………………………………………………... 188
Bank balance .………………………………………………………. 30
Retained earnings at 1 June 2008…………………………………… 104
10% Loan notes .…………………………………………………… 40
Loan interest paid .…………………………………………….. 4
Dividend paid .…………………………………………………….. 20
Revenue .…………………………………………………………… 1,510
Returns inwards .…………………………………………………… 28
Wages and salaries .……………………………………………….. 144
Insurance .………………………………………………………….. 14
Energy expenses .………………………………………………….. 70
Inventory at 1 June 2008 .…………………………………………. 128
Administrative expenses .…………………………………………. 64
Allowance for receivables, at 1 June 2008 8
Purchases .…………………………………………………………. 884
Discounts received .……………………………………………….. 76
Trade payables .……………………………………………………. 200
Trade receivables .…………………………………………………. 256
Director’s remuneration .…………………………………………... 56
$1 Ordinary shares .………………………………………………... 570
Share premium account .…………………………………………… 60
–––––– ––––––
2,704 2,704
–––––– ______

Additional information as at 31 May 2009

(i) Closing inventory has been valued at $60,000.
(ii) Energy expenses of $12,000 for May 2009 have not been invoiced or recorded.
(iii) Insurance expenses include $2,000 for June and July 2009.
(iv) The allowance for receivables is to be increased to 5% of trade receivables. The
increase should be charged to administrative expenses.
(v) Plant is depreciated at 25% per annum using the reducing balance method. The entire
charge is to be allocated to cost of sales.

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(vi) Buildings are depreciated at 5% per annum on their original cost, allocated 50% to
cost of sales, 30% to distribution costs and 20% to administrative expenses.
(vii) Land was revalued at 31 May 2009 to $200,000.
(viii) The intangible assets were purchased on 1 December 2008 and have a useful life of
five years from that date. Amortisation is calculated on a monthly basis and charged
to administrative expenses.
(ix) Tax has been calculated as $40,000 for the year.
(x) The expenses listed below should be apportioned as indicated:

Cost of Distribution Administrative

Sales Costs Expenses
Discounts received – – 100%
Insurance – 50% 50%
Energy expenses 50% 20% 30%
Wages and salaries 40% 35% 25%
Director’s remuneration – – 100%
(xi) The current share price of Portsmere is $1·10 per share.

Required:

Prepare the following financial statements for Portsmere in accordance with IAS 1
Presentation of Financial Statements:
(i) a statement of comprehensive income for the year ended 31 May 2009;
Note: show clearly your workings for cost of sales, distribution costs and
administrative expenses.

(ii) a statement of financial position as at 31 May 2009.

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2. On 1 October 2005, Dearing acquired a machine under the following terms:

Hours % $
Manufacturer’s base price 1,050,000
Trade discount (applying to base price only) 20%
Early settlement discount taken (on the payable amount
of the base cost only) 5%
Freight charges 30,000
Electrical installation cost 28,000
Staff training in use of machine 40,000
Pre-production testing 22,000
Purchase of a three-year maintenance contract 60,000
Estimated residual value 20,000
Estimated life in machine hours 6,000
Hours used – year ended 30 September 2006 1,200
– year ended 30 September 2007 1,800
– year ended 30 September 2008 (see below) 850

On 1 October 2007 Dearing decided to upgrade the machine by adding new components at a
cost of $200,000. This upgrade led to a reduction in the production time per unit of the goods
being manufactured using the machine. The upgrade also increased the estimated remaining
life of the machine at 1 October 2007 to 4,500 machine hours and its estimated residual value
was revised to $40,000.

Required:

Prepare extracts from the income statement and statement of financial position for the above
machine for each of the three years to 30 September 2008.

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 Questions

3. The following list of balances relates to Atlas at 31 March 2013.

$’000
Equity shares of 50 cents each 50,000
Share premium 20,000
Retained earnings at 1 April 2012 11,200
Land and buildings – at cost (land $10 million) (Note 1) 60,000
Plant and equipment – at cost (Note 1) 94,500
Accumulated depreciation at 1 April 2012
– buildings 20,000
- plant and equipment 24,500
Inventory at 31 March 2013 43,700
Trade receivables 42,200
Bank overdraft 6,800
Deferred tax (Note 2) 6,200
Trade payables 35,100
Revenue 550,000
Cost of sales 411,500
Distribution costs 21,500
Administrative expenses 30,900
Dividends paid 20,000
Bank interest 700
Current tax (Note 2) (credit) 1,200

Notes
The following notes are relevant.
(i) Non-current assets:
On 1 April 2012, the directors of Atlas decided that the financial statements would show
an improved position if the land and buildings were revalued to market value. At that
date, an independent valuer valued the land at $12 million and the buildings at $35
million and these valuations were accepted by the directors. The remaining life of the
buildings at that date was 14 years. Atlas does not make a transfer to retained earnings
for excess depreciation. Ignore deferred tax on the revaluation surplus.

Plant and equipment is depreciated at 20% per annum using the reducing balance method
and time apportioned as appropriate. All depreciation is charged to cost of sales, but none
has yet been charged on any non-current asset for the year ended 31 March 2013.

(ii) Atlas estimates that an income tax provision of $27.2 million is required for the year
ended 31 March 2013 and at that date the liability to deferred tax is $9.4 million. The
movement on deferred tax should be taken to profit or loss. The balance on current tax in
the list of balances represent the under/over provision of the tax liability for the year
ended 31 March 2012.

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Required:

1. Prepare the statement of profit or loss and other comprehensive income for Atlas for
the year ended 31 March 2013.
2. Prepare the statement of financial position of Atlas as at 31 March 2013.

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 Questions

4. Manchester, a limited liability company, compiles its financial statements to 30 June

annually. At 30 June 2016, the company’s list of account balances was as follows:

$000 $000
Sales revenue 14,800
Purchases 8,280
Inventory at I July 2015 1,390
Distribution costs 1,080
Administrative expenses 1,460
Land at valuation 10,500
Buildings: cost 8,000
Accumulated depreciation at I July, 2015 2,130
Plant and equipment: cost 12,800
Accumulated depreciation at 1 July, 2015 2,480
Trade accounts receivable and payable 4,120 2,240
Cash at bank 160
Ordinary shares of 50 cents each: as at 1 July, 10,000
2015
Issued during the year 4,000
Share premium account: as at 1 July, 2015 2,000
Arising from issues during the year 2,000
Revaluation reserve as at 1 July 2015 3,000
Accumulated profits 3,140
10% Loan notes (redeemable 2026). Issued 1 2,000
April 2016 with interest payable 31 March and
30 September each year
47,790 47,790

The following matters remain to be adjusted for in preparing the financial statements for the
year ended 30 June 2016:

a) Inventory at 30 June 2016 amounted to $1,560,000 at cost. A review of inventory items

revealed the need for some adjustments for two inventory lines:
(i) Items which had cost $80,000 and which would normally sell for $120,000 were
found to have deteriorated.
(ii) Remedial work costing $20,000 would be needed to enable the items to be sold
for $90,000.
(iii)Some items sent to customers on sale or return terms had been omitted from
inventory and included as sales in June 2008. The cost of these items was $16,000
and they were included in sales at $24,000. In July 2016, the items were returned
in good condition by the customers.
b) Depreciation is to be provided as follows:
 Buildings: 2% per year on cost.

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 Plant and equipment: 20% per year on cost.

 80% of the depreciation is to be charged in cost of sales, and 10% each in
distribution costs and administrative expenses.
c) The land is to be revalued to $12,000,000. No change was required to the value of the
buildings.
d) Accrued expenses and prepayments were:

Accrued Prepayments
expenses
$000 $000
Distribution costs 190 120
Administrative expenses 70 60

e) No dividends were paid during the year and no dividend is proposed for the year.

Required:

(i) Prepare for publication, the company’s Statement of Comprehensive Income for the year
ended 30 June 2016.
(ii) Prepare the company’s Statement of Financial Position as at that date for publication,
complying as far as possible with the provisions of IAS1 Presentation of Financial