F R: F INAN CIA L RE POR TIN G

The following notes are relevant:

Section 3 (1) Non‐current assets:
The 15‐year leasehold property was acquired on 1 April 20X7 at a cost of $30 million.

CONSTRUCTED RESPONSE The accounting policy is to revalue the property at fair value at each year end. The
valuation in the trial balance of $25.2 million as at 31 March 20X8 led to an impairment
charge of $2.8 million which was reported in the statement of profit or loss and other
QUESTIONS – SECTION C comprehensive income in the year ended 31 March 20X8. At 31 March 20X9 the
property was valued at $24.9 million.
Please note that the following icons will be used in this section Owned plant is depreciated at 25% per annum using the reducing balance method.
The right‐of‐use plant was acquired on 1 April 20X7. The rentals are $6 million per
 = word processing annum for four years payable in arrears on 31 March each year. The interest rate
 = spreadsheet implicit in the lease is 8% per annum. Right‐of‐use plant is depreciated over the lease
period.
PREPARATION OF SINGLE ENTITY FINANCIAL STATEMENTS No depreciation has yet been charged on any non‐current assets for the year ended
31 March 20X9. All depreciation is charged to cost of sales.
(2) On 1 October 20X8 Pricewell entered into a contract to construct a bridge over a river.
401 PRICEWELL
The performance obligation will be satisfied over time. The agreed price of the bridge
The following trial balance relates to Pricewell at 31 March 20X9: is $50 million and construction was expected to be completed on 30 September 20Y0.
The $14.3 million in the trial balance is:
$000 $000
Leasehold property – at valuation 31 March 20X8 (note (1)) 25,200 $000
Plant and equipment (owned) – at cost (note (1)) 46,800 Materials, labour and overheads 12,000
Right‐of‐use assets – at cost (note (1)) 20,000 Specialist plant acquired 1 October 20X8 8,000
Accumulated depreciation at 31 March 20X8: Payment from customer (5,700)
Owned plant and equipment 12,800 ––––––
Right‐of‐use plant 5,000 14,300
Lease payment (paid on 31 March 20X9) (note (1)) 6,000 ––––––
Lease liability at 1 April 20X8 (note (1)) 15,600 The sales value of the work done at 31 March 20X9 has been agreed at $22 million and
Contract with customer (note (2)) 14,300 the estimated cost to complete (excluding plant depreciation) is $10 million. The
Inventory at 31 March 20X9 28,200 specialist plant will have no residual value at the end of the contract and should be
depreciated on a monthly basis. Pricewell recognises progress towards satisfaction of
Trade receivables 33,100
the performance obligation on the outputs basis as determined by the agreed work to
Bank 5,500
date compared to the total contract price.
Trade payables 33,400
(3) Pricewell’s revenue includes $8 million for goods it sold acting as an agent for Trilby.
Revenue (note (3)) 310,000
Pricewell earned a commission of 20% on these sales and remitted the difference of
Cost of sales (note (3)) 234,500
$6.4 million (included in cost of sales) to Trilby.
Distribution costs 19,500
(4) The directors have estimated the provision for income tax for the year ended 31 March
Administrative expenses 27,500
20X9 at $4.5 million. The required deferred tax provision at 31 March 20X9 is $5.6
Equity dividend paid 8,000
million. All adjustments to deferred tax should be taken to the statement of profit or
Equity shares of 50 cents each 40,000 loss. The balance of current tax in the trial balance represents the under/over provision
Retained earnings at 31 March 20X8 44,100 of the income tax liability for the year ended 31 March 20X8.
Current tax (note (4)) 700
Deferred tax (note (4)) 8,400
––––––– –––––––
469,300 469,300
––––––– –––––––

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 C ONS TR UC TED RES PONSE QUESTIONS – SECTION C: S E CTI O N 3 F R: F INAN CIA L RE POR TIN G

Required: The following notes are relevant:

(a) Prepare the statement of profit or loss and other comprehensive income for the year (1) During the year Keystone manufactured an item of plant for its own use. The direct
ended 31 March 20X9. (10 marks) materials and labour were $3 million and $4 million respectively. Production
overheads are 75% of direct labour cost and Keystone determines the final selling price
(b) Prepare the statement of financial position as at 31 March 20X9. (10 marks)
for goods by adding a mark‐up on total cost of 40%. These manufacturing costs are
Note: A statement of changes in equity and notes to the financial statements are not included in the relevant expense items in the trial balance. The plant was completed
required. and put into immediate use on 1 April 20X1.
(Total: 20 marks) 
All plant and equipment is depreciated at 20% per annum using the reducing balance
method with time apportionment in the year of acquisition.
402 KEYSTONE
The directors decided to revalue the property in line with recent increases in market
The following trial balance relates to Keystone at 30 September 20X1: values. On 1 October 20X0 an independent surveyor valued the property at
$48 million, which the directors have accepted. The property was being amortised
$000 $000 over an original life of 20 years which has not changed. Keystone does not make a
Revenue 377,600 transfer to retained earnings in respect of excess amortisation. The revaluation gain
Material purchases (note (1)) 64,000 will create a deferred tax liability (see note (4)).
Production labour (note (1)) 124,000 All depreciation and amortisation is charged to cost of sales. No depreciation or
Factory overheads (note (1)) 80,000 amortisation has yet been charged on any non‐current asset for the year ended
Distribution costs 14,200 30 September 20X1.
Administrative expenses (note (2)) 46,400
(2) On 15 August 20X1, Keystone’s share price stood at $2.40 per share. On this date
Finance costs 350 Keystone paid a dividend (included in administrative expenses) that was calculated to
Investment income 800 give a dividend yield of 4%.
Property – at cost (note (1)) 50,000
(3) The inventory at 30 September 20X1 was valued at $56.6 million.
Plant and equipment – at cost (note (1)) 44,500
Accumulated amortisation/depreciation at 1 October 20X0 (4) A provision for income tax for the year ended 30 September 20X1 of $24.3 million is
– property 10,000 required. At 30 September 20X1, the tax base of Keystone’s net assets was $15 million
less than their carrying amounts. This excludes the effects of the revaluation of the
– plant and equipment 14,500
leased property. The income tax rate of Keystone is 30%.
Inventory at 1 October 20X0 46,700
Trade receivables 31,150 Required:
Trade payables 27,800
(a) Prepare the statement of profit or loss and other comprehensive income for
Bank 2,300
Keystone for the year ended 30 September 20X1. (12 marks)
Equity shares of 20 cents each 50,000
Retained earnings at 1 October 20X0 15,600 (b) Prepare the statement of financial position for Keystone as at 30 September 20X1.
(8 marks)
Deferred tax (note (4)) 2,700
––––––– ––––––– A statement of changes in equity is not required.
501,300 501,300 (Total: 20 marks) 
––––––– –––––––

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403 FRESCO (3) In March 20X2, Fresco’s internal audit department discovered a fraud committed by
the credit controller who did not return from a foreign business trip. The outcome of
The following trial balance extract relates to Fresco at 31 March 20X2: the fraud is that $4 million of the trade receivables have been stolen by the credit
$000 $000 controller and are not recoverable. Of this amount, $1 million relates to the year ended
31 March 20X1 and the remainder to the current year. Fresco is not insured against
Equity shares of 50 cents each (note (1)) 45,000
this fraud.
Share premium (note (1)) 5,000
Retained earnings at 1 April 20X1 5,100 (4) Fresco’s income tax calculation for the year ended 31 March 20X2 shows a tax refund
of $2.4 million. The balance on current tax in the trial balance represents the
Equity financial asset investments (note (5)) 6,000
under/over provision of the tax liability for the year ended 31 March 20X1. At 31 March
Leased property (12 years) – at cost (note (2)) 48,000 20X2, Fresco had taxable temporary differences of $12 million requiring a deferred tax
Plant and equipment – at cost (note (2)) 47,500 liability. The income tax rate of Fresco is 25%.
Accumulated amortisation of leased property at 1 April 20X1 16,000
(5) The investments had a fair value of $7.2 million as at 31 March 20X2. There were no
Accumulated depreciation of plant and equipment at 1 April 33,500 acquisitions or disposals of these investments during the year ended 31 March 20X2.
20X1
Deferred tax (note (4)) 3,200 Required:
Revenue 350,000 (a) Prepare the statement of profit or loss and other comprehensive income for Fresco
Cost of sales 298,700 for the year ended 31 March 20X2. (13 marks)
Lease payments (note (2)) 8,000 (b) Prepare the statement of changes in equity for Fresco for the year ended 31 March
Distribution costs 16,100 20X2. (7 marks)
Administrative expenses 26,900
(Total: 20 marks) 
Bank interest 300
Current tax (note (4)) 800
404 QUINCY
Suspense account (note (1)) 13,500
The following notes are relevant: The following trial balance relates to Quincy as at 30 September 20X2:

(1) The suspense account represents the corresponding credit for cash received for a fully $000 $000
subscribed rights issue of equity shares made on 1 January 20X2. The terms of the Revenue (note (1)) 213,500
share issue were one new share for every five held at a price of 75 cents each. Cost of sales 136,800
Distribution costs 12,500
(2) Non‐current assets:
Administrative expenses (note (2)) 19,000
To reflect a marked increase in property prices, Fresco decided to revalue its leased Loan note interest (note (2)) 1,500
property on 1 April 20X1. The directors accepted the report of an independent Dividend paid 19,200
surveyor who valued the leased property at $36 million on that date. Fresco has not Investment income 400
yet recorded the revaluation. The remaining life of the leased property is eight years Equity shares of 25 cents each 60,000
at the date of the revaluation. Fresco makes an annual transfer to retained profits to 6% loan note (note (2)) 25,000
reflect the realisation of the revaluation surplus. In Fresco’s tax jurisdiction the Retained earnings at 1 October 20X1 6,500
revaluation does not give rise to a deferred tax liability. Plant and equipment at cost (note (3)) 83,700
On 1 April 20X1, Fresco acquired an item of plant under a lease agreement that had an Accumulated depreciation at 1 October 20X1: plant and 33,700
implicit finance cost of 10% per annum. The lease payments in the trial balance equipment
represent an initial deposit of $2 million paid on 1 April 20X1 and the first annual rental Equity financial asset investments (note (4)) 17,000
of $6 million paid on 31 March 20X2. The lease agreement requires further annual Inventory at 30 September 20X2 24,800
payments of $6 million on 31 March each year for the next four years. The present Trade receivables 28,500
value of the lease payments, excluding the initial deposit, was $23 million. Bank 2,900
Plant and equipment (other than the leased plant) is depreciated at 20% per annum Current tax (note (5)) 1,100
using the reducing balance method. Deferred tax (note (5)) 1,200
Trade payables 6,700
No depreciation or amortisation has yet been charged on any non‐current asset for ––––––– –––––––
the year ended 31 March 20X2. Depreciation and amortisation are charged to cost of 347,000 347,000
sales. ––––––– –––––––

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The following notes are relevant: 405 ATLAS

(1) On 1 October 20X1, Quincy sold one of its products for $10 million (included in revenue The following trial balance relates to Atlas at 31 March 20X3:
in the trial balance). As part of the sale agreement, Quincy is committed to the ongoing
servicing of this product until 30 September 20X4 (i.e. three years from the date of $000 $000
sale). The value of this service has been included in the selling price of $10 million. The Equity shares of 50 cents each 50,000
estimated cost to Quincy of the servicing is $600,000 per annum and Quincy’s normal Retained earnings at 1 April 20X2 11,200
gross profit margin on this type of servicing is 25%. The service performance obligation Land and buildings – at cost (land $10 million) (note (2)) 60,000
will be satisfied over time. Ignore discounting. Plant and equipment – at cost (note (2)) 94,500
(2) Quincy issued a $25 million 6% loan note on 1 October 20X1. Issue costs were Accumulated depreciation at 1 April 20X2: – buildings 20,000
$1 million and these have been charged to administrative expenses. The loan will be – plant and equipment 24,500
redeemed on 30 September 20X4 at a premium which gives an effective interest rate Inventory at 31 March 20X3 43,700
on the loan of 8%. Trade receivables 42,200
(3) Plant and equipment is depreciated at 15% per annum using the reducing balance Bank 6,800
method. Deferred tax (note (4)) 6,200
Trade payables 35,100
No depreciation has yet been charged for the year ended 30 September 20X2. All
depreciation is charged to cost of sales. Revenue (note (1)) 550,000
Cost of sales 411,500
(4) The investments had a fair value of $15.7 million as at 30 September 20X2. There were Distribution costs 21,500
no acquisitions or disposals of these investments during the year ended 30 September Administrative expenses 30,900
20X2.
Bank interest 700
(5) The balance on current tax represents the under/over provision of the tax liability for Current tax (note (4)) 1,200
the year ended 30 September 20X1. A provision for income tax for the year ended ––––––– –––––––
30 September 20X2 of $7.4 million is required. At 30 September 20X2, Quincy had 705,000 705,000
taxable temporary differences of $5 million, requiring a provision for deferred tax. Any ––––––– –––––––
deferred tax adjustment should be reported in the statement of profit or loss. The
income tax rate of Quincy is 20%. The following notes are relevant:
(1) Revenue includes the sale of $10 million of maturing inventory made to Xpede on
Required: 1 October 20X2. The cost of the goods at the date of sale was $7 million and Atlas has
(a) Prepare the statement of profit or loss and other comprehensive income for Quincy an option to repurchase these goods at any time within three years of the sale at a
for the year ended 30 September 20X2. (10 marks) price of $10 million plus accrued interest from the date of sale at 10% per annum.
At 31 March 20X3 the option had not been exercised, but it is highly likely that it will
(b) Prepare the statement of financial position for Quincy as at 30 September 20X2.
be before the date it lapses.
(10 marks)
(2) Non‐current assets:
Notes to the financial statements are not required.
On 1 October 20X2, Atlas terminated the production of one of its product lines. From
(Total: 20 marks)  this date, the plant used to manufacture the product has been actively marketed at an
advertised price of $4.2 million which is considered realistic. It is included in the trial
balance at a cost of $9 million with accumulated depreciation (at 1 April 20X2) of $5
million.
On 1 April 20X2, 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 20X3.

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(3) At 31 March 20X3, a provision is required for directors’ bonuses equal to 1% of revenue The following notes are relevant:
for the year.
(1) During the year, Moby entered into a contract to construct an asset for a customer.
(4) Atlas estimates that an income tax provision of $27.2 million is required for the year The performance obligation is satisfied over time. The balance in the trial balance
ended 31 March 20X3 and at that date the liability to deferred tax is $9.4 million. The represents:
movement on deferred tax should be taken to profit or loss. The balance on current
Cost incurred to date $8 million
tax in the trial balance represents the under/over provision of the tax liability for the
year ended 31 March 20X2. Value of contract billed and cash received $7 million
The contract commenced on 1 October 20X2 and is for a fixed price of $25 million. The
Required:
costs to complete the contract at 30 September 20X3 are estimated at $12 million.
(1) Prepare the statement of profit or loss and other comprehensive income for Atlas Moby’s policy is to measure progress based on the work certified as a percentage of
for the year ended 31 March 20X3. (9 marks) the contract price. The value of work certified at 30 September 20X3 is $10 million.
(2) Prepare the statement of financial position of Atlas as at 31 March 20X3. (2) Non‐current assets:
(11 marks)
Moby decided to revalue its land and building, for the first time, on 1 October 20X2. A
Notes to the financial statements and a statement of changes in equity are not required. qualified valuer determined the relevant revalued amounts to be $16 million for the
land and $38.4 million for the building. The building’s remaining life at the date of the
(Total: 20 marks) 
revaluation was 16 years. This revaluation has not yet been reflected in the trial
balance figures. Moby does not make a transfer from the revaluation surplus to
406 MOBY retained earnings in respect of the realisation of the revaluation surplus. Deferred tax
is applicable to the revaluation surplus at 25%.
Answer debrief
The leased plant was acquired on 1 October 20X1 under a five‐year lease which has an
After preparing a draft statement of profit or loss for the year ended 30 September 20X3 and implicit interest rate of 10% per annum. The rentals are $9.2 million per annum
adding the year’s profit (before any adjustments required by notes (1) to (5) below) to payable on 30 September each year.
retained earnings, the summarised trial balance of Moby as 30 September 20X3 is:
No depreciation has yet been charged on any non‐current asset for the year ended
$000 $000 30 September 20X3. All depreciation is charged to cost of sales.
Contract to construct asset (note (1)) 1,000 (3) On 1 October 20X2, Moby received a renewal quote of $400,000 from their property
Lease rental paid on 30 September 20X3 (note (2)) 9,200 insurer. The directors were surprised at how much it had increased and believed it
Land ($12 million) and building ($48 million) at cost (note (2)) 60,000 would be less expensive to ‘self‐insure’. Accordingly, they charged $400,000 to
Leased plant at initial carrying amount (note (2)) 35,000 operating expenses and credited the same amount to the insurance provision. During
Accumulated depreciation at 1 October 20X2: the year expenses of $250,000 were incurred, relating to previously insured property
building 10,000 damage which Moby has debited to the provision.
leased plant 7,000 (4) A provision for income tax for the year ended 30 September 20X3 of $3.4 million is
Inventory at 30 September 20X3 56,600 required. At 30 September 20X3, the tax base of Moby’s net assets was $24 million less
Trade receivables 38,500 than their carrying amounts. This does not include the effect of the revaluation in note
(2) above. The income tax rate of Moby is 25%.
Bank 7,300
Insurance provision (note (3)) 150 (5) The $40 million loan note was issued at par on 1 October 20X2. No interest will be paid
Deferred tax (note (4)) 8,000 on the loan. However, it will be redeemed on 30 September 20X5 for $53,240,000
which gives an effective finance cost of 10% per annum.
Lease liability at 1 October 20X2 (note (2)) 29,300
Trade payables 18,300 Required:
Equity shares of $1 each 27,000
(a) Prepare a schedule of adjustments required to the retained earnings of Moby as at
Loan note (note (5)) 40,000 30 September 20X3 as a result of the information in notes (1) to (5) above.
Retained earnings at 30 September 20X3 53,250 (8 marks)
––––––– –––––––
(b) Prepare the statement of financial position for Moby as at 30 September 20X3.
200,300 200,300 (12 marks)
––––––– –––––––
Note: A statement of changes in equity and notes to the financial statements are not
required.
(Total: 20 marks) 
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 C ONS TR UC TED RES PONSE QUESTIONS – SECTION C: S E CTI O N 3 F R: F INAN CIA L RE POR TIN G

407 XTOL (4) The equity shares and share premium balances in the trial balance above include a fully
subscribed 1 for 5 rights issue at $1.60 per share which was made by Xtol on 1 October
The following trial balance relates to Xtol at 31 March 20X4: 20X3. The market value of Xtol’s shares was $2.50 on 1 October 20X3.
$000 $000
Required:
Revenue 490,000
Cost of sales 290,600 (a) Prepare Xtol’s statement of profit or loss for the year ended 31 March 20X4.
Operating costs 70,300 (6 marks)
Loan note interest (note (2)) 2,500 (b) Prepare the statement of financial position for Xtol as at 31 March 20X4. (9 marks)
Bank interest 900
(c) Calculate the basic earnings per share of Xtol for the year ended 31 March 20X4.
Plant and equipment at cost (note (1)) 155,500
Accumulated depreciation at 1 April 20X3: (5 marks)
plant and equipment 43,500 Note: Answers and workings (for parts (a) to (b)) should be presented to the nearest $000.
Inventory at 31 March 20X4 96,000 A statement of changes in equity is not required.
Trade receivables 103,000 (Total: 20 marks) 
Trade payables 32,200
Bank 5,500 408 DUNE
Equity shares of $1 each (note (4)) 66,000
The following trial balance relates to Dune at 31 March 20X4:
Share premium (note (4)) 15,000
Retained earnings at 1 April 20X3 15,200 $000 $000
5% convertible loan note (note (2)) 50,000 Equity shares of $1 each 40,000
Current tax (note (3)) 3,200 Other components of equity 20,000
5% loan note (note (1)) 20,000
Deferred tax (note (3)) 4,600
Retained earnings at 1 April 20X3 38,400
––––––– –––––––
Leasehold (15 years) property – at cost (note (2)) 45,000
722,000 722,000 Plant and equipment – at cost (note (2)) 67,500
––––––– ––––––– Accumulated depreciation – 1 April 20X3 – leasehold property 6,000
The following notes are relevant: – plant and equipment 23,500
Investments at fair value through profit or loss (note (3)) 26,500
(1) Plant and equipment is depreciated at 12½% per annum on the reducing balance basis.
Inventory at 31 March 20X4 48,000
All amortisation/depreciation of non‐current assets is charged to cost of sales.
Trade receivables 40,700
(2) On 1 April 20X3, Xtol issued a 5% $50 million convertible loan note at par. Interest is Bank 15,500
payable annually in arrears on 31 March each year. The loan note is redeemable at par Deferred tax (note (4)) 6,000
or convertible into equity shares at the option of the loan note holders on 31 March Trade payables 52,000
20X6. The interest on an equivalent loan note without the conversion rights would be Revenue 400,000
8% per annum. Cost of sales 294,000
The present values of $1 receivable at the end of each year, based on discount rates Distribution costs 26,400
of 5% and 8%, are: Administrative expenses (note (1)) 34,200
Dividend paid 10,000
5% 8% Loan note interest paid (six months) 500
End of year 1 0.95 0.93 Bank interest 200
2 0.91 0.86 Investment income 1,200
3 0.86 0.79 Current tax (note (4)) 1,400
––––––– –––––––
(3) The balance on current tax represents the under/over provision of the tax liability for
the year ended 31 March 20X3. A provision of $28 million is required for current tax 608,500 608,500
for the year ended 31 March 20X4 and at this date the deferred tax liability was ––––––– –––––––
assessed at $8.3 million.

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The following notes are relevant: 409 KANDY

(1) The 5% loan note was issued on 1 April 20X3 at its nominal (face) value of $20 million.
Answer debrief: calculate your allowed time, allocate the time to the separate parts
The direct costs of the issue were $500,000 and these have been charged to
administrative expenses. The loan note will be redeemed on 31 March 20X6 at a After preparing a draft statement of profit or loss for the year ended 30 September 20X4 and
substantial premium. The effective finance cost of the loan note is 10% per annum. adding the year’s profit (before any adjustments required by notes (1) to (3) below) to
retained earnings, the summarised trial balance of Kandy as at 30 September 20X4 is:
(2) Non‐current assets:
In order to fund a new project, on 1 October 20X3 Dune decided to sell its leasehold $000 $000
property. From that date it commenced a short‐term rental of an equivalent property. Equity shares of $1 each 40,000
The leasehold property is being marketed by a property agent at a price of $40 million, Retained earnings as at 30 September 20X4 19,500
which was considered a reasonably achievable price at that date. The expected costs Proceeds of 6% loan (note (1)) 30,000
to sell have been agreed at $500,000. Recent market transactions suggest that actual Land ($5 million) and buildings – at cost (note (2)) 55,000
selling prices achieved for this type of property in the current market conditions are Plant and equipment – at cost (note (2)) 58,500
15% less than the value at which they are marketed. At 31 March 20X4 the property
Accumulated depreciation at 1 October 20X3: buildings 20,000
had not been sold.
plant and equipment 34,500
Plant and equipment is depreciated at 15% per annum using the reducing balance Current assets 68,700
method.
Current liabilities 38,400
No depreciation/amortisation has yet been charged on any non‐current asset for the Deferred tax (note (3)) 2,500
year ended 31 March 20X4. Depreciation, amortisation and impairment charges are all Interest payment (note (1)) 1,800
charged to cost of sales.
Investments (note (4)) 2,000
(3) The investments at fair value through profit or loss had a fair value of $28 million on Current tax (note (3)) 1,100
31 March 20X4. There were no purchases or disposals of any of these investments ––––––– –––––––
during the year.
184,000 184,000
(4) A provision for income tax for the year ended 31 March 20X4 of $12 million is required. ––––––– –––––––
The balance on current tax represents the under/over provision of the tax liability for
the year ended 31 March 20X3. At 31 March 20X4 the tax base of Dune’s net assets The following notes are relevant:
was $14 million less than their carrying amounts. The income tax rate of Dune is 30%. (1) The loan note was issued on 1 October 20X3 and incurred issue costs of $1 million
(5) Dune has accounted for a fully subscribed rights issue of equity shares made on which were charged to profit or loss. Interest of $1.8 million ($30 million at 6%) was
1 January 20X4 of one new share for every four in issue at 42 cents each, when the paid on 30 September 20X4. The loan is redeemable on 30 September 20X8 at a
market value of a Dune share was 82 cents. substantial premium which gives an effective interest rate of 9% per annum. No other
repayments are due until 30 September 20X8.
Required: (2) Non‐current assets:
(a) Prepare the statement of profit or loss for Dune for the year ended 31 March 20X4, The price of property has increased significantly in recent years and on 1 October 20X3,
and the statement of financial position for Dune as at 31 March 20X4. the directors decided to revalue the land and buildings. The directors accepted the
Notes to the financial statements and a statement of changes in equity are not report of an independent surveyor who valued the land at $8 million and the buildings
required. (15 marks) at $39 million on that date. The remaining life of the buildings at 1 October 20X3 was
15 years. Kandy does not make an annual transfer to retained earnings to reflect the
(b) Using the information in note (5), calculate earnings per share for Dune for the year realisation of the revaluation gain. However the revaluation will give rise to a deferred
ended 31 March 20X4. Also, calculate the re‐stated figure for 20X3 if the EPS figure tax liability. The income tax rate of Kandy is 20%.
in the original 20X3 financial statements was 68¢ per share. (5 marks)
Plant and equipment is depreciated at 12½% per annum using the reducing balance
(Total: 20 marks)  method.
No depreciation has been charged for the year ended 30 September 20X4.
(3) A provision of $2.4 million is required for current income tax on the profit of the year
to 30 September 20X4. The balance on current tax in the trial balance is the under/over
provision of tax for the previous year. In addition to the temporary differences relating
to the information in note (2), Kandy has further taxable temporary differences of $10
million as at 30 September 20X4.

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(4) The investments in the trial balance are held at their fair value at 1 October 20X3. At The following notes are also relevant.
30 September 20X4 the value had risen to $2.6 million.
(1) On 31 March 20X5, one quarter of the 8% loan notes were redeemed at par and six
Required: months’ outstanding loan interest was paid. The suspense account represents the
debit entry corresponding to the cash payment for the capital redemption and the
(a) Prepare a schedule of adjustments required to the retained earnings of Kandy as at outstanding interest.
30 September 20X4 as a result of the information in notes (1) to (4) above.
(2) Property, plant and equipment
(9 marks)
Included in property, plant and equipment is an item of plant with a cost of $14 million
(b) Prepare the statement of financial position of Kandy as at 30 September 20X4. purchased on 1 April 20X4. However, the plant will cause environmental damage which
(11 marks) will have to be rectified when it is dismantled at the end of its five year life. The present
Note: The notes to the statement of financial position are not required. value (discounting at 8%) on 1 April 20X4 of the rectification is $4 million. The
environmental provision has been correctly accounted for, however, no finance cost
(Total: 20 marks) 
has yet been charged on the provision.
No depreciation has yet been charged on plant and equipment which should be
410 CLARION charged to cost of sales on a straight‐line basis over a five‐year life. No plant is more
After preparing a draft statement of profit or loss for the year ended 30 September 20X4 and than four years old.
adding the year’s profit (before any adjustments required by notes (1) to (5) below) to (3) The right‐of‐use plant was acquired on 1 April 20X4 under a five‐year lease with an
retained earnings, the summarised trial balance of Clarion as at 31 March 20X5 is: initial deposit of $2.3 million and annual payments of $1.5 million on 31 March each
$000 $000 year. The present value of the annual payments under the lease (excluding the initial
deposit) at 1 April 20X4 was $5.7 million, the lease has an implicit rate of interest of
Equity shares of $1 each 35,000
10%, and the right‐of‐use plant has been correctly capitalised. The lease liability in the
Retained earnings – 31 March 20X5 33,100 trial balance above represents the initial liability less the first annual payment.
8% loan notes (note (1)) 20,000
(4) The investments through profit or loss are those held at 31 March 20X5 (after the sale
Plant and equipment at cost (note (2)) 77,000
below). They are carried at their fair value as at 1 April 20X4, however, they had a fair
Right‐of‐use plant (note (3)) 8,000 value of $6.5 million on 31 March 20X5. During the year an investment which had a
Accumulated depreciation plant and equipment – 1 April 20X4 19,000 carrying amount of $1.4 million was sold for $1.6 million. Investment income in the
Investments through profit or loss – value at 1 April 20X4 (note (4)) 6,000 trial balance above includes the profit on the sale of the investment and dividends
Inventory at 31 March 20X5 11,700 received during the year.
Trade receivables 20,500 (5) A provision for current tax for the year ended 31 March 20X5 of $3.5 million is required.
Bank 1,900 At 31 March 20X5, the tax base of Clarion’s net assets was $12 million less than their
Deferred tax (note (5)) 2,700 carrying amounts. The income tax rate of Clarion is 25%.
Trade payables 9,400
Required:
Environmental provision (note (2)) 4,000
Lease liability (note (3)) 4,200 (a) Prepare Clarion’s statement of financial position as at 31 March 20X5. (15 marks)
Loan note interest paid (note (1)) 800 (b) Prepare extracts from the statement of cash flows for Clarion for the year ended
Suspense account (note (1)) 5,800 31 March 20X5 in respect of cash flows from investing and financing activities.
Investment income (note (4)) 500 (5 marks)
–––––– ––––––– Notes to the financial statements are not required.
129,800 129,800
(Total: 20 marks) 
–––––– –––––––

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(4) A provision for current tax for the year ended 30 June 20X5 of $1.2 million is required,
411 MOSTON Walk in the footsteps of a top tutor together with an increase to the deferred tax provision to be charged to profit or loss
of $800,000.
The following trial balance extracts (i.e. it is not a complete trial balance) relate to Moston (5) Moston paid a dividend of 20 cents per share on 30 March 20X5, which was followed
as at 30 June 20X5: the day after by an issue of 10 million equity shares at their full market value of $1.70.
The share premium on the issue was recorded in other components of equity.
$000 $000
Revenue 113,500 Required:
Cost of sales 88,500
(a) Prepare the statement of profit or loss and other comprehensive income for Moston
Research and development costs (note (1)) 7,800 for the year ended 30 June 20X5. (10 marks)
Distribution costs 2,800
(b) Prepare the statement of changes in equity for Moston for the year ended 30 June
Administrative expenses (note (3)) 6,800
20X5. (5 marks)
Loan note interest and dividends paid (notes (3) and (5)) 5,000
Investment income 300 (c) Prepare extracts from the statement of cash flows for Moston for the year ended 30
June 20X5 in respect of cash flows from investing and financing activities.
Equity shares of $1 each (note (5)) 30,000
(5 marks)
5% loan note (note (3)) 20,000
Retained earnings as at 1 July 20X4 6,200 Note: The statement of financial position and notes to the financial statements are NOT
required.
Revaluation surplus as at 1 July 20X4 3,000
(Total: 20 marks) 
Other components of equity 9,300
Property at valuation 1 July 20X4 (note (2)) 28,500
412 TRIAGE
Plant and equipment at cost (note (2)) 27,100
Accumulated depreciation plant and equipment 1 July 20X4 9,100 After preparing a draft statement of profit or loss (before interest and tax) for the year ended
31 March 20X6 (before any adjustments which may be required by notes (1) to (4) below),
The following notes are relevant: the summarised trial balance of Triage Co as at 31 March 20X6 is:
(1) Moston commenced a research and development project on 1 January 20X5. It spent $000 $000
$1 million per month on research until 31 March 20X5, at which date the project
Equity shares of $1 each 50,000
passed into the development stage. From this date it spent $1.6 million per month
until the year end (30 June 20X5), at which date development was completed. Retained earnings as at 1 April 20X5 3,500
However, it was not until 1 May 20X5 that the directors of Moston were confident that Draft profit before interest and tax for year ended 31 March 20X6 30,000
the new product would be a commercial success. 6% convertible loan notes (note (1)) 40,000
Expensed research and development costs should be charged to cost of sales. Property (original life 25 years) – at cost (note (2)) 75,000
Plant and equipment – at cost (note (2)) 72,100
(2) Non‐current assets:
Accumulated amortisation/depreciation at 1 April 20X5:
Moston’s property is carried at fair value which at 30 June 20X5 was $29 million. The leased property 15,000
remaining life of the property at the beginning of the year (1 July 20X4) was 15 years. plant and equipment 28,100
Moston does not make an annual transfer to retained earnings in respect of the
Trade receivables (note (3)) 28,000
revaluation surplus. Ignore deferred tax on the revaluation.
Other current assets 9,300
Plant and equipment is depreciated at 15% per annum using the reducing balance Current liabilities 17,700
method.
Deferred tax (note (4)) 3,200
No depreciation has yet been charged on any non‐current asset for the year ended Interest payment (note (1)) 2,400
30 June 20X5. All depreciation is charged to cost of sales. Current tax (note (4) 700
(3) The 5% loan note was issued on 1 July 20X4 at its nominal value of $20 million incurring ––––––– –––––––
direct issue costs of $500,000 which have been charged to administrative expenses. 187,500 187,500
The loan note will be redeemed after three years at a premium which gives the loan
––––––– –––––––
note an effective finance cost of 8% per annum. Annual interest was paid on 30 June
20X5.

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The following notes are relevant: 413 HAVERFORD CO

(1) Triage Co issued 400,000 $100 6% convertible loan notes on 1 April 20X5. Interest is Below is the trial balance for Haverford Co at 31 December 20X7:
payable annually in arrears on 31 March each year. The loans can be converted to
equity shares on the basis of 20 shares for each $100 loan note on 31 March 20X8 or $000 $000
redeemed at par for cash on the same date. An equivalent loan without the conversion Property – carrying amount 1 January 20X7 (note (4)) 18,000
rights would have required an interest rate of 8%. Ordinary shares $1 at 1 January 20X7 (note (3)) 20,000
The present value of $1 receivable at the end of each year, based on discount rates of Other components of equity (Share premium) at 1 January 20X7 (note (3)) 3,000
6% and 8%, are: Revaluation surplus at 1 January 20X7 (note (4)) 800
6% 8% Retained earnings at 1 January 20X7 6,270
End of year 1 0.94 0.93 Draft profit for the year ended 31 December 20X7 2,250
2 0.89 0.86 4% Convertible loan notes (note (1)) 8,000
3 0.84 0.79 Dividends paid 3,620
(2) Non‐current assets: Cash received from contract customer (note (2)) 3,100
The directors decided to revalue the property at $66.3m on 1 October 20X5. Triage Co Cost incurred on contract to date (note (2)) 3,600
does not make an annual transfer from the revaluation surplus to retained earnings to Inventories (note (5)) 4,310
reflect the realisation of the revaluation gain. However, the revaluation will give rise Trade receivables 5,510
to a deferred tax liability at a tax rate of 20%.
Cash 10,320
The property is depreciated on a straight‐line basis and plant and equipment at 15% Current liabilities 1,940
per annum using the reducing balance method. –––––– ––––––
No depreciation has yet been charged on any non‐current assets for the year ended 45,360 45,360
31 March 20X6. –––––– ––––––
(3) In September 20X5, the directors of Triage Co discovered a fraud. In total, $700,000 The following notes are relevant:
which had been included as receivables in the above trial balance had been stolen by
an employee. $450,000 of this related to the year ended 31 March 20X5, the rest to (1) On 1 January 20X7, Haverford Co issued 80,000 $100 4% convertible loan notes. The
the current year. The directors are hopeful that 50% of the losses can be recovered loan notes can be converted to equity shares on 31 December 20X9 or redeemed at
from their insurers. par on the same date. An equivalent loan without the conversion rights would have
required interest of 6%. Interest is payable annually in arrears on 31 December each
(4) A provision of $2.7m is required for current income tax on the profit of the year to year. The annual payment has been included in finance costs for the year. The present
31 March 20X6. The balance on current tax in the trial balance is the under/over value of $1 receivable at the end of each year, based on discount rates of 4% and 6%,
provision of tax for the previous year. In addition to the temporary differences relating are:
to the information in note (2), at 31 March 20X6 the carrying amounts of Triage Co’s
net assets are $12m more than their tax base. 4% 6%
End of year 1 0.962 0.943
Required: End of year 2 0.925 0.890
(a) Prepare a schedule of adjustments required to the draft profit before interest and End of year 3 0.889 0.840
tax (in the above trial balance) to give the profit or loss of Triage Co for the year
(2) During the year, Haverford Co entered into a contract to construct an asset for a
ended 31 March 20X6 as a result of the information in notes (1) to (4) above.
customer, satisfying the performance obligation over time. The contract had a total
(5 marks)
price of $14m. The costs to date of $3.6m are included in the above trial balance. Costs
(b) Prepare the statement of financial position of Triage Co as at 31 March 20X6. to complete the contract are estimated at $5.4m.
(12 marks)
At 31 December 20X7, the contract is estimated to be 40% complete. To date,
(c) The issue of convertible loan notes can potentially dilute the basic earnings per share Haverford Co has received $3.1m from the customer and this is shown in the above
(EPS). trial balance.
Calculate the diluted earnings per share for Triage Co for the year ended 31 March (3) Haverford Co made a 1 for 5 bonus issue on 31 December 20X7, which has not yet
20X6 (there is no need to calculate the basic EPS). (3 marks) been recorded in the above trial balance. Haverford Co intends to utilise the share
Note: A statement of changes in equity and the notes to the statement of financial premium as far as possible in recording the bonus issue.
position are not required.
(Total: 20 marks) 

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(4) Haverford Co’s property had previously been revalued upwards, leading to the balance (2) On 1 January 20X8, Duggan Co was notified that an ex‐employee had started court
on the revaluation surplus at 1 January 20X7. The property had a remaining life of 25 proceedings against them for unfair dismissal. Legal advice was that there was an 80%
years at 1 January 20X7. chance that Duggan Co would lose the case and would need to pay an estimated
$1.012m on 1 January 20X9.
At 31 December 20X7, the property was valued at $16m.
Based on this advice, Duggan Co recorded a provision of $800k on 1 January 20X8, and
No entries have yet been made to account for the current year’s depreciation charge
has made no further adjustments. The provision was recorded in operating expenses.
or the property valuation at 31 December 20X7. Haverford Co does not make an annual
transfer from the revaluation surplus in respect of excess depreciation. Duggan Co has a cost of capital of 10% per annum and the discount factor at 10% for
one year is 0.9091.
(5) It has been discovered that inventory totalling $0.39m had been omitted from the final
inventory count in the above trial balance. (3) The balance relating to tax in the trial balance relates to the under/over provision from
the prior period. The tax estimate for the year ended 30 June 20X8 is $2.1m.
Required:
In addition to this, there has been a decrease in taxable temporary differences of $2m
(a) Calculate the adjusted profit for Haverford Co for the year ended 31 December 20X7. in the year. Duggan Co pays tax at 25% and movements in deferred tax are to be taken
(6 marks) to the statement of profit or loss.
(b) Prepare the statement of changes in equity for Haverford Co for the year ended (4) Duggan Co issued $5m 6% convertible loan notes on 1 July 20X7. Interest is payable
31 December 20X7. (6 marks) annually in arrears. These bonds can be converted into one share for every $2 on
(c) Prepare the statement of financial position for Haverford Co as at 31 December 20X7. 30 June 20X9. Similar loan notes, without conversion rights, incur interest at 8%.
(8 marks) Duggan Co recorded the full amount in liabilities and has recorded the annual payment
made on 30 June 20X8 of $0.3m in finance costs.
(Total: 20 marks) 
Relevant discount rates are as follows:
414 DUGGAN CO Present value of $1 in: 6% 8%
1 year 0.943 0.926
The following extracts from the trial balance have been taken from the accounting records
2 years 0.890 0.857
of Duggan Co as at 30 June 20X8:
(5) Duggan Co began the construction of an item of property on 1 July 20X7 which was
$000 $000
completed on 31 March 20X8. A cost of $32m was capitalised. This included $2.56m,
Convertible loan notes (note (4)) 5,000 being a full 12 months’ interest on a $25.6m 10% loan taken out specifically for this
Cost of sales 21,700 construction. On completion, the property has a useful life of 20 years.
Finance costs (note (4)) 1,240
Duggan Co also recorded $0.4m in operating expenses, representing depreciation on
Investment income 120 the asset for the period from 31 March 20X8 to 30 June 20X8.
Operating expenses (notes (2) and (5)) 13,520
(6) It has been discovered that the previous financial controller of Duggan Co engaged in
Retained earnings at 1 July 20X7 35,400
fraudulent financial reporting. Currently, $2.5m of trade receivables has been deemed
Revenue (note (1)) 43,200 to not exist and requires to be written off. Of this, $0.9m relates to the year ended
Equity share capital ($1 shares) at 1 July 20X7 12,200 30 June 20X8, with $1.6m relating to earlier periods.
Tax (note (3)) 130
(7) On 1 November 20X7, Duggan Co issued 1.5 million shares at their full market price of
The following notes are relevant: $2.20. The proceeds were credited to a suspense account.
(1) Duggan Co entered into a contract where the performance obligation is satisfied over Required:
time. The total price on the contract is $9m, with total expected costs of $5m.
(a) Prepare a statement of profit or loss for Duggan Co for the year ended 30 June 20X8.
Progress towards completion was measured at 50% at 30 June 20X7 and 80% on
(12 marks)
30 June 20X8.
(b) Prepare a statement of changes in equity for Duggan Co for the year ended 30 June
The correct entries were made in the year ended 30 June 20X7, but no entries have
20X8. (5 marks)
been made for the year ended 30 June 20X8.
(c) Calculate the basic earnings per share for Duggan Co for the year ended 30 June 20X8.
(3 marks)
Note: All workings should be done to the nearest $000.
(Total: 20 marks) 

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415 VERNON CO Required:

(a) Produce a statement of profit or loss and other comprehensive income for Vernon
The following extract is from the trial balance of Vernon Co at 31 December 20X8:
Co for the year ended 31 December 20X8. (15 marks)
$000 $000
(b) Calculate the earnings per share for Vernon Co for the year ended 31 December 20X8.
Cost of sales 46,410 (5 marks)
Finance costs 4,050
(Total: 20 marks)
Investment income (note (3)) 1,520
Operating expenses (note (3)) 20,640
416 LOUDON CO
Revenue (notes (1) and (2)) 75,350
Tax (note (6)) 130 Loudon Co has prepared a draft statement of profit or loss for the year ended 30 September
20X8 (before any adjustments required by notes (1) to (4) below). The draft profit has been
The following notes are relevant: added to retained earnings and the summarised trial balance of Loudon Co as at
(1) Vernon Co made a large sale of goods on 1 July 20X8, which was also the date of 30 September 20X8 is:
delivery. Under the terms of the agreement, Vernon Co will receive payment of $8m
$000 $000
on 30 June 20X9. Currently, Vernon Co has recorded $4m in revenue and trade
receivables. The directors intend to record the remaining $4m revenue in the year Equity shares of $1 each 10,000
ended 31 December 20X9. The costs of this sale have been accounted for correctly in Retained earnings as at 30 September 20X8 (draft) 4,122
the financial statements for the year ended 31 December 20X8. Vernon Co has a cost Office building at cost 20,000
of capital of 8% at which an appropriate discount factor would be 0.9259. Factories cost 1 October 20X7 (note (2)) 40,000
(2) Vernon Co also sold goods to an overseas customer on 1 December 20X8 for Office building accumulated depreciation 1 October 20X7 4,000
12m Kromits (Kr). They agreed a 60‐day payment term. No entries have yet been made Factories accumulated depreciation 1 October 20X7 11,100
to record this sale, although the goods were correctly removed from inventory and Environmental provision 1 October 20X7 (note (3)) 1,228
expensed in cost of sales. The amount remains unpaid at 31 December 20X8. Current liabilities 34,500
Relevant exchange rates are: Current assets 14,700
1 December 20X8: 6.4 Kr/$ Proceeds of 5% loan note (note (1)) 5,000
31 December 20X8: 6.0 Kr/$ Deferred Tax 1,500
Interest paid (note (1)) 250
(3) Vernon Co acquired $9m 5% bonds at par value on 1 January 20X8 and intends to hold
them to maturity. Interest is receivable on 31 December each year. Vernon Co incurred Suspense account (note (2)) 3,500
$0.4m broker fees when acquiring the bonds, which has been expensed to operating ––––––– –––––––
expenses. These bonds are repayable at a premium so have an effective rate of 8%. 74,950 74,950
Vernon Co has recorded the interest received on 31 December 20X8 in investment ––––––– –––––––
income.
The following notes are relevant:
(4) During the year, Vernon Co revalued its head office for the first time, resulting in an
(1) Loan note
increase in value of $12m at 31 December 20X8. Deferred tax is applicable to this gain
at 25%. A 5% loan note was issued on 1 October 20X7 at its face value of $5m. Direct costs of
the issue amounted to $0.125m and were charged to profit or loss. The loan will be
(5) Vernon Co values its investment properties using the fair value model. The investment
redeemed in five years’ time at a substantial premium which gives an effective interest
properties increased in value by $4m at 31 December 20X8.
rate of 8%. The annual repayments of $250,000 ($5m at 5%) are paid on 30 September
(6) The tax figure in the trial balance represents the under/over provision from the each year.
previous year. The current tax liability for the year ended 31 December 20X8 is
estimated to be $3.2m.
(7) At 1 January 20X8, Vernon Co had 30 million $1 equity shares in issue. On 1 April 20X8,
Vernon Co issued an additional 5 million $1 equity shares at full market value. On 1 July
20X8, Vernon Co performed a 2 for 5 rights issue, at $2.40 per share. The market value
of a Vernon Co share at 1 July 20X8 was $3.10 per share.

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(2) Non‐current assets 417 MIMS CO

Loudon Co acquired an office building for $20m on 1 October 20X2 with an estimated The following is an extract from the trial balance of Mims Co for the year ended 31 December
useful life of 25 years. Depreciation is charged on a pro‐rata basis. On 1 April 20X8, the 20X5.
building was deemed to be impaired as its recoverable amount was estimated to be
$12m. At that date the estimated remaining life was revised to 12 years. Ignore the $000 $000
deferred tax consequences of this revaluation. Revenue 24,300
Cost of sales 11,600
Loudon Co had ten factories. On 1 October 20X7 Loudon Co sold one of its factories
with a carrying amount of $3m (cost $5m and accumulated depreciation $2m) for Administrative expenses 10,900
$3.5m. The only entry made in respect of the disposal is for the proceeds, which have Distribution costs 7,300
been credited to suspense. Income tax (note 3) 140
No depreciation has yet been charged on any non‐current asset for the year ended 30 Deferred tax liability 1 January 20X5 (note 3) 7,700
September 20X8. The factories are depreciated at 15% per annum using the reducing Provision at 1 January 20X5 (note 2) 4,600
balance method. Retained earnings at 1 January 20X5 43,200
(3) Environmental provision Equity share capital ($1) at 1 January 20X5 60,000
Intangible assets (note 6) 3,300
Loudon Co has an obligation to clean‐up environmental damage caused at one of its
Investment property (note 5) 19,000
factory sites during 20X7. The clean‐up is due to take place at the end of the factory's
useful life. The liability has been accounted for appropriately and the balance at 1 Finance costs 1,400
October 20X7 represents the correct present value at that date. Loudon Co has a cost Investment income 500
of capital of 5%. Suspense account 46,500
(4) Deferred tax The following information is relevant:
At 30 September 20X8, the tax written down value of property, plant and equipment (1) Mims Co noted there an error in the inventory count at 31 December 20X4, meaning
was $25m. The income tax rate applicable to Loudon Co is 20%. that the closing inventory balance in the 20X4 financial statements was overstated by
$0.7m. No entries have yet been made to correct this error.
Required:
(2) The provision relates to a court case in existence since December 20X4. Mims Co
(a) Prepare a schedule of adjustments required to the retained earnings of Loudon Co settled this case on 31 December 20X5 for $6m. The full amount was credited correctly
as at 30 September 20X8 as a result of the information in notes (1) to (4). (8 marks) to cash, with a corresponding debit entry being made in the suspense account.
(b) Prepare the statement of financial position of Loudon Co as at 30 September 20X8. (3) The income tax figure in trial balance relates to the under/over provision from the
(12 marks) previous year. The current year tax is estimated to be a tax refund of $1.2m. In addition
Note: The notes to the statement of financial position are not required. All calculations to this, the deferred tax liability at 31 December 20X5 is estimated to be $8.2m.
should be rounded to the nearest $000. (4) On 30 September 20X5 Mims Co made a 1 for 4 rights issue. The exercise price was
$3.50 per share. The proceeds were correctly accounted for in cash, with a
(Total: 20 marks) 
corresponding credit entry being made in the suspense account.
(5) Mims Co acquired an investment property for $20m cash on January 20X5 and decided
to use the fair value model to account for investment properties. As the property is
expected to have a 20‐year useful life, depreciation was recorded on this basis. The
fair value of the property at 31 December 20X5 has been assessed at S22m but no
accounting has taken place in relation to this. All depreciation and amortisation is
charged on a pro‐rata basis to administrative expenses. There were no other
acquisitions or disposals of non‐current assets.

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(6) Mims Co incurred a number of expenses in relation to brands during the year and has The following additional information is available:
capitalised the following costs as intangible assets:
(i) On 1 January 20X2 Print Co raised funds of $30m. The full amount was recorded in the
$1.3m cash was paid on 1 April 20X5 to promote one of its major brands which is nominal ledger as a bank loan. The funds actually consisted of a bank loan of $16m and
deemed to have an indefinite life. $14m from the issue of seven million $1 ordinary shares. Interest is payable on the
loan at 5% per annum. An accrual for six months interest has been included in trade
$2m cash was paid on 1 October 20X5 to acquire a brand from one of its competitors.
and other payables and recognised as a finance cost. However, the calculation of
Mims Co expect the brand to have a useful life of five years. Mims Co intend to sell it
interest was incorrectly based on the nominal ledger loan balance at 30 June 20X2.
after five years. At the point of sale it is estimated that the value of the brand will have
increased, and so no amortisation has been accounted for in the current year. (ii) Inventories at 30 June 20X2 were initially valued at a total cost of $5.7m. This includes
700 units with a cost of $1,400 per unit. In order to sell these items they need an
(7) Mims Co paid a dividend of $0.04 per share on all existing shares on 31 December
additional process that costs $400 per unit, at which point they can then be sold for
20X5, recording the dividend paid in administrative expenses.
$1,600 per unit.
Required:
(iii) At 30 June 20X2, Print Co has a contract to purchase 22,500 electrical components over
(a) Prepare the statement of profit or loss for Mims Co for the year ended 31 December the next three years at a cost of $450 each. These purchases are made at a constant
20X5. (12 marks) rate. These components are no longer required for their initial purpose but do have an
(b) Prepare the statement of changes in equity for Mims Co for the year ended alternative use, which will require additional manufacturing costs of $600 per
31 December 20X5. (5 marks) component. Thereafter, each component can then be sold for $900. Alternatively,
Print Co could cancel the contract immediately by paying a penalty of $4m. Any
(c) Prepare the following extracts from the statement of cash flows for Mims Co for the adjustment resulting from this information should be made to administration
year ended 31 December 20X5: expenses. Ignore discounting.
(i) Cash flows from investing activities (iv) On 1 July 20X1 the directors of Print Co decided to sell a piece of machinery and the
(ii) Cash flows from financing activities (3 marks) asset met the criteria to be classified as held for sale at that date. The machine, which
cost $2.4m, had a carrying amount of $1.5m at 1 July 20X1. At that date its fair value
(Total: 20 marks)  less costs to sell was $1.14m. The machine was sold for $1.1m after selling costs on
1 July 20X2. No adjustments have been made to take account of classifying the
418 PRINT CO machine as held for sale.
Print Co is a manufacturing company and has the following trial balance at 30 June 20X2: (v) Print Co's policy is to depreciate plant and machinery at 15% per annum on cost and
$000 $000 to present the depreciation charge in cost of sales.
Equity shares of $1 each 29,600 (vi) The income tax refund for the year has been estimated to be $2.53m.
Other components of equity (share premium) 15,500 Required:
Retained earnings at 30 June 20X1 11,470
Plant and machinery (note (v)) (a) Prepare the statement of profit or loss for Print Co for the year ended 30 June 20X2.
– Cost 16,200 (8 marks)
– Accumulated depreciation at 30 June 20X1 7,290 (b) Prepare the statement of financial position for Print Co as at 30 June 20X2.
Land ‐ at cost 45,000
Bank loan (repayable 20X5) (note (i)) 30,000 (12 marks)
Trade and other receivables 25,010 (Total: 20 marks) 
Trade and other payables 4,170
Cash at bank 4,700
Revenue 97,400
Production costs 60,150
Administrative expenses 29,570
Distribution costs 7,200
Finance costs 750
Inventory at 30 June 20X1 6,850
––––––– –––––––
195,430 195,430
––––––– –––––––

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Equity and liabilities

Section 6 Equity shares of 50 cents each 40,000
Retained earnings (W6) 55,152
–––––––
ANSWERS TO CONSTRUCTED 95,152
Non‐current liabilities
RESPONSE QUESTIONS – SECTION C Deferred tax (W7)
Lease liability (W5)
5,600
5,716
–––––– 11,316

Current liabilities
Trade payables 33,400
PREPARATION OF SINGLE ENTITY FINANCIAL STATEMENTS Lease liability (W5) 5,132
Current tax payable 4,500 43,032
401 PRICEWELL –––––– –––––––
Total equity and liabilities 149,500
(a) Pricewell – Statement of profit or loss for the year ended 31 March 20X9
–––––––
$000
Workings
Revenue (310,000 + 22,000 (W1) – 6,400 (W2)) 325,600
Cost of sales (W3) (255,900) (W1) Contract with customer:
––––––– (i) Overall
Gross profit 69,700
$000
Distribution costs (19,500)
Selling price 50,000
Administrative expenses (27,500)
Costs to date (12,000)
Finance costs (W5) (1,248)
Costs to complete (10,000)
–––––––
Plant (8,000)
Profit before tax 21,452
––––––
Income tax expense (700 + 4,500 – 2,800 (W7)) (2,400)
Estimated profit 20,000
–––––––
––––––
Profit for the year 19,052
(ii) Progress
–––––––
Work completed to date has been agreed at $22 million so the contract is
(b) Pricewell – Statement of financial position as at 31 March 20X9
44% complete ($22m/$50m).
Assets $000 $000
(iii) Statement of profit or loss
Non‐current assets
Property, plant and equipment (W4) 66,400 Revenue (44% × $50m) 22,000
Current assets Cost of sales: per TB 12,000
Inventory 28,200 Plant depreciation (W4) 2,000
Trade receivables 33,100 –––––– (14,000)
Contract asset (W1) 16,300 ––––––
Bank 5,500 Profit to date 8,000
–––––– 83,100 ––––––
–––––––
Total assets 149,500
–––––––

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(iv) Statement of financial position The leasehold property has 14 years useful life remaining at the beginning of the
year. The specialist plan was acquired on 1 October 20X8 and is therefore only
Revenue to date 22,000
depreciated for 6 months.
Payment from customer (5,700)
–––––– The $1.5 million revaluation surplus is credited to cost of sales (W3) in the
statement of profit or loss because this represents the partial reversal of the
Contract asset 16,300
$2.8 million impairment loss recognised in the statement of profit or loss in the
––––––
previous year ended 31 March 20X8.
(W2) Pricewell is acting as an agent (not the principal) for the sales on behalf of Trilby. (W5) Lease liability ($000)
Therefore the statement of comprehensive income should only include $1.6
million (20% of the sales of $8 million). Therefore $6.4 million ($8m – $1.6m) Balance b/f Interest 8% Payment Balance c/f
should be deducted from revenue and cost of sales. It would also be acceptable Year to 31 March 20X9 15,600 1,248 (6,000) 10,848
to show agency sales (of $1.6 million) separately as other income. Year to 31 March 20Y0 10,848 868 (6,000) 5,716
(W3) Cost of sales Finance cost to profit or loss 1,248
$000 Non‐current liability 5,716
Per question 234,500
Current liability (10,848 – 5,716) 5,132
Contract (W1) 14,000
Agency cost of sales (W2) (6,400) (W6) Retained earnings
Depreciation (W4) – leasehold property 1,800 $000
– owned plant 8,500 Balance at 1 April 20X8 44,100
– right‐of‐use asset (20,000 × 25%) 5,000 Profit for year per part (a) 19,052
Surplus on revaluation of leasehold property (W4) (1,500) Equity dividend paid per trial balance (8,000)
––––––– ––––––
255,900 Balance at 31 March 20X9 55,152
––––––– ––––––
(W4) Non‐current assets (W7) Deferred taxation
Property, plant and equipment $000
Leasehold Owned plant Right‐of‐ Specialist Total Provision required at 31 March 20X9 5,600
property & equipment use plant plant for Balance b/f per trial balance (8,400)
contract ––––––
$000 $000 $000 $000 $000 Credit to tax expense (2,800)
Valuation/cost 1 April 20X8 25,200 46,800 20,000 ––––––
Depreciation 1 April 20X8 (12,800) (5,000)
––––––
34,000
Acquisition 8,000
Depreciation charge
$25,200 × 1/14 (1,800)
$34,000 × 25% (8,500)
$8,000 × ½ × 6/12 (2,000)
$20,000 × 25% (5,000)
––––––
23,400
Revaluation surplus 1,500
–––––– –––––– –––––– –––––– ––––––
Revaluation/carrying 24,900 25,500 10,000 6,000 66,400
amount 31 March 20X9 –––––– –––––– –––––– –––––– ––––––

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ACCA marking guide (b) Keystone – Statement of financial position as at 30 September 20X1
Marks
(a) Statement of profit or loss $000 $000
Revenue 2 Assets
Cost of sales 4½ Non‐current assets
Distribution costs ½
Administrative expenses ½ Property, plant and equipment (W2) 78,000
Finance costs 1
Income tax expense 1½
–––– Current assets
Maximum 10 Inventory 56,600
––––
Trade receivables 31,150
(b) Statement of financial position
Property, plant and equipment 1½ –––––– 87,750
Right‐of‐use asset ½ –––––––
Inventory ½
Due on construction contract 2 Total assets 165,750
Trade receivables and bank ½ –––––––
Equity shares ½
Equity and liabilities
Retained earnings 1
Deferred tax 1 Equity shares of 20 cents each 50,000
Lease – non‐current liability ½ Revaluation surplus (W2) 5,600
Trade payables ½
Lease – current liability 1 Retained earnings 48,850
Current tax payable ½ (15,600 + 57,250 – 24,000 dividend paid)
–––– ––––––– 54,450
Maximum 10
–––– –––––––
Total 20 104,450
––––
Non‐current liabilities
402 KEYSTONE Deferred tax (W3) 6,900
Current liabilities
(a) Keystone – Statement of profit or loss and other comprehensive income for the year Trade payables 27,800
ended 30 September 20X1 Bank overdraft 2,300
$000 $000 Current tax payable 24,300
Revenue 377,600
Cost of sales (W1) (258,100) ––––––– 54,400
––––––– –––––––
Gross profit 119,500 Total equity and liabilities 165,750
Distribution costs (14,200)
–––––––
Administrative expenses
(46,400 – 24,000 dividend (50,000 × 5 × $2.40 × 4%)) (22,400) Workings (figures in brackets in $000)
–––––––
Profit from operations 82,900 (W1) Cost of sales
Investment income 800
$000
Finance costs (350)
––––––– Opening inventory 46,700
Profit before tax 83,350 Materials (64,000 – 3,000) 61,000
Income tax expense (24,300 + 1,800 (W3)) (26,100) Production labour (124,000 – 4,000) 120,000
–––––––
Profit for the year 57,250 Factory overheads (80,000 – (4,000 × 75%)) 77,000
Other comprehensive income Amortisation of leased property (W2) 3,000
Revaluation of leased property 8,000 Depreciation of plant (1,000 + 6,000 (W2)) 7,000
Transfer to deferred tax (W3) (2,400) Closing inventory (56,600)
––––––– 5,600
––––––– –––––––
Total comprehensive income for the year 62,850 258,100
––––––– –––––––

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The cost of the self‐constructed plant is $10 million (3,000 + 4,000 + 3,000 for ACCA marking guide
materials, labour and overheads respectively that have also been deducted from Marks
the above items in cost of sales). It is not permissible to add a profit margin to (a) Statement of profit or loss
self‐constructed assets. Revenue ½
Cost of sales 5½
(W2) Non‐current assets Distribution costs ½
Administrative expenses 1½
The leased property has been amortised at $2.5 million per annum (50,000/ Investment income 1
20 years). The accumulated amortisation of $10 million therefore represents Finance costs ½
four years, so the remaining life at the date of revaluation is 16 years. Income tax expense 1½
Other comprehensive income 1
$000 –––
Carrying amount at date of revaluation (50,000 – 10,000) 40,000 Maximum 12
–––
Revalued amount 48,000 (b) Statement of financial position
––––––– Property, plant and equipment 1
Gross gain on revaluation 8,000 Inventory ½
Trade receivables ½
Transfer to deferred tax at 30% (2,400) Equity shares ½
––––––– Revaluation surplus 1½
Net gain to revaluation surplus 5,600 Retained earnings 1½
Deferred tax 1
––––––– Trade payables & overdraft 1
The revalued amount of $48 million will be amortised over its remaining life of Current tax payable ½
16 years at $3 million per annum. –––
Maximum 8
The self‐constructed plant will be depreciated for six months by $1 million –––
($10m × 20% × 6/12) and have a carrying amount at 30 September 20X1 of Total 20
–––
$9 million. The plant in the trial balance will be depreciated by $6 million ((44.5m
– 14.5m) × 20%) for the year and have a carrying amount at 30 September 20X1
403 FRESCO
of $24 million.
In summary: (a) Fresco – Statement of profit or loss and other comprehensive income for the year
ended 31 March 20X2
$000
Leased property (48,000 – 3,000) 45,000 $000
Plant (9,000 + 24,000) 33,000 Revenue 350,000
–––––– Cost of sales (W1) (311,000)
Property, plant and equipment 78,000 –––––––
–––––– Gross profit 39,000
(W3) Deferred tax Distribution costs (16,100)
Administrative expenses (26,900 + 3,000 re fraud) (29,900)
Provision required at 30 September 20X1 ((15,000 + 8,000) × 30%) 6,900
Gain on investments (7,200 – 6,000) 1,200
Provision at 1 October 20X0 (2,700)
Finance costs (300 + 2,300 (W3)) (2,600)
–––––– –––––––
Increase required 4,200 Loss before tax (8,400)
Transferred from revaluation surplus (W2) (2,400) Income tax relief (2,400 + 200 (W4) – 800) 1,800
–––––– –––––––
Charge to statement of profit or loss 1,800 Loss for the year (6,600)
–––––– Other comprehensive income
Revaluation of leased property (W2) 4,000
–––––––
Total comprehensive losses (2,600)
–––––––

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(b) Fresco – Statement of changes in equity for the year ended 31 March 20X2 (W2) Property, plant and equipment
Share Share Revaluation Retained Total Leasehold Plant & Right‐of‐ Total
capital premium surplus earnings equity property Equipment use plant
$000 $000 $000 $000 $000 $000 $000 $000 $000
Balances at 1 April 20X1 45,000 5,000 nil 5,100 55,100 1 April 20X1 Cost b/f 48,000 47,500
Prior period adjustment (re fraud) (1,000) (1,000) Depreciation b/f (16,000) (33,500)
––––– Addition (23,000 + 2,000 deposit) 25,000
Restated balance 4,100 ––––––– –––––––
Rights share issue (see 9,000 4,500 13,500 32,000 14,000
below) Revaluation gain * 4,000
Total comprehensive losses (see (i) above) 4,000 (6,600) (2,600) –––––––
Transfer to retained (500) 500 Revaluation 36,000
earnings (W2)
Amortisation/depreciation
––––– ––––– ––––– ––––– ––––––
36,000 × 1/8 (4,500)
Balances at 31 March 20X2 54,000 9,500 3,500 (2,000) 65,000
14,000 × 20% (2,800)
––––– ––––– ––––– ––––– ––––––
25,000 × 1/5 (5,000)
The rights issue was 18 million shares (45,000/50 cents each × 1/5) at 75 cents = ––––––– ––––––– ––––––– ––––––
$13.5 million. This equates to the balance on the suspense account. This should be 31,500 11,200 20,000 62,700
recorded as $9 million equity shares (18,000 × 50 cents) and $4.5 million share
––––––– ––––––– ––––––– ––––––
premium (18,000 × (75 cents – 50 cents)).
* $500,000 (4,000/8 years) of the revaluation surplus will be transferred to
The discovery of the fraud represents an error part of which is a prior period
retained earnings (reported in the statement of changes in equity).
adjustment ($1 million) in accordance with IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors. The balance of $3m is charged to administrative (W3) Lease liability
expenses.
Balance Interest Payment Balance
Workings (figures in brackets are in $000) b/f @ 10% c/f
(W1) Cost of sales Year to 31 March 20X2 23,000 2,300 (6,000) 19,300
$000 Finance cost: $2,300
Per question 298,700
(W4) Deferred tax
Amortisation of leased property (W2) 4,500
Depreciation of right‐of‐use asset (W2) 5,000 Provision required at 31 March 20X2 (12,000 × 25%) 3,000
Depreciation of other plant and equipment (W2) 2,800 Provision at 1 April 20X1 (3,200)
––––––– ––––––
Credit (reduction in provision) to statement of profit or loss (200)
311,000
––––––
–––––––

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ACCA marking guide (b) Quincy – Statement of financial position as at 30 September 20X2
Marks
(a) Statement of profit or loss and other comprehensive income
Assets $000 $000
Revenue ½ Non‐current assets
Cost of sales 4 Property, plant and equipment (W3) 42,500
Distribution costs 1
Administrative expenses 1½ Equity financial asset investments 15,700
Gain on investment 1 –––––––
Finance costs 2
Income tax expense 2
58,200
Other comprehensive income 1 Current assets
––– Inventory 24,800
Maximum 13
––– Trade receivables 28,500
(b) Statement of changes in equity Bank 2,900
Balances brought forward ½ each 1½
Prior period adjustment 1
––––––– 56,200
Rights issue 2 –––––––
Total comprehensive income 1 Total assets 114,400
Retained earnings transfer 1½
––– –––––––
Maximum 7 Equity and liabilities
–––
Total 20 Equity shares of 25 cents each 60,000
––– Retained earnings (6,500 + 25,980 – 19,200) 13,280
–––––––
404 QUINCY 73,280
(a) Quincy – Statement of profit or loss and other comprehensive income for the year Non‐current liabilities
ended 30 September 20X2 Deferred tax (W5) 1,000
Deferred revenue (W1) 800
$000
6% loan note (W4) 24,420
Revenue (213,500 – 1,600 (W1)) 211,900
––––––– 26,220
Cost of sales (W2) (144,300)
Current liabilities
–––––––
Trade payables 6,700
Gross profit 67,600
Deferred revenue (W1) 800
Distribution costs (12,500)
Current tax payable 7,400
Administrative expenses (19,000 – 1,000 loan issue costs (W4)) (18,000)
––––––– 14,900
Loss on fair value of equity investments (17,000 – 15,700) (1,300)
–––––––
Investment income 400
Total equity and liabilities 114,400
Finance costs (W4) (1,920)
–––––––
–––––––
Profit before tax 34,280 Workings (figures in brackets in $000)
Income tax expense (1,100 + 7,400 – 200 (W5)) (8,300)
(W1) The revenue for the service must be deferred. The deferred revenue must
––––––– include the normal profit margin (25%) for the deferred work. At 30 September
Profit for the year 25,980 20X2, there are two more years of servicing work, thus $1.6 million ((600 × 2)
––––––– × 100/75) must be deferred, split equally between current and non‐current
liabilities.

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(W2) Cost of sales ACCA marking guide

Marks
$000 (a) Statement of profit or loss
Per trial balance 136,800 Revenue 1½
Depreciation of plant (W3) 7,500 Cost of sales 1½
Distribution costs ½
––––––– Administrative expenses 1½
144,300 Loss on investments 1
Investment income ½
––––––– Finance costs 1½
Income tax expense 2
(W3) Plant and equipment:
–––
$000 Maximum 10
–––
Carrying amount as at 1 October 20X1 (83,700 – 33,700) 50,000 (b) Statement of financial position
Depreciation at 15% per annum (7,500) Property, plant and equipment 1
Equity investments 1
–––––––
Inventory ½
Carrying amount as at 30 September 20X2 42,500 Trade receivables ½
––––––– Bank ½
Share capital ½
(W4) Loan note Retained earnings 1½
Deferred tax 1
The finance cost of the loan note is charged at the effective rate of 8% applied Deferred revenue 1
to the carrying amount of the loan. The issue costs of the loan ($1 million) should 6% loan note 1½
be deducted from the proceeds of the loan ($25 million) and not treated as an Trade payables ½
Current tax payable ½
administrative expense, to give an initial carrying amount of $24 million and a –––
finance cost of $1,920,000 (24,000 × 8%). The interest actually paid is $1.5 Maximum 10
million (25,000 × 6%) and the difference between these amounts, of $420,000 –––
(1,920 – 1,500), is accrued and added to the carrying amount of the loan note. Total 20
–––
This gives $24.42 million (24,000 + 420) for inclusion as a non‐current liability in
the statement of financial position.
405 ATLAS
(W5) Deferred tax
(i) Atlas – Statement of profit or loss and other comprehensive income for the year
$000 ended 31 March 20X3
Provision required as at 30 September 20X2 (5,000 × 20%) 1,000 Monetary figures in brackets are in $000
Less provision b/f (1,200)
$000
–––––– Revenue (550,000 – 10,000 in substance loan (W3)) 540,000
Credit to statement of profit or loss (200) Cost of sales (W1) (420,600)
–––––– –––––––
Gross profit 119,400
Distribution costs (21,500)
Administrative expenses (30,900 + 5,400 re directors’ bonus of 1% of
sales made) (36,300)
Finance costs (700 + 500 (10,000 × 10% × 6/12 re in substance loan)) (1,200)
–––––––
Profit before tax 60,400
Income tax expense (27,200 – 1,200 + (9,400 – 6,200) deferred tax) (29,200)
–––––––
Profit for the year 31,200
Other comprehensive income
Revaluation gain on land and buildings (W2) 7,000
–––––––
Total comprehensive income for the year 38,200
–––––––

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(ii) Atlas – Statement of financial position as at 31 March 20X3 (W2) Non‐current assets
Assets $000 $000 Land and buildings
Non‐current assets The gain on revaluation and carrying amount of the land and buildings will be:
Property, plant and equipment (44,500 + 52,800 (W2)) 97,300
$000
Current assets
Carrying amount at 1 April 20X2 (60,000 – 20,000) 40,000
Inventory (43,700 + 7,000 re in substance loan (W3)) 50,700
Revaluation at that date (12,000 + 35,000) 47,000
Trade receivables 42,200
––––––
–––––– 92,900
Gain on revaluation 7,000
Plant held for sale (W2) 3,600
––––––
––––––– Buildings depreciation (35,000/14 years) (2,500)
Total assets 193,800 Carrying amount of land and buildings at 31 March 20X3 ––––––
––––––– (47,000 – 2,500) 44,500
Equity and liabilities ––––––
Equity
Plant
Equity shares of 50 cents each 50,000
Revaluation surplus 7,000 The plant held for sale should be shown separately and not be depreciated after
1 October 20X2.
Retained earnings (11,200 + 31,200) 42,400
––––––– Other plant
99,400 Carrying amount at 1 April 20X2 (94,500 – 24,500) 70,000
Non‐current liabilities Plant held for sale (9,000 – 5,000) (4,000)
In‐substance loan from Xpede ––––––
(10,000 + 500 accrued interest (W3)) 10,500 66,000
Deferred tax 9,400 Depreciation for year ended 31 March 20X3 (20% reducing balance) (13,200)
–––––– 19,900 ––––––
Carrying amount at 31 March 20X3 52,800
Current liabilities
––––––
Trade payables 35,100
Plant held for sale:
Income tax 27,200
At 1 April 20X2 (from above) 4,000
Accrued directors’ bonus 5,400
Depreciation to date of reclassification (4,000 × 20% × 6/12) (400)
Bank overdraft 6,800
––––––
–––––– 74,500
Carrying amount at 1 October 20X2 3,600
–––––––
––––––
Total equity and liabilities 193,800
Total depreciation of plant for year ended 31 March 20X3 (13,200 + 400) 13,600
–––––––
As the fair value of the plant held for sale at 1 October 20X2 is $4.2 million, it
Workings (figures in brackets are in $000) should continue to be carried at its (lower) carrying amount, and no longer
(W1) Cost of sales depreciated.

$000 (W3) The transaction with Xpede will not be recognised as a sale. The presence of the
Per question 411,500 option suggests that control of the goods has not passed to Xpede. Therefore
this transaction will be recognised as a financial liability, with interest of 10%
Closing inventory re in substance loan (W3) (7,000)
accruing each year.
Depreciation of buildings (W2) 2,500
Depreciation of plant and equipment (W2) 13,600 As the transaction occurred partway through the year, 6 months interest
($500k) should be included within finance costs and added to the liability.
–––––––
420,600 As this is not a sale, the goods should be transferred back into inventory at the
––––––– cost of $7 million. This amount should also be deducted from cost of sales.

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ACCA marking guide (b) Moby – Statement of financial position as at 30 September 20X3
Marks
(i) Statement of profit or loss and other comprehensive income Assets $000 $000
Revenue 1 Non‐current assets
Cost of sales 3 Property, plant and equipment (W2) 73,000
Distribution costs ½
Administrative expenses 1 Current assets
Finance costs 1 Inventory 56,600
Income tax 1½
Other comprehensive income 1 Trade receivables 38,500
––– Contract asset (W1) 3,000
Maximum 9
––––––– 98,100
–––
(ii) Statement of financial position –––––––
Property, plant and equipment 2½ Total assets 171,100
Inventory 1
Trade receivables ½ –––––––
Plant held for sale (at 3,600) 1 Equity and liabilities
Retained earnings 1
Equity shares of $1 each 27,000
Revaluation surplus 1
In substance loan 1 Revaluation surplus (4,400 (W2) – 1,100 (W4)) 3,300
Deferred tax 1 Retained earnings (per (a)) 37,670
Trade payables ½
Current tax ½ ––––––– 40,970
Directors’ bonus ½ –––––––
Bank overdraft ½
67,970
–––
Maximum 11 Non‐current liabilities
––– Lease liability (W3) 16,133
Total 20
––– Deferred tax (W4) 7,100
Loan note (40,000 + 4,000 interest) 44,000
406 MOBY ––––––– 67,233
Current liabilities
(a) Moby – Statement of adjustments to retained earnings as at 30 September 20X3
Lease liability (W3) 6,897
$000 Trade payables 18,300
Retained earnings balance per trial balance 53,250 Bank overdraft 7,300
Contract with customer (W1) 2,000 Current tax payable 3,400
Depreciation: building (W2) (2,400) ––––––– 35,897
Depreciation: right‐of‐use asset (W2) (7,000) –––––––
Lease interest (W3) (2,930) Total equity and liabilities 171,100
Current year taxation provision (note (iv)) (3,400) –––––––
Deferred tax reduction (W4) 2,000
Removal of provision (W5) 150
Loan note interest ($40m × 10% (note (v))) (4,000)
–––––––
Restated retained earnings per statement of financial position 37,670
–––––––

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Workings (monetary figures in brackets in $000) (W3) Lease liability

(W1) Contract with customer Balance Interest Payment Balance
Step 1 – Overall b/f @ 10% c/f
Year to 30 September 20X3 29,300 2,930 (9,200) 23,030
$000 $000
Year to 30 September 20X4 23,030 2,303 (9,200) 16,133
Total contract revenue 25,000
Costs incurred to date 8,000 Finance cost: $2,930
Estimated costs to complete 12,000 Non‐current liability: $16,133
––––––– (20,000) Current liability: (23,030 – 16,133) $6,897
–––––––
Total contract profit 5,000 (W4) Deferred tax
––––––– $000 $000
Step 2 – Progress Provision b/f at 1 October 20X2 (8,000)
Provision c/f required at 30 September 20X3
Percentage of completion is 40% (10,000/25,000)
Temporary differences per question 24,000
Step 3 – Statement of profit or loss Revaluation of land and buildings (W2) 4,400
Revenue (40% × 25,000) 10,000 –––––––
Cost of sales (to date) (8,000) 28,400
––––––– × 25% 7,100
Profit for year 2,000 ––––––
––––––– Net reduction in provision (900)
Charged to other comprehensive income on revaluation gain
Step 4 – Statement of financial position (4,400 × 25%) (1,100)
Revenue to date 10,000 ––––––
Billed to date (7,000) Credit to profit or loss 2,000
––––––– ––––––
Contract asset 3,000 (W5) Insurance provision
–––––––
The remaining provision balance of $150,000 does not meet the criteria to be
(W2) Property, plant & equipment
recognised as a provision as there is no present obligation. The balance is
Land Building Right‐of‐ Total therefore reversed, removing the provision and increasing the retained
use plant earnings.
$000 $000 $000 $000
1 October 20X2 Cost 12,000 48,000 35,000
Accumulated depreciation (10,000) (7,000)
––––––– ––––––– –––––––
12,000 38,000 28,000
Revaluation gain 4,000 400
––––––– –––––––
Revalued amount 16,000 38,400
Depreciation charge
38,400 × 1/16 (2,400)
35,000 × 1/5 (7,000)
––––––– ––––––– ––––––– –––––––
16,000 36,000 21,000 73,000
––––––– ––––––– ––––––– –––––––

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ACCA marking guide (b) Xtol – Statement of financial position as at 31 March 20X4
Marks
Non‐current assets $000 $000
(a) Statement of adjustments to retained earnings
Retained earnings balance ½ Property, plant and equipment 98,000
Contract with customer 1 (155,500 – 43,500 – 14,000 (W1))
Depreciation: building 1
Depreciation: right‐of‐use asset 1
Current assets
Lease interest 1 Inventory 96,000
Current year tax ½ Trade receivables 103,000
Deferred tax 1
Removal of provision 1 ––––––– 199,000
Loan note interest 1 –––––––
–––
Maximum 8 Total assets 297,000
––– –––––––
(b) Statement of financial position Equity and liabilities
Property, plant and equipment 2
Inventory ½ Equity shares of $1 each 66,000
Contract asset 1 Share premium 15,000
Trade receivables ½
Equity shares ½ Other component of equity – equity option (W2) 4,050
Revaluation surplus 2 Retained earnings (15,200 + 75,624 profit for year) 90,824
Retained earnings ½
–––––––
Non‐current lease obligation 1
Deferred tax 1 175,874
Loan note 1 Non‐current liabilities
Current lease obligation ½
Bank overdraft ½ Deferred tax 8,300
Trade payables ½ 5% convertible loan note (W2) 47,126
Current tax payable ½
––––––– 55,426
–––
Maximum 12 Current liabilities
––– Trade payables 32,200
Total 20
––– Bank overdraft 5,500
Current tax payable 28,000
407 XTOL ––––––– 65,700
–––––––
(a) Xtol – Statement of profit or loss for the year ended 31 March 20X4 Total equity and liabilities 297,000
$000 –––––––
Revenue 490,000 (c) Basic earnings per share for the year ended 31 March 20X4
Cost of sales (W1) (304,600)
Profit per statement of profit or loss $75.624 million
––––––––
Weighted average number of shares (W4) 62.255 million
Gross profit 185,400
Earnings per share (75.624/62.255) 121.5¢
Operating costs (70,300)
Finance costs (900 bank + 3,676 (W2)) (4,576) Workings (figures in brackets in $000)
–––––––– (W1) Cost of sales
Profit before tax 110,524
$000
Income tax expense (3,200 + 28,000 + 3,700 (W3)) (34,900)
Cost of sales per question 290,600
––––––––
Depreciation of plant and equipment ((155,500 – 43,500) × 12½%) 14,000
Profit for the year 75,624
–––––––
––––––––
304,600
–––––––

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(W2) 5% convertible loan note There are 66 million shares at 31 March 20X4, after the 1 for 5 rights issue.
Therefore anyone who held 5 shares at the start of the year now has 6 shares,
The convertible loan note is a compound financial instrument having a debt and
and the opening number of shares would be 55 million (66 million × 5/6).
an equity component which must be accounted for separately:
Year ended 31 March Outflow 8% Present value ACCA marking guide
$000 $000 Marks
20X4 2,500 0.93 2,325 (a) Statement of profit or loss
Revenue ½
20X5 2,500 0.86 2,150 Cost of sales 1½
20X6 52,500 0.79 41,475 Operating costs ½
––––––– Finance costs 1½
Income tax expense 2
Debt component 45,950 (b) Statement of financial position
Equity component (= balance) 4,050 Property, plant and equipment 1
––––––– Inventory ½
Trade receivables ½
Proceeds of issue 50,000 Share capital ½
––––––– Share premium ½
Convertible option – Equity component 1
The finance cost for the year will be $3,676,000 (45,950 × 8%) and the carrying Retained earnings 1
amount of the loan as at 31 March 20X4 will be $47,126,000 (45,950 + 3,676 5% loan note 1½
interest – 2,500 paid). Deferred tax 1
Trade payables ½
(W3) Deferred tax Bank overdraft ½
$000 Current tax ½
(c) Calculation of opening shares 1
Provision at 31 March 20X4 8,300
Calculation of TERP 1
Balance at 1 April 20X3 (4,600) Application of fraction to first 6 months only 1
–––––– Time apportionment 1
Charge to statement of profit or loss 3,700 Use of own profit from SPL 1
–––
––––––
Total 20
(W4) Earnings per share –––

Step 1 – Theoretical ex‐rights price (TERP)

408 DUNE
5 shares @ $2.50 = $12.50
1 share @ $1.60 = $1.60
––––––
6 shares $14.10
Key answer tips
TERP = $14.10/6 = $2.35
This question contained many of the usual adjustments that you would expect with a
Step 2 – Rights fraction = 2.50/2.35 published accounts question such as depreciation and tax adjustments. You were also
Step 3 – Weighted average number of shares expected to demonstrate your knowledge of accounting for held for sale assets and financial
assets and liabilities in this time‐consuming question.
Date Number Fraction of Rights Weighted average
year fraction
6 2.50
1 April 55,000,000 /12 /2.35 29,255,319
1:5 rights 11,000,000
–––––––––
6
1 October 66,000,000 /12 33,000,000
––––––––– –––––––––
62,255,319
–––––––––

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(a) Dune – Statement of profit or loss for the year ended 31 March 20X4 Non‐current liabilities
$000 Deferred tax (W4) 4,200
Revenue (400,000 400,000 5% loan notes (W3) 20,450
Cost of sales (W1) (306,100) –––––– 24,650
–––––––– Current liabilities
Gross profit 93,900 Trade payables 52,000
Distribution costs (26,400) Accrued loan note interest (W3) 500
Administrative expenses (34,200 – 500 loan note issue costs) (33,700) Current tax payable 12,000
Investment income 1,200 –––––– 64,500
Gain on investments at fair value through profit or loss –––––––
(28,000 – 26,500) 1,500 Total equity and liabilities 203,100
Finance costs (200 + 1,950 (W3) (2,150) –––––––
–––––––– (b) Earnings per share:
Profit before tax 34,350
EPS = $25,550,000/36,594,595 (W6)) = $0.70
Income tax expense (12,000 – 1,400 – 1,800 (W4)) (8,800)
–––––––– Re‐stated 20X3 EPS = 68c × (0.74/0.82) = $0.61
Profit for the year 25,550 Workings (figures in brackets in $000)
––––––––
(W1) Cost of sales
Dune – Statement of financial position as at 31 March 20X4
$000
$000 $000
Per question 294,000
Assets
Depreciation of leasehold property (see below) 1,500
Non‐current assets
Impairment of leasehold property (see below) 4,000
Property, plant and equipment (W5) 37,400
Depreciation of plant and equipment ((67,500 – 23,500) × 15%) 6,600
Investments at fair value through profit or loss 28,000
–––––––
–––––––
306,100
65,400
–––––––
Current assets
Inventory 48,000 (W2) The leasehold property must be classed as a non‐current asset held for sale from
Trade receivables 40,700 1 October 20X3 at its fair value less costs to sell. It must be depreciated for six
months up to this date (after which depreciation ceases). This is calculated at
Bank 15,500
$1.5 million (45,000/15 years × 6/12). Its carrying amount at 1 October 20X3 is
––––––– 104,200 therefore $37.5 million (45,000 – (6,000 + 1,500)).
Non‐current assets held for sale (W2) 33,500
Its fair value less cost to sell at this date is $33.5 million ((40,000 × 85%) – 500).
–––––––
It is therefore impaired by $4 million (37,500 – 33,500).
Total assets 203,100
––––––– (W3) The finance cost of the loan note, at the effective rate of 10% applied to the
correct carrying amount of the loan note of $19.5 million, is $1.95 million. The
Equity and liabilities
issue costs must be deducted from the proceeds of the loan note as they are not
Equity an administrative expense. The interest actually paid is $500,000 (20,000 × 5%
Equity shares of $1 each 40,000 × 6/12) but a further $500,000 needs to be accrued as a current liability (as it will
Other components of equity 20,000 be paid soon). The difference between the total finance cost of $1.95 million
Retained earnings (38,400 + 25,550 – 10,000 dividend) 53,950 and the $1 million interest payable is added to the carrying amount of the loan
––––––– note to give $20.45 million (19,500 + 950) for inclusion as a non‐current liability
113,950 in the statement of financial position.

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(W4) Deferred tax ACCA marking guide

Marks
Provision required at 31 March 20X4 (14,000 × 30%) 4,200 (a) Statement of profit or loss
Less provision at 1 April 20X3 (6,000) Revenue ½
–––––– Cost of sales 2
Distribution costs ½
Credit (reduction in provision) to statement of profit or loss (1,800) Administrative expenses 1
–––––– Investment income ½
Gain on investments ½
(W5) Property, plant and equipment Finance costs 1½
Income tax expense 2
Property, plant and equipment (67,500 – 23,500 – 6,600) 37,400 –––
Maximum 7½
(W6) Weighted average number of shares –––
Statement of financial position
Step 1 – Theoretical ex‐rights price (TERP)
Property, plant and equipment ½
4 shares @ $0.82 = $3.28 Investments ½
Inventory ½
1 share @ $0.42 = $0.42 Trade receivables ½
Bank ½
Non‐current asset held for sale 1
5 shares $3.70 Equity shares ½
Retained earnings (1 for dividend) 1
TERP = $3.70/5 = $0.74
Deferred tax 1
Step 2 – Rights fraction = 0.82/0.74 5% loan note 1
Trade payables ½
Step 3 – Weighted average number of shares Accrued loan note interest ½
Current tax payable ½
Date Number of Fraction Rights Weighted –––
shares of year fraction average Maximum 7½
9 0.82
–––
1 April 32,000,000 /12 /0.74 26,594,595 (b) Number of shares at start of year 1
3
1 January 40,000,000 /12 10,000,000 TERP 1
Application of rights fraction and time apportionment 1
–––––––––– Use of own profit 1
36,594,595 Restatement of prior year 1
–––––––––– –––
Total 20
Based on 40 million shares in issue at 31 March 20X4, a rights issue of 1 for 4 on –––
1 January 20X4 would have resulted in the issue of 8 million new shares
(40 million × 1/5). Therefore there would have been 32 million shares at the start Examiners’ report
of the year.
This was a question of preparing financial statements from a trial balance with various
adjustments required. These involved the dealing with the use of the effective interest rate
for a loan, a fair value investment, an impairment of a leasehold property (including
presenting it as ‘held for sale’), and accounting for taxation. The most common errors were:
The issue costs of the loan were often ignored and calculating the finance charge at the
nominal rate of 5% instead of the effective rate of 10%. Omission of accrued interest from
current liabilities or including it at the incorrect amount.
A failure to depreciate leasehold property up to the date it became ‘held for sale', not
calculating the subsequent impairment loss, and most candidates continuing to show it as a
non‐current, rather than a current, asset.
There were many errors in the treatment of the taxation, including debiting the over
provision of the previous year’s tax instead of crediting, treating the closing provision of
deferred tax as the charge in the statement of profit or loss and confusion over SFP entries.

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409 KANDY Workings

(a) Kandy – Schedule of retained earnings of Kandy as at 30 September 20X4 (W1) Loan note
$000
$000
Retained earnings per trial balance 19,500 Proceeds 30,000
Adjustments re: Less issue costs incorrectly charged as expense (1,000)
Note (i) Add back issue costs of loan note (W1) 1,000 –––––––
Loan finance costs (W1) (2,610) Initial liability 29,000
Note (ii) Depreciation of buildings (W2) (2,600) Interest at 9% effective rate 2,610
Depreciation of plant and equipment (W2) (3,000) Less interest paid per trial balance (1,800)
Note (iii) Income tax expense (W3) (800) –––––––
Note (iv) Gain on investments at fair value through profit or 29,810
loss ($2.6m – $2m) 600 –––––––
––––––
The loan note is carried at amortised cost, calculated as above. The initial value
Adjusted retained earnings 12,090
is calculated by deducting the issue costs from the proceeds of the loan note.
––––––
Interest is always calculated using the effective rate.
(b) Kandy – Statement of financial position as at 30 September 20X4
(W2) Non‐current assets
Assets $000 $000 Land Buildings Plant & Total
Non‐current assets equipment
Property, plant and equipment (W2) 65,400 $000 $000 $000 $000
Investments at fair value through profit or loss Cost b/f 5,000 50,000 58,500
(per note (iv)) 2,600 Depreciation b/f – (20,000) (34,500)
Current assets (per trial balance) 68,700 –––––– –––––– ––––––
––––––– 5,000 30,000 24,000
Total assets 136,700 Gain on revaluation 3,000 9,000
––––––– –––––– ––––––
Equity and liabilities Revaluation 8,000 39,000
Equity Depreciation charge
Equity shares of $1 each 40,000 39,000 × 1/15 (2,600)
Revaluation surplus (12,000 – 2,400 (W2 and W3)) 9,600 24,000 × 121/2% (3,000)
Retained earnings (from (a)) 12,090 –––––– –––––– –––––– ––––––
––––––– 21,690 8,000 36,400 21,000 65,400
––––––– –––––– –––––– –––––– ––––––
61,690
Total revaluation gain is $12 million ($3m + $9m).
Non‐current liabilities
Deferred tax (W3) 4,400 (W3) Taxation
6% loan note (W1) 29,810 Income tax expense $000
––––––– 34,210 Provision for year ended 30 September 20X4 2,400
Less over‐provision in previous year (1,100)
Current liabilities (per trial balance) 38,400 Deferred tax (see below) (500)
Current tax payable 2,400 ––––––
––––––– 40,800 800
––––––– ––––––
Total equity and liabilities 136,700
–––––––

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Deferred tax $000 410 CLARION

Provision required at 30 September 20X4
4,400 (a) Clarion – Statement of financial position as at 31 March 20X5
(($10m temporary differences + $12m revaluation) × 20%)
Provision b/f at 1 October 20X3 (2,500) Assets $000 $000
–––––– Property, plant and equipment 49,000
Movement in provision 1,900 (77,000 + 8,000 – 19,000 – 17,000 (W1))
Charge to revaluation of land and buildings ($12m × 20%) (2,400) Investments through profit or loss 6,500
–––––– –––––––
Balance – credit to profit or loss above (500) 55,500
–––––– Current assets
Inventory 11,700
Trade receivables 20,500
ACCA marking guide
Marks
––––––– 32,200
(a) Schedule of retained earnings as at 30 September 20X4 –––––––
Retained earnings per trial balance 1 Total assets 87,700
Issue costs 1
Loan finance costs 2 –––––––
Depreciation charges 2 Equity
Income tax expense 2
Investments 1 Equity shares of $1 each 35,000
–––– Retained earnings (W1) 10,810
Maximum 9 –––––––
––––
(b) Statement of financial position 45,810
Property, plant and equipment 2 Non‐current liabilities
Investments 1
Current assets 1½ 8% loan notes (20,000 – 5,000 redeemed) 15,000
Equity shares ½ Deferred tax (W3) 3,000
Revaluation surplus 2
Environmental provision (4,000 + 320 (W1)) 4,320
Deferred tax 1
6% loan note 1½ Lease liability (W4) 3,747
Current liabilities (per trial balance) ½ ––––––– 26,067
Current tax payable 1
–––– Current liabilities
Maximum 11 Trade payables 9,400
––––
Lease liability (W4) 1,023
Total 20
–––– Bank overdraft 1,900
Current tax payable 3,500
––––––– 15,823
–––––––
Total equity and liabilities 87,700
–––––––
(b) Clarion – Extracts from the statement of cash flows for the year ended 31 March 20X5
$000
Cash flows from investing activities
Purchase of plant and equipment (note (ii)) (14,000)
Dividends received (W2) 300
Sale of investments (note (iv)) 1,600
Cash flows from financing activities
Redemption of loan notes (W5) (5,000)
Repayment of lease liability (2,300 + (1,500 – 570)) (W5) (3,230)

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Workings (figures in brackets in $000) ACCA marking guide

Marks
(W1) Retained earnings $000 (a) Statement of financial position
Per trial balance 33,100 Property, plant and equipment 1½
Investments through profit or loss ½
Depreciation of plant and equipment ((77,000 + 8,000) × 20%) (17,000) Inventory ½
Finance costs: 8% loan notes (800 TB + 800 suspense (W5)) (1,600) Receivables ½
Lease interest (W4) (570) Share capital ½
Retained earnings 5½
Environmental provision (4,000 × 8%) (320) 8% loan notes 1
Investment income (W2) 1,000 Deferred tax 1
Environmental provision 1
Tax: current year (3,500) Non‐current lease obligation 1
Deferred tax (W3) (300) Trade payables ½
––––––– Bank overdraft ½
Current lease obligation ½
10,810 Current tax payable ½
––––––– ––––
15
(W2) Investment income ––––
Dividends received and profit on sale per TB * 500 (b) Extract from statement of cash flows
Gains on fair value (6,500 – 6,000) 500 Purchase of property, plant and equipment ½
Sale of investments ½
–––––– Dividends received 1
1,000 Redemption of loan notes 1
Payment of lease liability 2
–––––– ––––
*Profit on sale = 200 (1,600 – 1,400), dividends received = 300 (500 – 200) 5
(W3) Deferred tax ––––
Total 20
Provision required as at 31 March 20X5 (12,000 × 25%) 3,000 ––––
Balance at 1 April 20X4 (2,700)
––––––
411 MOSTON Walk in the footsteps of a top tutor
Charge to retained earnings 300
––––––
(a) Moston – Statement of profit or loss and other comprehensive income for the year
(W4) Lease liability ended 30 June 20X5
Balance Interest Paid Balance $000
b/f at 10% c/f Revenue 113,500
$000 $000 $000 $000 Cost of sales (W1) (97,700)
Year to 31 March 20X5 5,700 570 (1,500) 4,770 –––––––
Year to 31 March 20X6 4,770 477 (1,500) 3,747 Gross profit 15,800
Distribution costs (2,800)
Interest charge $570 Administrative expenses (6,800 – 500 loan note issue costs) (6,300)
Non‐current liability $3,747 Investment income 300
Current liability (4,770 – 3747) $1,023 Finance costs (W2) (1,560)
–––––––
(W5) Elimination of suspense account Profit before tax 5,440
$000 Income tax expense (1,200 + 800) (2,000)
Cash cost of loan note redemption (20,000 × 25%) 5,000 –––––––
Profit for the year 3,440
Six months’ interest on loan note (20,000 × 8% × 6/12) 800
Other comprehensive income
–––––– Items that will not be reclassified to profit or loss
5,800 Gain on revaluation of property (29,000 – (28,500 – 1,900) (W1)) 2,400
–––––– –––––––
Total comprehensive income for the year 5,840
–––––––

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(b) Moston – Statement of changes in equity for the year ended 30 June 20X5
Share Other Revaluation Retained Total
capital components surplus earnings equity
of equity Tutorial note
$000 $000 $000 $000 $000
Balance at 1 July 20X4 20,000 2,300 3,000 6,200 31,500 Development costs can only be capitalised from the date the directors became
confident that the new product would be commercially successful, which is 1 May.
Share issue (W3) 10,000 7,000 17,000
Research of $3 million (3 months at $1 million per month) from January to March and
Total comprehensive income for the year 2,400 3,440 5,840
April’s costs of $1.6 million should be expensed, a total of $4.6m. This leaves $3.2
Dividends paid (W3) (4,000) (4,000)
million (2 months at $1.6 million per month) to be capitalised at the year end.
–––––– –––––– –––––– –––––– ––––––
Balance at 30 June 20X5 30,000 9,300 5,400 5,640 50,340 (W2) Loan interest
–––––– –––––– –––––– –––––– ––––––
$000
(c) Moston – Statement of cash flows for the year ended 30 June 20X5 5% loan note ((20,000 – 500) × 8% see below) 1,560
Cash flows from investing activities $000 ––––––
Capitalised development costs (3,200) The 5% loan note issue costs should not be charged to administrative expenses,
Investment income 300 but deducted from the proceeds of the loan, leaving an initial value of $19.5m.
Cash flows from financing activities
(W3) Dividend paid and share issue
Shares issued 17,000
Dividends paid (4,000) Note that the dividend was paid prior to the share issue and is therefore
Loan notes issued 19,500 calculated based on 20 million shares (30 million – 10 million).
$000
Dividend paid 20 million × 20¢ 4,000
––––––
Share issue: 10 million × $1.70 = $17m, split $10m capital, $7m premium.
Tutorial note
It is crucial that you know what each section of the statement of cash flows contains ACCA marking guide
so that you are able to produce extracts if required. This is likely to contain a number Marks
of figures given to you in the question, such as the loan notes and shares issued so (a) Statement of profit or loss and other comprehensive income
there is scope to pick up some simpler marks here. Revenue ½
Cost of sales 3½
Distribution ½
Workings (monetary figures in brackets in $000)
Administration 1½
(W1) Cost of sales Investment income ½
Finance costs 1½
$000 Income tax expense 1
Per trial balance 88,500 Gain on property 1
––––
Depreciation of property (28,500/15 years) 1,900 10
Depreciation of plant and equipment ((27,100 – 9,100) × 15%) 2,700 ––––
Research and development expenses (see below) 4,600 (b) Statement of changes in equity
Balances brought forward 1
–––––– Share issue 2
97,700 Comprehensive income 1
Dividend 1
––––––
––––
5
––––

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(c) Extract from statement of cash flows Non‐current liabilities

Capitalised development costs 1
Investment income ½ Deferred tax (W3) 3,960
Shares issued 1 6% convertible loan notes (W1) 38,415
Dividends paid 1
––––––– 42,375
Loan notes issued 1½
–––– Current liabilities
5 Per trial balance 17,700
––––
Total 20 Current tax payable 2,700
–––– ––––––– 20,400
–––––––
412 TRIAGE Total equity and liabilities 138,600
(a) Triage – schedule of adjustments to profit for the year ended 31 March 20X6 –––––––

$000 (c) Diluted earnings per share (W5) 28.9 cents

Draft profit before interest and tax per trial balance 30,000 Workings (monetary figures in brackets in $000)
Adjustments re:
Note:
Note (i)
Convertible loan note finance costs (W1) (3,023) The $450,000 fraud loss in the previous year is a prior period adjustment (reported in
Note (ii) the statement of changes in equity). The possible insurance claim is a contingent asset
Depreciation of property (1,500 + 1,700 (W2) (3,200) and should be ignored.
Depreciation of plant and equipment (W2) (6,600) (W1) 6% convertible loan notes
Note (iii)
The convertible loan notes are a compound financial instrument having a debt
Current year loss on fraud (700 – 450 see below) (250)
and an equity component which must both be quantified and accounted for
Note (iv) separately:
Income tax expense (2,700 + 700 – 800 (W3)) (2,600)
––––––– Year ended 31 March Outflow 8% Present
Profit for the year 14,327 factor value
––––––– $000 $000
20X6 Interest – $4m × 6% 2,400 0.93 2,232
(b) Triage– Statement of financial position as at 31 March 20X6 20X7 Interest 2,400 0.86 2,064
$000 $000 20X8 Capital + interest 42,400 0.79 33,496
Assets –––––––
Non‐current assets Debt component 37,792
Property, plant and equipment (64,600 + 37,400 (W2)) 102,000 Equity component (= balance) 2,208
Current assets –––––––
Trade receivables (28,000 – 700 fraud) 27,300 Proceeds of issue 40,000
Other current assets per trial balance 9,300 –––––––
––––––– 36,600
The finance cost will be $3,023,000 (37,792 × 8%) and the carrying amount of
–––––––
the loan notes at 31 March 20X6 will be $38,415,000 (37,792 + 3,023 – 2,400).
Total assets 138,600
–––––––
Equity and liabilities
Equity
Equity shares of $1 each 50,000
Other component of equity (W1) 2,208
Revaluation surplus (7,800 – 1,560 (W2)) 6,240
Retained earnings (W4) 17,377
––––––– 25,825
–––––––
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(W2) Non‐current assets (W4) Retained earnings

$000 Balance at 1 April 20X5 3,500
Property carrying amount at 1 April 20X5 (75,000 – 15,000) 60,000 Prior period adjustment (fraud) (450)
Depreciation to date of revaluation Adjusted profit for year (from (a)) 14,327
(1 October 20X5) (75,000 × 6/12) (1,500) –––––––
––––––– Balance at 31 March 20X6 17,377
Carrying amount at revaluation 58,500 –––––––
Gain on revaluation = balance 7,800
––––––– (W5) The maximum additional shares on conversion is 8 million (40,000 × 20/100),
giving total shares of 58 million. The notional saving in loan interest is $2.418m
Revaluation at 1 October 20X5 66,300
(3,023 (from (W1) above × 80% (i.e. after tax)), giving adjusted earnings of
Depreciation to year ended 31 March 20X6 $16.745m (14,327 + 2,418).
(66,300/19.5 years × 6/12) (1,700)
––––––– Therefore diluted EPS is $16,745,000/58,000,000 = 28.9 cents
Carrying amount at 31 March 20X6 64,600
––––––– ACCA marking guide
Marks
Prior to the revaluation annual depreciation is $3m (75,000/25 years). Therefore (a) Schedule of adjustments to profit for year ended 31 March 20X6
the accumulated depreciation at 1 April 20X5 of $15m represents five years’ Profit before interest and tax b/f ½
depreciation. At the date of revaluation (1 October 20X5), there will be a Loan finance costs 1
remaining life of 19.5 years. Depreciation charges 1½
Fraud loss ½
Of the revaluation gain, $6.24m (80%) is credited to the revaluation surplus and Income tax expense 1½
$1.56m (20%) is credited to deferred tax. –––
5
Plant and equipment –––
(b) Statement of financial position
$000 Property, plant and equipment 2½
Carrying amount at 1 April 20X5 (72,100 – 28,100) 44,000 Trade receivables 1
Depreciation for year ended 31 March 20X6 Other current assets (per trial balance) ½
Equity shares ½
(15% reducing balance) (6,600) Equity option 1
––––––– Revaluation surplus 1
Carrying amount at 31 March 20X6 37,400 Retained earnings 1½
Deferred tax 1
––––––– 6% loan note 1½
(W3) Deferred tax Current liabilities (per trial balance) ½
Current tax payable 1
Provision required at 31 March 20X6: –––
12
Revalued property and other assets (7,800 + 12,000) × 20%) 3,960 –––
Provision at 1 April 20X5 (3,200) (c) Diluted earnings per share 3
––––
–––––––
Total 20
Increase in provision 760 ––––
Revaluation of land and buildings (7,800 × 20%) (1,560)
–––––––
Balance credited to profit or loss 800
–––––––

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Examiners’ report 413 HAVERFORD CO

The question was reasonably well answered with many candidates scoring at least half marks. (a) Adjustments to Haverford Co’s profit for the year ended 31 December 20X7

In part (a) a significant number of candidates prepared a series of workings but did not $000
attempt to either summarise these or state their effect on the statement of profit or loss, Draft profit 2,250
which restricted the number of marks that could be awarded. The requirement for a schedule Convertible loan notes (W1) (135)
is an alternative approach to the preparation of a full statement of profit or loss, whilst still Contract revenue (W2) 5,600
testing key principles of profit measurement. Future candidates should ensure that they
Contract cost of sales (W2) (3,600)
avoid the common errors noted in this session:
Depreciation (W4) (720)
Some candidates did not attempt to calculate the debt component of the convertible loan Property impairment (W4) (480)
note and a few calculated interest paid at the underlying rate rather than the "coupon" rate.
Closing inventories (W5) 390
A number of candidates did not correctly split the amortisation of the leased property ––––––
between the two halves of the year and often used an incorrect remaining useful life to Revised profit 3,305
determine the amortisation charge for the second half of the year.
––––––
Many candidates did not correctly split the fraud between the amount related to the current
(b) Statement of changes in equity for the year ended 31 December 20X7
year and the remainder which related to the previous year and therefore was not relevant to
profit or loss. Share OCE Retained Reval’n Option
capital earnings surplus
Some candidates included the estimated amount the directors hoped could be recovered
from insurers. This was a contingent asset and, as many candidates correctly noted, should Balance 1 January 20X7 20,000 3,000 6,270 800 –
be ignored. Profit – from (a) 3,305
Revaluation loss (W4) (800)
Candidates’ understanding of current and deferred tax issues seems to have been a
particular problem. Bonus issue (W3) 4,000 (3,000) (1,000)
Convertible loan notes issued (W1) 424
Part (b) required the preparation of the statement of financial position incorporating figures
Dividend paid (3,620)
in the given trial balance and the adjustments from part (a). Common errors noted were:
––––– –––––– –––––– –––– ––––
Some candidates did not include the equity component of the convertible loan note as an
Balance 31 December 20X7 24,000 – 4,955 – 424
"other component of equity" and sometimes included it as a liability rather than equity.
––––– –––––– –––––– –––– ––––
A number of candidates did not reduce the revaluation surplus by the deferred tax element
or did not report the revaluation surplus at all. (c) Statement of financial position for Haverford Co as at 31 December 20X7

Candidates also incorrectly showed an incomplete (or omitted to show) deferred tax $000
provision. Assets
Non‐current assets:
Some candidates omitted the current tax liability or incorrectly adjusted it by the
underprovision for the previous year. Property (W3) 16,000
Current assets:
Part (c) required a calculation of Triage’s potential diluted earnings per share for the year.
Inventory (W5) 4,700
Many candidates either did not attempt this part of the question or made no adjustment for
dilution. As the question did not ask for the basic earnings per share no marks were awarded Trade receivables 5,510
for calculating it – the marks were specifically for the diluting adjustments. Contract asset (W2) 2,500
Cash 10,320
––––––
Total assets 39,030
––––––

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Equity and liabilities Progress: 40%

Equity: Statement of profit or loss:
Share capital 24,000
$000
Retained earnings 4,955
Revenue ($14,000 × 40%) 5,600
Convertible option 424
Cost of sales (to date) (3,600)
––––––
Total equity 29,379 ––––––
Non‐current liabilities: 2,000
Convertible loan notes (W1) 7,711 ––––––
Current liabilities: 1,940 Statement of financial position:
––––––
$000
Total equity and liabilities 39,030
Revenue recognised 5,600
––––––
Amount billed to date (3,100)
Working 1 – Convertible loan notes
––––––
Payment Discount Present value 2,500
factor ––––––
$000 $000 $000
$5.6m should be recorded in revenue, and $3.6m in cost of sales, giving an overall
20X7 320 0.943 302
increase to the draft profit of $2m. $2.5m should then be recorded in the statement
20X8 320 0.890 285 of financial position as a current asset.
20X9 8,320 0.840 6,989
Working 3 – Bonus issue
––––––
7,576 The 1 for 5 bonus issue will lead to an increase in share capital of $4m ($20m × 1/5).
Of this, $3m will be debited to other components of equity to take it to zero. The
––––––
remaining $1m will be deducted from retained earnings.
As the full amount of $8m has been taken to liabilities, adjustment required is:
Adjustment:
Dr Liability $424,000 Dr Share premium $3m
Cr Equity $424,000 Dr Retained earnings $1m
The liability is then carried at amortised cost, using the effective interest rate. Cr Share capital $4m
Balance Interest Payment Balance Working 4 – Property
b/f 6% c/f The asset should first be depreciated. $18m/25 = $720k. This should be deducted from
$000 $000 $000 $000 the draft profit and the asset, giving a carrying amount of $17,280k.
7,576 455 (320) 7,711 Dr Draft profit $720k
As only $320k has been recorded in finance costs: Cr Property $720k

Dr Finance costs $135k Then the asset should be revalued from $17,280k to $16,000k, giving a revaluation loss
of $1,280k. As the revaluation surplus is only $800k, only $800k can be debited to this,
Cr Liability $135k
with the remaining $480k being debited from the draft profit for the year.
Working 2 – Contract with customer Dr Revaluation surplus $800k
Overall contract: Dr Draft profit $480k
$000 Cr Property $1,280k
Price 14,000 Working 5 – Inventories
Costs to date (3,600) Closing inventories should be adjusted from $4,310k to $4,700k.
Costs to complete (5,400) Dr Inventories $390k
––––––
Cr Draft profit $390k
5,000
––––––

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ACCA marking guide (b) Statement of changes in equity for the year ended 30 June 20X8
Marks
Share Share Retained Convertible
(a) Convertible loan notes 1
Contract 2 capital premium earnings option
Depreciation/impairment 2 $000 $000 $000 $000
Inventory 1
Balance at 1 July 20X7 12,200 35,400
––––
6 Prior year error (1,600)
–––– ––––––
(b) Opening balances 1
Convertible loan notes 1 Restated balance 33,800
Bonus issue 2 Share issue 1,500 1,800
Profit/dividend/revaluation 2
Profit (from (a)) 4,806
––––
6 Convertible issue 180
–––– –––––– –––––– –––––– ––––––
(c) PPE 1
Contract 2 Balance at 30 June 20X8 13,700 1,800 38,606 180
Other current assets 2 –––––– –––––– –––––– ––––––
Equity ½
Convertible loan notes 2 (c) Basic earnings per share:
Current liabilities ½
–––– 4,806 Profit from (a)
8 13,200 (W7)
––––
= $0.36 per share
Total 20
–––– Working 1 – Contract
$000
414 DUGGAN CO
Revenue 2,700 (80% × $9m = $7.2m. As $4.5m (50%) in X7, X8 = $2.7m)
(a) Duggan Co statement of profit or loss for the year ended 30 June 20X8 COS 1,500 (80% × $5m = $4m. As $2.5m (50%) in X7, X8 = $1.5m)
$000 Working 2 – Court case
Revenue (43,200 + 2,700 (W1)) 45,900
As the most likely outcome is that $1.012m will be paid, this must be included in full.
Cost of sales (21,700 + 1,500 (W1)) (23,200) This is discounted to present value as the payment was not expected for 12 months.
–––––– The initial entry on 1 January 20X8 in operating expenses should be $920,000
Gross profit 22,700 (rounded), being $1.012m × 1/1.1 (or $1.012m × 0.9091). As $800,000 has been
Operating expenses (13,520 + 120 (W2) – 8 (W5) + 900 (W6)) (14,532) included, an adjustment of $120,000 is required.
–––––– This discount should then be unwound for six months, resulting in an increase in
Profit from operations 8,168 finance costs of $46,000.
Finance costs (1,240 + 46 (W2) + 86 (W4) + 640 (W5)) (2,012) Working 3 – Tax
Investment income 120
$000
––––––
Current estimate 2,100 Add to expense and current liabilities
Profit before tax 6,276
Decrease in deferred tax (500) $2m decrease in temporary differences × 25%
Income tax expense (2,100 – 500 – 130 (W3)) (1,470)
Prior year overprovision (130) Credit balance in trial balance
––––––
–––––
Profit for the year 4,806
1,470
––––––
–––––

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Working 4 – Convertible Examiners’ report

Payment Discount Present
Overall the performance on this question was reasonably good. There were, however, some
$000 factor value
common errors and weaknesses:
Year ended 30 June 20X8 300 0.926 278
Year ended 30 June 20X9 5,300 0.857 4,542 A contract, where the performance obligation was satisfied over the time, was well
attempted by most candidates. However, several candidates recorded the profit for the year
––––––
as revenue instead of recognising the revenue and costs separately. Some candidates also
Liability element 4,820 failed to spot that this contract was in the second year and recorded the total revenue and
–––––– costs to date.
The equity element is therefore $180,000, to be shown in the statement of changes in There were several variations being noted by the marking team on the accounting for the
equity. unfair dismissal. Many candidates attempted to discount the $800,000 or to include the full
Interest needs to be applied to the liability element. $4,820 × 8% = $386,000. As $1.021 million. The question had included a provision of $800,000 to date, being 80% of the
$300,000 has been recorded, an adjustment of $86,000 is required. future expected payment. However, this treatment is incorrect. In accordance with IAS 37,
the future liability should be recognised in full, but at present value (to take into account
Working 5 – Capitalised interest the liability being paid 12 months after recognition). Many candidates attempted
Of the $2.56m capitalised, 3/12 of this was after the construction was complete and discounting, but then failed to unwind the discount and recognise the subsequent finance
so should be expensed. This will lead to an increase in finance costs of $640,000. cost.

An adjustment must also be made to the depreciation, being $640,000/20 × 3/12 = Generally, the convertible loan was dealt with well. The most common mistake was where
$8,000 reduction in the depreciation charge for the year. the market rate of interest was taken to finance costs in full and candidates did not deduct
the interest already paid. Some candidates incorrectly split the convertible loan between the
Working 6 – Fraud debt and equity components using the coupon rate of interest at 6%, this was then generally
The $1.6m must be taken to retained earnings as a prior year error. The remaining accounted for correctly thereafter earning ‘own figure’ marks. For those candidates who
$0.9m will be taken to operating expenses. dealt with the convertible loan correctly, only a minority transferred the equity component
into the statement of changes in equity. Many candidates failed to discount the liability to
Working 7 – Weighted average number of shares
present value at all and made no attempt to split it. This is surprising as convertible loans
Date No. of shares Fraction Weighted average have been tested on numerous occasions. Candidates are therefore encouraged to revise this
of year number of shares topic area.
000 000 The borrowing cost treatment varied considerably with many candidates making no
1 July 20X7 12,200 4/12 4,067 adjustment for borrowing costs at all. The interest on borrowing costs must be capitalised
1 November 20X7 13,700 8/12 9,133 on a qualifying asset, but only for the period up to the date that the asset is complete. For
–––––– Duggan, interest should have been capitalised between 1 July 20X7 and 31 March 20X8 (9
13,200 months). A full 12 months’ interest had been capitalised and therefore three months’
interest needed to be removed from property, plant and equipment and allocated to finance
––––––
costs. This then had a knock‐on‐effect in the depreciation calculation which had been
overstated by Duggan. A further adjustment was then required to eliminate this excess
ACCA marking guide depreciation for the three‐month period from the date the asset was completed.
Marks
(a) Revenue and COS 2½ The share issue was also well done by the majority of candidates and recorded in the
Operating costs 3½ statement of changes in equity. Most candidates, however, did not deal with the share issue
Finance costs 3½ correctly in part (c) when asked to calculate the earnings per share for Duggan. The market
Investment income and tax 2½
––– issue of shares would require a weighted average of the share capital to be performed when
12 calculating EPS and only a small minority of candidates remembered to do this.
–––
(b) Opening balances (including error) 2 Candidates should know that all of these issues have been assessed previously by the FR
Share issue, profit, loan notes 3 examiner and so they should attempt as many past exam questions as possible for practice
––– and exposure to all possible learning outcomes.
5
–––
(c) EPS calculation 3
––––
Total 20
––––

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415 VERNON CO (W3) Bonds

(a) Statement of profit or loss and other comprehensive income The professional fees on the bonds must be added to the bond asset, and not
£000 expensed, resulting in a $0.4m decrease to operating expenses.
Revenue 75,350 + 3,407 (W1) + 1,875 (W2) 80,632 If the bonds are held at amortised cost, the following calculation will take place:
Cost of sales (46,410) b/f Interest 8% Payment c/f
–––––– $000 $000 $000 $000
Gross profit 34,222 9,400 752 (450) 10,602
Operating expenses 20,640 – 125 (W2) – 400 (W3) (20,115)
Vernon Co should record $752k in investment income. As only $450k has been
–––––– recorded, a further $302k must be added into investment income.
Profit from operations 14,107
(W4) Revaluations
Finance costs (4,050)
Investment income 1,520 + 296 (W1) + 302 (W3) + 4,000 (W4) 6,118 The $12m gain on the property used by Vernon Co must be shown in other
comprehensive income, net of the $3m deferred tax liability applicable to it.
––––––
Profit before tax 16,175 The $4m gain on investment properties must go through the statement of profit
Tax expense 130 + 3,200 (W5) (3,330) or loss, not other comprehensive income.
–––––– (W5) Tax
Profit for the year 12,845 The tax of $130k in the trial balance will represent an under‐provision, as it is a
Other comprehensive debit balance. The $3.2m tax estimate for the year should be added to this in
income order to calculate the tax expense for the year.
Gain on revaluation 12,000 – 3,000 (W4) 9,000
(b) Earnings per share
––––––
Total comprehensive income 21,845 12,845,000/41,870,689 (W1) = $0.307, or 30.7c
–––––– (W1) Weighted average number of shares
Workings: Date Number Rights fraction Period Weighted average
(W1) Sale with significant financing component 1 January 30,000,000 3.10/2.9 (W2) 3/12 8,017,241
1 April 35,000,000 3.10/2.9 (W2) 3/12 9,353,448
As the sale has a significant financing component, the initial revenue should be
1 July 49,000,000 – 6/12 24,500,000
recorded at present value, with the discount unwound and recorded as finance
income. ––––––––––
41,870,689
Therefore, the initial revenue should be $7.407m ($8m/1.08), which is taken to
––––––––––
revenue and receivables. As $4m has been already taken, a further $3.407m
must be added to revenue and receivables. (W2) Theoretical ex‐rights price
The receivable of $7.407m is then increased by 8% over the year to get to the No Price $ Value $
$8m in June 20X9. As Vernon Co has a reporting date of 31 December 20X8, six 5 3.10 15.50
months’ interest should be added. 2 2.40 4.80
$7.407m × 8% × 6/12 = $296k, which is added to receivables and finance income. –– ––––––
7 20.30
(W2) Overseas sale
–– ––––––
The sale should initially be recorded at the historic rate at the date of the
TERP = $20.30/7 = $2.90
transaction, which is $1.875m (12m Kr/6.4). This should be recorded in revenue
and receivables. The rights fraction is market value before issue/TERP (3.10/2.90) and should be
applied to all periods up to the date of the rights issue.
At 31 December 20X8, the unsettled receivable must be retranslated at the
closing rate.
12m Kr/6 = $2m. Therefore the receivable must be increased by $125k, with the
increase going through the profit or loss (although not through revenue).

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ACCA marking guide Part (b) to this question required candidates to calculate the earnings per share following a
Marks rights issue of shares made during the year. Some candidates made basic mistakes by not
(a) Revenue/cost of sales 3½ using profit after tax in their calculation or by time‐apportioning the shares incorrectly.
Operating expenses 3
Some candidates made more significant errors such as not being able to deal correctly with
Finance cost/investment income 5
Tax/other comprehensive income 3½
the weighted average of shares following a rights issue and omitted the rights issue bonus
––––
fraction altogether. Others incorrectly calculated the theoretical ex‐rights price by using the
15 nominal value of the share capital rather than the market value and issue price.
––––
(b) Earnings per share 5
416 LOUDON CO
––––
Total 20 (a) Schedule of adjusted retained earnings of Loudon as at 30 September 20X8
––––
$000
Retained earnings per trial balance 4,122
Examiners’ report Add back issue costs of loan 125
Note (i) to the question indicated that Vernon Co had incorrectly accounted for a sale with a Loan finance costs (W1) (390)
significant financing component. Candidates were expected to record the full $8 million but take Building depreciation (400 + 500) (W2) (900)
into account the time value of money. Candidates were required to adjust for the difference Impairment (W2) (3,600)
between the discounted total revenue and the amount already recorded. Factory depreciation (W2) (3,885)
Several variations were noted by the marking team including adjustments which ignored Disposal gain on factory (W2) 500
discounting all together. For those candidates who attempted to discount the revenue to present Unwinding of discount on environmental provision (61)
value, only a few then proceeded to unwind the discount for the first 12 months. Many who did (1,228 × 5%)
attempt to unwind incorrectly recorded the unwinding within finance costs rather than in finance Deferred tax adjustment (W3) (203)
income. –––––––
The initial adjustment to record goods sold to an overseas customer was well attempted with many Adjusted retained earnings (4,292)
candidates completing this adjustment correctly. Some candidates made errors by recording the –––––––
sale either in the foreign currency, or by using an incorrect exchange rate. (b) Statement of financial position as at 30 September 20X8
Many candidates failed to recognise the receivable as a monetary item and retranslate it at the $000 $000
closing rate with any gain or loss being recognised immediately in profit or loss. Non‐current assets
A significant number of candidates recorded the adjustment to bonds as financial liabilities rather Property, plant and equipment (11,500 + 22,015) (W2) 33,515
than financial assets. Many candidates correctly removed the initial direct cost of acquiring the Current assets (per TB) 14,700
bonds from administrative expenses but did not then capitalise it as part of the initial value of the –––––––
bond. Another common error for this adjustment arose when candidates adjusted the full 8% Total assets 48,215
interest in the statement of profit or loss rather than recognising the difference between this –––––––
amount and the cash received so far to date. Equity
The revaluation, which has been examined many times before, was dealt with well by the majority Equity shares $1 each (per TB) 10,000
of candidates with the gain often being recorded correctly within other comprehensive income. In Retained earnings (part (a)) (4,292)
addition to this, compared to previous examination diets, more candidates were able to correctly –––––––
deal with the deferred tax implication. 5,708
A significant number of candidates were not able to deal with the deferred tax on a revaluation, Non‐current liabilities
with many including it within the profit or loss tax expense. This adjustment has been dealt with 5% loan note (W1) 5,015
many times before and candidates are advised to revise it. Environmental provision (1,228 + 61 (part(a)) 1,289
Deferred Taxation (W3) 1,703
On the whole investment properties were dealt with well but a minority of candidates failed to deal
with this adjustment at all which was surprising as it is a relatively straightforward adjustment. ––––––– 8,007
Many candidates recorded the gain incorrectly within other comprehensive income which was Current liabilities (per TB) 34,500
disappointing to see. –––––––
Total equity and liabilities 48,215
–––––––

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Workings (W3) Deferred Tax

(W1) Loan note $000
Carrying amount of assets at 30 September 20X8 per SFP 33,515
The issue costs should be deducted from the proceeds of the loan note and not
charged as an expense. This gives the loan note an opening carrying amount of
$4,875,000 ($5,000,000 – $125,000). The finance cost of the loan note, at the Tax written down value of assets at 30 September 20X8 (25,000)
effective interest rate of 8% applied to the carrying amount of the loan, is –––––––
$390,000. The actual interest paid is $250,000 (see TB) which leaves a closing 8,515
carrying amount of $5,015,000 for inclusion as a non‐current liability in the –––––––
statement of financial position.
Deferred tax provision required at 30 September 20X8 1,703
Opening balance Finance costs Interest paid Closing balance (8,515 × 20%)
1 October 20X7 8% × opening balance 5% × principal 30 September 20X8 Deferred tax provision at 30 September 20X7 (per TB) (1,500)
$000 $000 $000 $000 –––––––
4,875 390 (250) 5,015
Deferred tax charge for year ended 30 September 20X8 203
(W2) Non‐current assets –––––––
Office Building $000
ACCA marking guide
Carrying amount at 1 September 20X7 ($20,000 – $4,000) 16,000 Marks
Depreciation to 1 April 20X8 ($20,000/25 years × 6/12) (400) (a) Adjust profit 8
––––––– (b) Statement of financial position 12
––––
Carrying amount at 1 April 20X8 15,600 Total 20
Impairment (3,600) ––––
–––––––
417 MIMS CO
Fair value at 1 April 20X8 12,000
Depreciation to 30 September 20X8 ($12,000/12 years × 6/12) (500)
–––––––
11,500
––––––– Key answer tips
Factories When creating the proforma for your answer, include the cash flow section for part (c). Then
Carrying amount at 1 September 20X7 ($40,000 – $11,100) 28,900 enter the cash flow items into (c) as you work through parts (a) and (b).
Disposal at carrying amount (3,000)
(a) Statement of profit or loss for the year ended 31 December 20X5
–––––––
Carrying amount at 1 September 20X8 25,900 $000
Revenue 24,300
Depreciation for the year to 30 September 20X8 ($25,900 × 15%) (3,885)
Cost of sales (11,600 – 700 (W2)) (10,900)
––––––– ––––––
22,015 Gross profit 13,400
––––––– Administrative expenses (W1) (9,700)
Disposal of factory Distribution costs (7,300)
Proceeds 3,500 –––––––
Carrying amount (3,000) Loss from operations (3,600)
Finance costs (1,400)
–––––––
Investment income (500 + 2,000 (W6)) 2,500
Gain on disposal 500 –––––––
––––––– Loss before taxation (2,500)
Taxation (W4) 560
–––––––
Loss for the year (1,940)
–––––––

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(b) Statement of changes in equity for the year ended 31 December 20X5 (W1) Administrative expenses
Share Share Retained $000
capital premium earnings Per trial balance 10,900
$000 $000 $000 Balance on provision (W3) 1,400
Balance at 1 January 20X5 60,000 – 43,200 Investment property depreciation (W5) (1,000)
Prior period error (W2) (700) Brand promotion (W7) 1,300
––––––– ––––––– ––––––– Brand amortisation (W7) 100
Restated balance 1 January 20X5 60,000 – 42,500 Dividend removed (W8) (3,000)
Share issue (W5) 15,000 37,500 –––––––
Loss for the year (1,940) 9,700
Dividends paid (W8) (3,000) –––––––
––––––– ––––––– ––––––– (W2) Inventory count
Balance 31 December 20X5 75,000 37,500 37,560 A restatement of the value of inventory at 31 December 20X4 would result in
––––––– ––––––– ––––––– the following adjustment to the results for the year ended 31 December 20X5:
(c) Extract from statement of cash flows for the year ended 31 December 20X5 Dr Retained earnings (on SOCIE) 700
$000 Cr Cost of sales 700
Cash flows from investing activities (W3) Provision
Purchase of brand (W7) (2,000)
Purchase of investment property (W6) (20,000) The provision has now been settled so should be removed, as should the $6
million in suspense, with the balance being written off to administrative
Investment income per TB 500
expenses.
–––––––
Net cash used in investing activities (21,500) Dr Provision 4,600
––––––– Dr Administrative expenses 1,400
Cash flows from financing activities Cr Suspense 6,000
Proceeds from issue of share capital (W5) 52,500
(W4) Tax expense
Dividends paid (W8) (3,000)
––––––– The tax expense comprises:
Net cash from financing activities 49,500 $000
––––––– Underprovision from 20X4 140
Current year estimate (1,200)
Increase in deferred tax liability (8,200 – 7,700) 500
–––––––
Tutorial note Net tax credit to SPL (560)
The workings below provide more detailed guidance to the answers shown above which were –––––––
published by the ACCA in summary form, with more detail provided within the Examiners’
Report. (W5) Rights issue

Remember that you should always provide workings for any figures not provided within the $000
question. Number of shares issued: 60,000 × ¼ = 15,000 shares
Issue proceeds 15,000 × $3.50 = 52,500
Comprising: Share capital 15,000 × $1 15,000
Share premium 15,000 × $2.50 37,500

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(W6) Investment property As a general comment, you must ensure that all trial balance items are included either in the
Mims Co has chosen to use the fair value model to account for its investment relevant working or within the financial statements themselves. It is often noted by the
property, which means that the gain or loss on the property each year should be marking team that some balances are not transferred from the trial balance into the answer
recognised in profit or loss, and the property should not be depreciated. and therefore, what are considered to be easy marks, are lost. In this question, revenue,
distribution costs and finance costs did not require adjustment as a result of the additional
Depreciation incorrectly charged on the property is $20m × 1/20 = $1 million. information and could be transferred directly to the statement of profit or loss. Including
This should be removed from administrative expenses and added back to the these balances in this statement attracted marks from the marking scheme. Similarly, the
investment property. share capital and retained earnings in the trial balance at 1 January 20X5 could have been
The gain on the property to be recognised is $22m – $20m = $2 million. included in the opening balances on the statement of changes in equity.
(W7) Brands It is important to note that you do not have to deal with the adjustments in the order
The cost of promoting one of Mim Co’s own brands would represent an presented in the question, although this is a logical approach and will ensure you do not miss
internally generated intangible and so should not be capitalised. The cost of $1.3 out any required adjustments. However, in this question you may, for example, be most
million should therefore be written off to administrative expenses. confident in adjusting for income tax and deferred tax at note (3) and be less confident with
intangible assets in note (6). Dealing with the adjustments that you are most familiar with
The brand acquired on 1 October 20X5 for $2 million should be amortised over
first may ease you into the question and help to stop panic setting in.
its expected life of five years. Amortisation to be charged to administrative
expenses is $2m × 1/5 × 3/12 = $100,000. Inventory
Many candidates recognised that an adjustment was required to cost of sales, but some
(W8) Dividend
added the adjustment on in error. This was generally due to candidates misreading the
The dividend was paid on 31 December 20X5 and would therefore have included scenario and thinking that the error related to the 20X5 closing balances, as most candidates
the shares from the rights issue. that did this failed to go on and adjust opening retained earnings in the statement of changes
The dividend paid was (60,000 + 15,000) × $0.04 = $3 million. This should be in equity.
removed from administrative expenses and deducted from retained earnings on Investment property
the SOCIE. Many candidates failed to reverse the incorrect depreciation and simply recorded a gain of
ACCA marking guide $3m, being the difference between the fair value of $22m and the incorrect carrying amount
Marks on the trial balance of $19m.
(a) Statement of profit or loss 12
It is important to note that gains (or losses) on investment property must be recorded in
Statement of changes in equity 5
profit or loss and not in other comprehensive income. Many candidates did this and were not
Extracts from statement of cash flows 3
able to score full marks as a result.
––––
Total 20 Brand names
–––– Many candidates who recognised the need for amortisation often calculated a full year. Some
merit was awarded for this, but for full marks the expense had to be time apportioned.
Extract from examiners’ report (for detailed report see ACCA website) Dividend
Mims Co is a typical example of a single entity accounts preparation question from section C Many candidates unfortunately calculated the dividend based on the opening share capital,
of the exam. In this type of question, you will be provided with a trial balance (or an extract which was incorrect. Some merit was awarded where the correct adjustment took place.
from a trial balance) and some additional information that will require adjustments in Overall, the preparation of financial statements is an integral part of the FR syllabus and is
accordance with relevant IFRS Standards and accounting principles. something that should be practised. Please ensure that you attempt to use the ACCA Practice
Question requirements will vary, but you can expect to be asked to prepare a mixture of a Platform on the ACCA website so that you get used to completing your answer on a
statement of profit or loss and other comprehensive income, a schedule of adjustments to spreadsheet. It is vital that you show all workings. If you use the functionality of the
profit, a statement of changes in equity, a statement of financial position, or a specific extract spreadsheet, markers will be able to view your workings within the cell. If you do not use the
from the financial statements such as, ‘financing activities’ from the statement of cash flows. spreadsheet to calculate your figures, you must ensure that you set out all workings and
Before you attempt this question, make sure you are clear on what the requirement is asking calculations so that the marker is able to follow through what you have done and award
for. There is no point in, for example, preparing a statement of financial position when the marks accordingly.
requirement has not asked for this. Providing additional statements that are not required On a final note, when completing this question, don’t forget to make sure that all trial balance
wastes valuable time and will not attract any marks. items have been used or transferred into the relevant statements, and when asked to
From an exam technique perspective, it is advised that you set up the answer/layout for the prepare a statement of changes in equity, ensure that you transfer the profit for the year into
requirements first. For example, for Mims Co, lay out the working for the statement of profit retained earnings.
or loss, the statement of changes in equity and the statement of cash flow extracts within
the spreadsheet. Leave a couple of rows between each statement so that it is easy for the
marker to distinguish between where one statement ends, and another begins.

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418 PRINT CO Equity and liabilities

Equity
All figures are in $000 unless stated otherwise.
Ordinary share capital (29,600 + 7,000 (W7)) 36,600
(a) Statement of profit or loss for the year ended 30 June 20X2 Other components of equity (15,500 + 7,000 (W7)) 22,500
$000 Retained earnings (11,470 – 4,525) 6,945
Revenue 97,400 –––––– 66,045
Cost of sales (W1) (63,910) Non‐current liabilities
––––––– Bank loan (30,000 – 14,000 (W7)) 16,000
Gross profit 33,490 Provisions (W5) 2,250
Distribution costs (7,200) –––––– 18,250
Administrative expenses (29,570 + 3,375 (W5)) (32,945) Current liabilities
––––––– Trade and other payables (4,170 – 350 (W4)) 3,820
Profit from operations (6,655) Provisions (W5) 1,125
Finance costs (750 – 350 (W4)) (400) –––––– 4,945
––––––– ––––––
Loss before tax (7,055) Total equity and liabilities 89,240
Income tax refund 2,530 ––––––
––––––– (W1) Cost of sales
Net loss for the period (4,525)
$000
–––––––
Opening inventory 6,850
(b) Statement of financial position as at 30 June 20X2 Production costs 60,150
$000 $000 Less closing inventory (W6) (5,560)
Assets Depreciation charge (W2) 2,070
Non‐current assets Held for sale asset impairment (W3) 400
Property, plant and equipment (W2) 50,340 ––––––
Current assets 63,910
Inventories (W6) 5,560 ––––––
Trade and other receivables 25,010 (W2) Property, plant and equipment
Taxation 2,530 Plant and
Bank 4,700 Land machinery Total
–––––– $000 $000 $000
37,800 Cost
Brought forward 45,000 16,200 61,200
Non‐current assets held for sale (W3) 1,100
HFS asset – (2,400) (2,400)
–––––– 38,900
–––––– ––––––– ––––––
–––––– 45,000 13,800 58,800
Total assets 89,240 Accumulated depreciation
–––––– Brought forward – (7,290) (7,290)
Charge for the year
(13,800 × 15%) – (2,070) (2,070)
HFS asset accumulated depreciation
(2,400 – 1,500) – 900 900
–––––– –––––– ––––––
– (8,460) (8,460)
–––––– –––––– ––––––
Carrying amount 45,000 5,340 50,340
–––––– –––––– ––––––

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(W3) Held for sale asset (W5) Onerous contract

$000 $000
Carrying amount at 1 July 20X1 1,500 Price per unit 450
Fair value less costs to sell at 30 June 20X2 (1,100) Costs of conversion 600
––––– –––––
Impairment loss to be recognised in the year ended 30 June 20X2 400 Total cost 1,050
––––– Net realisable value 900
–––––
Loss per unit (150)
–––––
$000
Tutorial note
Loss on fulfilling contract ($150 × 22,500 units) 3,375
A non‐current asset classified as held for sale (i.e. a held for sale asset) should be measured
at the lower of its carrying amount and fair value less costs to sell. The fair value less costs –––––
to sell at 30 June 20X2 will be the same as the net sales proceeds received on 1 July 20X2. Loss expected in the next 12 months (current) (3,375 × 1/3 years) 1,125
The above working simplifies this to a single adjustment since no accounting has been Loss expected beyond 12 months (non‐current) (3,375 – 1,125) 2,250
done to date, but it could also be shown as:
–––––
$000 $000 3,375
Carrying amount at 1 July 20X1 1,500 –––––
Impairment (360) 360
–––––
Fair value less costs to sell at 1 July 20X1 1,140
Further impairment required (40) 40 Tutorial note
––––– As the loss on fulfilling the contract ($3.375m) is lower than the cost of cancelling the
Fair value less costs to sell at 30 June 20X2 contract ($4m), a loss of $3.375m should be provided for.
(using net proceeds received on 1 July 20X2) 1,100
(W6) Inventory
––––– ––––
Total impairment for year ended 30 June 20X2 400 $000
–––– Cost of units requiring modification $1,400 × 700 units 980
Net realisable value of units
(W4) Finance costs requiring additional modification ($1,600 – $400) × 700 units (840)
–––––
$000
Inventory write down required 140
Included in TB (30,000 × 5% × 6/12) 750
–––––
Correction of error (14,000 × 5% × 6/12) (350)
Closing inventory (note 2) 5,700
–––––
Inventory write down (140)
400
–––––
–––––
Adjusted closing inventory 5,560
–––––
(W7) Correction of share issue and bank loan $000
Share capital 7,000 share × $1 7,000
Share premium 14,000 proceeds – 7,000 share
(other components of equity) capital 7,000
––––––
Proceeds received incorrectly included as part of the bank loan 14,000
––––––

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ACCA marking guide NRV is lower and therefore the original estimate of $5.7m included 700 units that are
Marks overstated by $200 per unit ($1,400 – $1,200) and therefore an inventory write‐down of
Print Co $140,000 is required (700 units × $200). Candidates can then adjust the cost of sales and
(a) Statement of profit or loss 8 closing inventory to record $5.56m of closing inventories ($5.7m – $140,000).
–––
(iii) Contract to purchase electrical components
(b) Assets 6
Equity and liabilities 6 This is an example of an onerous contract, where the unavoidable costs of fulfilling the
––– contract exceed any revenues expected to be received from the sale of the goods. Per IAS 37
12 Provisions, Contingent Liabilities and Contingent Assets, if an entity has a contract that is
––– onerous, the present obligation under the contract should be recognised as a provision.
Total 20
––– Many candidates incorrectly recognised a provision for the penalty costs of $4m. Whilst some
credit was awarded for this, the provision should be recorded at the lower of the costs of
fulfilling the contract or penalties from failure to fulfil the contract.
Extract from examiners’ report (for detailed report see ACCA website)
The provision created relates to the next three years and should therefore be split between
Print Co is a typical example of a single entity accounts preparation question from section C
its non‐current and current liability.
of the exam. In this type of question, candidates are provided with a trial balance (or an
extract from a trial balance) and some additional information that will require adjustments (iv) Held for sale machinery
to be made in accordance with relevant IFRS Standards and accounting principles. In accordance with IFRS 5 Non‐current Assets Held for Sale and Discontinued Operations, the
From an exam technique perspective, it is advised that you set up the answer/layout for the machine should be removed from property, plant and equipment and recorded as a separate
requirements first. For example, for Print Co, lay out the working for the statement of profit class of assets at the lower of carrying amount or fair value.
or loss and the statement of financial position within the response area. Leave a space In this question, there was an added complication that candidates were told the fair value of
between each statement so that it is easy for the marker to distinguish between where one the machine on 1 July 20X1 (the date that the held for sale criteria were met) and the actual
statement ends and another begins. selling price on 1 July 20X2. Some candidates incorrectly used the fair value at 1 July 20X1,
As a general comment, you must ensure that all trial balance items are included either in but own figure marks were awarded thereafter.
the relevant working or within the financial statements themselves. It is often noted by the To correctly adjust for the held for sale machinery, candidates should remove the carrying
marking team that some balances are not transferred from the trial balance into the answer amount from property, plant and equipment and then compare carrying amount and fair
and therefore, what are considered to be easy marks, are lost. value to determine the appropriate amount to recognise as a held for sale asset:
It is important to note that you do not have to deal with the adjustments in the order (v) Depreciation
presented in the question, although this is a logical approach and will ensure you do not miss
The depreciation calculation was relatively straightforward and was correctly calculated by
out any required adjustments. For example, in this question you may be most confident in
many candidates. However, to correctly calculate the depreciation expense for the year,
adjusting for depreciation in note (v) and be less confident with the bank loan/share issue in
candidates needed to remove the held for sale asset from the plant and machinery cost in
note (i). Dealing with the adjustments that you are most familiar with first could help to ease
the trial balance. Some candidates overlooked this part of the calculation but were able to
you into the question and stop panic setting in.
correctly adjust the financial statements thereafter using their own figure.
(i) Bank loan/Share issue
A number of candidates incorrectly calculated depreciation on a reducing balance basis. In
Most candidates were able to recognise that the bank loan in the trial balance was overstated this instance, candidates would not have been awarded any related marks within cost of sales
and needed to be reduced by $14m. The correcting entry for the share issue was sometimes but own figure marks applied within the statement of financial position.
confused and many candidates simply added $14m on to share capital. Whilst this did attract
(vi) Income tax refund
some credit, the correct adjustment needed to be split between share capital and share
premium. The question specifically stated that income tax for the year was estimated at $2.53m and
that this is a tax refund. Despite this, many candidates incorrectly treated this as an expense
Having corrected the original error, candidates then needed to recognise that an error had
in the statement of profit or loss and a liability in the statement of financial position.
also been made when recording the loan interest accrual as this had incorrectly been based
Unfortunately, these candidates were not awarded the marks for a relatively straight forward
on the full $30m.
adjustment.
(ii) Inventories
Where you are provided with a spreadsheet response option, if you use the functionality of
Many candidates incorrectly recorded closing inventory at $5.7m. This note states that the spreadsheet, markers will be able to view your workings within the cell. If you do not use
included within this amount are 700 units recorded at a cost of $1,400 per unit. However, the spreadsheet to calculate your figures, you must ensure that you set out all workings and
before the goods can be sold, an additional $400 per unit will be incurred. Candidates are calculations so that the marker is able to follow through what you have done and award
advised to calculate cost and compare to the NRV before recording closing inventory. marks accordingly.
Cost $1,400
NRV ($1,600 – $400) $1,200

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4 On 1 July 20X1 the directors of Print Co decided to sell a piece of machinery and the The following information is also relevant:
asset met the criteria to be classified as held for sale at that date. The machine, which
1 Until 1 January 20X5, Sphinx Co held land and buildings at cost. On 1 January 20X5
cost $2.4m, had a carrying amount of $1.5m at 1 July 20X1. At that date its fair value
Sphinx Co had them valued at $250m, of which $80m related to the land. No entries
less costs to sell was $1.14m. The machine was sold for $1.1m after selling costs on
have yet been made to incorporate this valuation. The buildings have a remaining
1 July 20X2. No adjustments have been made to take account of classifying the
useful life of 20 years as at 1 January 20X5.
machine as held for sale.
Deferred tax on the revaluation is calculated at 20%.
5 Print Co's policy is to depreciate plant and machinery at 15% per annum on cost and
to present the depreciation charge in cost of sales. Sphinx Co has a policy to make an annual reserve transfer in respect of the additional
depreciation charged each year. Prior to the revaluation the buildings were being
6 The income tax refund for the year has been estimated to be $2.53m.
depreciated over 50 years on a straight‐line basis.
Required: Plant and equipment is depreciated at 15% per annum using the reducing balance
method.
(a) Prepare the statement of profit or loss for Print Co for the year ended 30 June 20X2.
(8 marks) No depreciation for any assets has been charged in the year.
(b) Prepare the statement of financial position for Print Co as at 30 June 20X2. 2 On 31 October 20X5 Sphinx Co acquired inventory from an overseas supplier on credit
(12 marks) for 40m Dinars. The invoice was paid in full on 25 January 20X6.
(Total: 20 marks)  Sphinx Co had correctly recorded the purchase on 31 October 20X5, but no further
entries have been made at the year‐end.
429 SPHINX CO The following exchange rates are relevant:
The following trial balance was extracted from the accounting records of Sphinx Co as at 31 October 20X5: $1=4 Dinars
31 December 20X5: 31 December 20X5: $1=5 Dinars
$000 $000 25 January 20X6: $1=4.8 Dinars
Land and buildings at cost (land $50m) – note 1 200,000
3 Interest on the loan notes is paid every six months with the next payment due on
Plant and equipment at cost – note 1 320,000
1 January 20X6. The draft profit before taxation figure in the trial balance includes the
Accumulated depreciation at 1 January 20X5 first interest payment on the 7% loan notes made on 1 July 20X5.
– Buildings 90,000
4 A provision for income tax of $30m is required for the year ended 31 December 20X5.
– Plant and equipment 111,200
The balance on current tax represents the under/over provision of tax for the year
Inventory at 31 December 20X5 115,000 ended 31 December 20X4.
Trade and other receivables 130,000
5 On 1 September 20X5 Sphinx Co made a 1 for 5 rights issue at $1.25 per share. The
Trade and other payables – note 2 70,500
rights issue was correctly accounted for on 1 September 20X5 and the shares are
Bank 16,200 included in the trial balance above.
Current tax payable – note 4 2,500
7% 20X9 loan notes – note 3 30,000 Required:
Equity shares of $1 each – note 5 120,000 (a) Prepare a schedule of adjusted profit for the year ended 31 December 20X5.
Share premium – note 5 5,000 (4 marks)
Retained earnings – 1 January 20X5 158,150 (b) Prepare Sphinx Co's statement of changes in equity for the year ended 31 December
Draft 20X5 profit before taxation 166,450 20X5. (6 marks)
––––––– –––––––
(c) Prepare the statement of financial position of Sphinx Co as at 31 December 20X5.
767,500 767,500 (10 marks)
––––––– –––––––
(Total: 20 marks) 
The draft 20X5 profit before taxation figure in the above trial balance has been calculated
before any adjustments that may be required from notes 1 to 5 below.

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430 GIBRALTAR CO 6 The share capital at 1 November 20X2 comprised 1,800,000 ordinary shares of
$0.50 each. On 1 February 20X3, Gibraltar Co made a 1 for 5 rights issue for $1 per
The following is an extract from the draft trial balance of Gibraltar Co as at 31 October 20X3: share. The market price of existing shares prior to the rights issue was $1.60. No
$ $ adjustment has been made for the rights issue.
Land – carrying amount at 31 October 20X3 800,000 7 On 1 September 20X3, the company declared a final ordinary dividend of $0.10 per
Buildings – carrying amount at 31 October 20X3 476,000 share to all existing shareholders. This was paid on 30 September 20X3 and was
Investments – fair value through profit or loss (FVTPL) 178,400 recognised in the 'Suspense account'.
Investments – fair value through other comprehensive income
120,000 Required:
(FVTOCI)
Share capital at 1 November 20X2 900,000 (a) Prepare the statement of profit or loss and other comprehensive income for
Share premium at 1 November 20X2 500,000 Gibraltar Co for the year ended 31 October 20X3. (12 marks)
Revaluation surplus (Investments) at 1 November 20X2 32,514 (b) Prepare the statement of changes in equity for Gibraltar Co for the year ended
Retained earnings at 1 November 20X2 436,607 31 October 20X3. (5 marks)
Revenue 3,765,505 Gibraltar Co reported a basic earnings per share (EPS) for the year ended 31 October
Cost of sales 2,446,577 20X2 of $0.20 per share.
Distribution costs 116,166
(c) Restate the basic EPS at 31 October 20X2 to take account of the rights issue made
Administrative expenses 127,713 during the year ended 31 October 20X3. (3 marks)
Other income 15,151
(20 marks)
Income tax expense for the year ended 31 October 20X3 428,000

The following information should also be taken into account:

1 In October 20X3, Gibraltar Co received $350,000 from a customer for arranging the
provision of maintenance services. This has been recorded as revenue. Gibraltar Co
does not provide the maintenance services itself but, instead, uses a third party.
Gibraltar Co retains 12% of the amount received as commission and pays the balance
to the third party one month in arrears.
2 The year‐end inventory count was performed a day early, on 30 October 20X3, and
was correctly recorded in the draft trial balance. On 31 October 20X3, Gibraltar Co
made sales of $12,035 which were also correctly recorded, however, the inventory
records were not updated. Gibraltar Co applied a markup of 30% on these goods.
3 During the year ended 31 October 20X3, one of the FVTPL investments which had a
carrying amount of $62,000 was sold for $59,000. The proceeds have been deducted
from the year‐end balance of these investments, however, any gain or loss on disposal
should have been recorded in administrative expenses. The remaining investments in
this classification had a fair value of $184,300 at 31 October 20X3 which still needs to
be recognised. Any gain or loss on revaluation should be recorded in other income.
4 The fair value of FVTOCI investments includes a purchase made during the year. The
costs of $8,000 associated with this purchase were charged to administrative
expenses. At 31 October 20X3, the fair value of the FVTOCI investments was $124,750
which is still to be recognised.
5 Gibraltar Co has made a decision to measure land and buildings at fair value for the
first time. At 31 October 20X3, the fair value of the land was $1,000,000 and the fair
value of buildings was $700,000. No adjustment has been made to reflect the
revaluation or the related deferred tax. The relevant tax rate is 21%.

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429 SPHINX CO Equity and liabilities

Equity (see (b))
(a) Schedule of adjustment to profit for the year ended 31 December 20X5
Share capital 120,000
$000
Share premium 5,000
Draft profit before tax per trial balance 166,450
Retained earnings 258,730
Depreciation charge (W1):
Revaluation surplus 106,500
Buildings (8,500)
––––––––
Plant and equipment (31,320)
490,230
Foreign exchange gain (W2) 2,000
Non‐current liabilities
Accrued finance costs on loan notes (W3) (1,050)
7% 20X9 loan notes 30,000
Income tax expense:
Deferred tax liability (W1) 28,000
20X4 under‐provision (2,500)
–––––––– 58,000
20X5 provision (30,000)
Current liabilities
––––––––
Trade and other payables ($70,500 – $2,000 (W2) + $1,050 (W3)) 69,550
Profit for the year 95,080
Current tax payable 30,000
––––––––
Bank overdraft 16,200
(b) Statement of changes in equity for the year ended 31 December 20X5 –––––––– 115,750
Share Share Retained Revaluation Total ––––––––
capital premium earnings surplus Total equity and liabilities 663,980
$000 $000 $000 $000 $000 ––––––––
At 1 January 20X5 100,000 158,150 258,150
Workings:
Share issue (W4) 20,000 5,000 25,000
Total comprehensive income 95,080 112,000 207,080 (W1) Property, plant and equipment
(Part (a) and W1) Land Buildings Plant and
Reserves transfer (W1) 5,500 (5,500) equipment
––––––– ––––––– –––––––– –––––––– –––––––– $000 $000 $000
At 31 December 20X5 120,000 5,000 258,730 106,500 490,230 At 1 January 20X5:
––––––– ––––––– –––––––– –––––––– –––––––– Cost 50,000 150,000 320,000
Accumulated depreciation – (90,000) (111,200)
(c) Statement of financial position as at 31 December 20X5
––––––– ––––––– –––––––
$000 $000 50,000 60,000 208,800
Assets Revaluation increase 30,000 110,000
Non‐current assets ––––––– –––––––
Property, plant and equipment (W1: 80,000 + 161,500 + 177,480) 418,980 Fair value 80,000 170,000
Current assets 20X5 depreciation charge:
Inventories 115,000 170,000/20 years (8,500)
Trade receivables 130,000 208,800 × 15% (31,320)
–––––––– 245,000 ––––––– ––––––– –––––––
–––––––– At 31 December 20X5 80,000 161,500 177,480
Total assets 663,980 ––––––– ––––––– –––––––
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Revaluation surplus: 430 GIBRALTAR CO

$000
(a) Statement of profit or loss and other comprehensive income
Revaluation gain as above ($30,000 + $110,000) 140,000
$
Deferred tax (non‐current liability) at 20% (28,000)
Revenue (3,765,505 – 308,000 (W1)) 3,457,505
–––––––
Cost of sales (2,446,577 + 9,258 (W2)) (2,455,835)
Other comprehensive income 112,000
––––––––––
–––––––
Gross profit 1,001,670
Annual reserves transfer:
Distribution costs (116,166)
$000 Administrative expenses (127,713 + 3,000 (W3) – 8,000 (W4)) (122,713)
Revalued depreciation, as above 8,500 ––––––––––
Previous depreciation ($150,000/50 years) (3,000) Operating profit 762,791
––––––– Investment income (15,151 + 8,900 (W3)) 24,051
5,500 ––––––––––
––––––– Profit before tax 786,842
Or Building revaluation gain $110,000/20 years = $5,500 Income tax expense (428,000)
(W2) Foreign transaction ––––––––––
Dinars ’000 Rate $000 Profit for the year 358,842
31 October 20X5 40,000 4 10,000 Other comprehensive income:
31 December 20X5 40,000 5 8,000 Loss on revaluation of investments (W4) (3,250)
–––––– Gain on revaluation of land and buildings (W5) 334,960
Foreign exchange gain 2,000 ––––––––––
–––––– Total comprehensive income for the year 690,552
––––––––––
(W3) Accrued finance costs on loan notes
(b) Statement of changes in equity
Accrued finance costs = $30,000 × 7% × 6/12 months = $1,050
Property,
(W4) Share issue: one‐for‐five rights issue Investment plant, eqpt
’000 Share Share revaluation revaluation Retained
31 December 20X5 number of shares (including rights issue) 120,000 capital premium surplus surplus earnings
Rights shares issued prior to year end (120,000 × 1/6) 20,000 $ $ $ $ $
At 1 November 20X2 900,000 500,000 32,514 – 436,607
Share issue: $000 Rights issue (W6) 180,000 180,000
Dr bank (20,000 × $1.25) 25,000 Dividends (W7) (216,000)
Cr Share capital (20,000 x $1.00) 20,000 Total comprehensive (3,250) 334,960 358,842
Cr Share premium (20,000 x $0.25) 5,000 income for the year
–––––––– –––––––– –––––––– –––––––– ––––––––
ACCA marking guide At 31 October 20X3 1,080,00 680,000 29,264 334,960 579,449
Marks
0
(a) Adjusted profit for the year 4 –––––––– –––––––– –––––––– –––––––– ––––––––
(b) Statement of changes in equity 6 (c) Restated EPS for 20X2
(c) Statement of financial position (assets) 4.5
Statement of financial position (equity and liabilities) 5.5 Restated EPS = original EPS × inverse of bonus fraction
–––– = 20¢ × 1.50/1.60 (W8) = 18.75¢
Total 20
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Workings: (W5) Gain on revaluation of land and buildings

(W1) Revenue $
Revalued amount ($1,000,000 land + $700,000 buildings) 1,700,000
Gibraltar is acting as agent in this transaction, so it cannot recognise $350,000 as
revenue, it can only recognise the commission element of $42,000 (12% × $350,000). Carrying amount ($800,000 land + $476,000 buildings) (1,276,000)
The balance of 88% is due to the third party, so should be removed from revenue and –––––––––
classified as a liability Gain on revaluation 424,000
88% × $350,000 = $308,000 Less: deferred tax at 21% (89,040)
–––––––––
Some candidates may deduct $350,000 and add back 12% and that is fine.
Gain on revaluation of land and buildings 334,960
(W2) Inventory –––––––––
Cost of inventory sold on 31 October 20X3 is incorrectly included in closing inventory, (W6) Rights issue
reducing cost of sales on the trial balance. This cost therefore needs to be added back 1 for 5 rights issue: shares issued = 1,800,000 × 1/5 = 360,000 shares
to cost of sales.
$
Cost = $12,035 × (100/130) = $9,258 Proceeds: 360,000 × $1 360,000
(W3) Investments through profit or loss Split: Share capital 360,000 × 50¢ 180,000
Investments with a carrying amount of $62,000 were sold for $59,000. Only the Share premium 360,000 × 50¢ 180,000
proceeds have been deducted from the investment balance, so a further $3,000 needs (W7) Dividend
to be deducted from the investment and charged as an administrative expense. At 1 September 20X3 there were 2.16 million shares in issue (1,800,000 + 360,000
$ $ rights shares). The dividend paid was 2,160,000 × $0.10 = $216,000 and was posted to
Fair value at 31 October 20X3 184,300 the suspense account. This needs to be deducted from retained earnings on the
Carrying amount per trial balance 178,400 statement of changes in equity
Loss on disposal charged to administrative expenses (3,000) (W8) Rights issue bonus fraction
––––––– (175,400) Rights issue bonus fraction = Market price (cum div) / Theoretical ex‐rights price (TERP)
–––––––
Shares Price $ Value $
Gain on FVPL investments 8,900 5 1.60 8.00
––––––– 1 1.00 1.00
(W4) Investments through other comprehensive income ––––– –––––
6 9.00
Acquisition costs are capitalised as part of the cost of the investment for financial
––––– –––––
assets classified as fair value through OCI. Therefore, the $8,000 acquisition costs need
to be removed from administrative expenses and added to the cost of the investment. Theoretical ex‐rights price = $9/6 shares = $1.50
Rights issue bonus fraction = 1.60/1.50
$ $
Fair value at 31 October 20X3 124,750 Inverse of bonus fraction = 1.50/1.60
Carrying amount per trial balance 120,000 ACCA marking guide
Purchase costs removed from administrative expenses 8,000 Marks
––––––– (128,000) (a) Revenue 1.5
Cost of sales 2
–––––––
Distribution and administrative 3
Loss to OCI (3,250) Investment income/tax 2
––––––– Other comprehensive income 3.5
––––
12
(b) Statement of changes in equity 5
(c) Earnings per share 3
––––
Total 20
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BUSINESS COMBINATIONS
431 DARGENT CO
Consolidated statement of financial position as at 31 March 20X6
Assets $000 $000
Non‐current assets:
Property, plant and equipment 110,500
(75,200 + 31,500 + 4,000 mine – 200 dep)
Goodwill (W3) 11,000
Investment in associate (4,500 + 1,200 (W5)) 5,700
–––––––
127,200
Current assets
Inventory (19,400 + 18,800 + 700 GIT – 800 PUP (W6)) 38,100
Trade receivables (14,700 + 12,500 – 3,000 intra group) 24,200
Bank (1,200 + 600) 1,800
––––––
64,100
–––––––
Total assets 191,300
–––––––
Equity and liabilities
Equity shares of $1 each (50,000 + 10,000 (W3)) 60,000
Other equity reserves (share premium) (W3) 22,000
Retained earnings (W5) 37,390
–––––––
119,390
Non‐controlling interest (W4) 9,430
–––––––
Total equity 128,820
Non‐current liabilities
8% loan notes (5,000 + 15,000 consideration (W3)) 20,000
Accrued loan interest (W5) 300
Environmental provision (4,000 + 80 interest (W2)) 4,080
–––––– 24,380
Current liabilities (24,000 + 16,400 + 700 GIT – 3,000 intra group) 38,100
–––––––
Total equity and liabilities 191,300
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