Case 1 - Sharon plc

Sharon plc has produced the following trial balance as at 31 January 20X5:
£ £
Revenue 1,520,000
Inventories at 31 January 20X4 75,000
Purchases 465,000
Distribution costs 220,000
Administrative expenses 340,000
Dividends paid 124,000
Development expenditure 70,000
Land and buildings
Cost 1,500,000
Accumulated depreciation 96,000
Plant and machinery
Cost 650,000
Accumulated depreciation 160,000
Motor vehicles
Cost 250,000
Accumulated depreciation 90,000
Trade receivables and trade payables 703,700 380,000
Prepayments and accruals at 31 January 20X5 279,300 150,000
Cash at bank and bank overdraft 249,000 110,000
Bank loan 200,000
Share capital – ordinary shares of £1 each 850,000
Retained earnings 1,320,000
Share premium account 50,000
4,926,000 4,926,000
Additional information
(1) The company's land and buildings cost £1.5m (land element £300,000) on 1 February 20X0 and were
being depreciated over 50 years. On 1 February 20X4 the remaining useful life of the buildings was
estimated at 40 years.
(2) No adjustments have been made for the depreciation charge for the year ended
31 January 20X5. Depreciation rates and allocation to expenses are as follows.
Cost of sales Admin costs Dist costs
Land and buildings – see (1) above 50% 50%
Plant and machinery – 10% straight line 80% 10% 10%
Motor vehicles – 20% reducing balance 100%
(3) The bank loan was taken out on 30 July 20X4 and is repayable in five years. No adjustments have been
made for the interest charge of 5% per annum.
(4) Tax on profits for the year has been estimated at £35,000 and has yet to be provided for in the trial
balance.
(5) The development expenditure was incurred during the year and relates to a new delivery system.
Development will be completed in 20X6. The company believed it has a reasonable expectation of future
benefits but has been unable to demonstrate this and so the cost will be written off to distribution costs.
(6) One of Sharon plc's customers was declared insolvent on 15 February 20X5. The customer owed Sharon
plc £56,000 at 31 January 20X5 and no payment is expected to be made. Irrecoverable debts are written
off to administrative expenses.
(7) Sharon plc had inventories of £86,300 at 31 January 20X5.
(8) Sharon plc began renting an additional storage unit on 1 December 20X4 at a cost of £3,000 per month.
No payment has been made to date. Rental payments are charged to administrative expenses.
(9) £150,000 of revenue recognised is in respect of service contracts for which the performance obligations
have not yet been satisfied.
Requirement
Prepare the statement of profit or loss for Sharon plc for the year ended 31 January 20X5 and the statement of
financial position at that date.
Statement of profit or loss for the year ended 31 January 20X5
£
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Profit / (loss) from operations
Finance costs
Profit / (loss) before tax
Income tax expense
Profit / (loss) for year
Statement of financial position at 31 January 20X5
£
ASSETS
Non-current assets
Land and buildings
Plant and machinery
Motor vehicles
Current assets
Inventories
Trade receivables
Prepayments
Cash and cash equivalents
Total assets

EQUITY AND LIABILITIES

Equity
Ordinary share capital
Share premium
Retained earnings

Non-current liabilities
Borrowings

Current liabilities
Trade payables
Accruals
Bank overdraft
Deferred income
Income tax payable
Total equity and liabilities
 Case 2 - Pineapple plc
Pineapple plc is a company which makes exclusive furniture to customers' precise specifications. Pineapple
plc's trial balance at 31 December 20X5 is as follows.
£ £
Raw materials and consumables (cost of sales) 1,580,000
Salaries and wages (cost of sales) 805,500
Salaries and wages (admin expenses) 445,000
Work in progress at 1 January 20X5 45,600
Finished inventories at 1 January 20X5 13,400
Freehold land and buildings
Cost (land £2 million) 3,600,000
Accumulated depreciation at 1 January 20X5 640,000
Plant and machinery
Cost 520,000
Accumulated depreciation at 1 January 20X5 375,000
Office furniture
Cost 32,000
Accumulated depreciation at 1 January 20X5 28,500
Intangible assets 15,000
Trade and other receivables 37,500
Trade and other payables 25,400
Retained earnings at 1 January 20X5 1,968,600
Ordinary share capital – £1 nominal value 500,000
Preference share capital – 4% redeemable £1 shares 120,000
Share premium account 200,000
Cash at bank 203,500
Equity dividend paid 60,000
Revenue 3,500,000
7,357,500 7,357,500

The following additional information is relevant.

(1) Buildings are depreciated on a straight-line basis at a rate of 4% and depreciation is charged to cost of
sales and administrative expenses on an 8:2 basis.
Plant is depreciated on a reducing balance basis at a rate of 20% and depreciation is charged to cost of
sales.
Office furniture is depreciated on a 10% straight-line basis and depreciation is charged to administrative
expenses.
(2) During the year the company made a 1 for 5 bonus issue of its ordinary shares from the share premium
account. No entries have been made in respect of this.
(3) The preference shares are redeemable in 20X9. No entry has been made in respect of preference
dividends payable for the year.
(4) The income tax charge for the period has been estimated at £250,000.
(5) The intangible asset relates to a patent acquired on 1 January 20X5. This patent is considered to have a
useful life of 20 years. An impairment review has indicated that the patent has a recoverable value at 31
December 20X5 of £14,000. Amortisation and any impairment loss should be charged to administrative
expenses.
(6) Closing inventories at cost amounted to work in progress of £50,200 and finished goods of £15,000.
(7) Included in administrative expenses is £120,000 in respect of insurance. 50% of this relates to the year
ended 31 December 20X6.
(8) Included in this year's revenue is a new product containing a warranty. Management expect that 3% of
these warranties will be invoked at a cost of £100,000. Provisions are charged to administrative expenses.
(9) The revenue figure includes £50,000 in relation to pre-orders for a new product which will be released in
March 20X6.
(10) The company received a letter from the liquidator of Mango plc to advise that there are no funds to pay
the £30,000 debt which is owed to Pineapple plc. The directors have assessed that the debt is
irrecoverable and requires to be written off. Irrecoverable debts are charged to administrative expenses.
Requirement
Prepare the statement of profit or loss for Pineapple plc for the year ended 31 December 20X5 and the
statement of financial position at that date.
Statement of profit or loss for the year ended 31 December 20X5
£
Revenue
Cost of sales
Gross profit
Administrative expenses
Profit / (loss) from operations
Finance costs
Profit / (loss) before tax
Income tax expense
Profit / (loss) for year
Statement of financial position at 31 December 20X5
£
ASSETS
Non-current assets
Land and buildings
Plant and machinery
Office furniture
Intangible assets
Current assets
Inventories
Trade receivables
Cash and cash equivalents
Total assets

EQUITY AND LIABILITIES

Equity
Ordinary share capital
Share premium
Retained earnings
Non-current liabilities
Borrowings
Current liabilities
Trade payables
Accruals
Provisions
Deferred income
Income tax payable
Total equity and liabilities