Chapter 12: Company financial statements under IFRS

Accounting Standards
1 Papaya plc
The trial balance of Papaya plc as at 31 December 20X8 is as follows.
£ £
Share capital
£1 ordinary shares 100,000
£1 5% preference shares (irredeemable) 50,000
Retained earnings 76,015
Intangible assets 20,500
Land and buildings
Cost 450,000
Accumulated depreciation 81,000
Plant and machinery
Cost 82,000
Accumulated depreciation 18,000
Inventories at 1 January 20X8 58,045
Trade receivables 161,349
Cash at bank 112,000
Revenue 1,600,047
Purchases (cost of sales) 907,989
Debenture interest paid 6,260
Other operating income 39,045
Administrative salaries 126,232
Salesmen's salaries and commission (selling and distribution costs) 24,291
Factory wages (cost of sales) 54,117
Rental costs administrative expenses) 6,002
Administrative expenses 18,822
Selling and distribution expenses 9,600
Trade payables 12,000
Dividend received from investments 11,000
10% Debentures (issued and redeemable at par) 62,600
20X7 final dividend paid 12,500
2,049,707 2,049,707
You are provided with the following information in respect of 20X8.
(1) Depreciation is to be charged on the basis of the following policies.
Buildings Straight-line over 50 years (charged to administrative expenses)
Plant and machinery Straight-line over 10 years (charged to cost of sales)
The land originally cost £115,000.
(2) The intangible asset is a patent. Following an impairment review the value of the asset has been estimated at
£12,000. The impairment loss should be charged to administrative expenses.
(3) The 5% preference dividends for 20X8 were declared before the year end and were paid on 15 January 20X9.
(4) Tax of £22,500 is to be charged for the current year.
(5) Inventories held at 31 December 20X8 are valued at cost of £68,000. Within this amount there are 1,000 units
of finished goods valued at £20 each. These units are now expected to sell at a discounted price of £18 each
and incur £1 selling costs per unit.
(6) In November, a member of the public slipped on the wet floor of a premises owned by Papaya plc. A
subsequent legal letter confirmed that the individual is seeking compensation for this incident. Papaya plc's
legal advisors believe that the matter can be settled with a payment of £5,000 to the individual. Provisions are
charged to administrative expenses.
(7) During the year the company made a 1 for 10 bonus issue of its ordinary shares from retained earnings. No
entries have been made in respect of this.
(8) Included in administrative expenses is £36,000 which relates to an annual insurance premium which provides
cover until 31 May 20X9.
(9) On 27 December 20X8 the company received payment from a credit customer and recorded it as £13,520 in
the correct nominal ledger accounts. When the electronic banking report was downloaded, it was identified that
the correct amount was £13,250.
Requirement
Prepare the statement of profit or loss for Papaya plc for the year ended 31 December 20X8 and the statement of
financial position at that date.
Statement of profit or loss for the year ended 31 December 20X8
£
Revenue
Cost of sales
Gross profit
Other operating income
Distribution costs
Administrative expenses
Operating profit / (loss)
Investment income
Finance costs
Profit / (loss) before tax
Income tax expense
Profit / (loss) for year
Statement of financial position at 31 December 20X8
£
ASSETS
Non-current assets
Land and buildings
Plant and equipment
Intangible assets
Current assets
Inventories
Trade receivables
Prepayments
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Equity
Ordinary share capital
Preference shares
Retained earnings
Non-current liabilities
Borrowings
Current liabilities
Trade payables
Income tax payable
Provision
Accruals
Total equity and liabilities
2 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 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 31 January 20X5. The customer owed Sharon plc
£56,000 at that date and no payments are expected to be received. 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
Operating profit / (loss)
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
3 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 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 amount 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 which offers a standard 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) On 31 December 20X5, 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
Operating profit / (loss)
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