The directors are preparing the published accounts of Dorman plc for the year to 31 October 20X5. The following information is provided for certain of the items which are to be included in the final accounts.

(iii) Plant and machinery. An item of plant was shown in the 20X4 accounts at a net book value of £90,000 (£160,000 cost less accumulated depreciation £70,000). The plant was purchased on 1 November 20X2 and has been depreciated at 25 per cent reducing balance. The directors now consider the straight line basis to be more appropriate: they have estimated that at 1 November 20X4 the plant had a remaining useful life of six years and will possess zero residual value at the end of that period.

(iv) Freehold property. The company purchased a freehold property for £250,000 11 years ago, and it is estimated that the land element was worth £50,000 at that date. The company has never charged depreciation on the property but the directors now feel that it should have done so; the building is expected to have a total useful life of 40 years.

(v) Research expenditure incurred in an attempt to discover a substitute for raw materials currently purchased from a politically sensitive area of the world amounted to £17,500 during the year.

(vi) Development expenditure on Tercil, which is nearly ready for production, amounted to £30,000. Demand for Tercil is expected significantly to exceed supply for at least the next four years.

(vii) Accident. On 1 December 20X5 there was a fire in the warehouse which damaged stocks, other than the items referred to in (i) and (ii) above. The book value of these stocks was £92,000. The company has discovered that it was underinsured and only expects to recover £71,000 from the insurers.

(viii ) Investments. Dorman purchased 30,000 ordinary shares in Lilleshall Ltd on 1 November 20X4 for £96,000, and immediately succeeded in appointing two of its directors to Lilleshall’s board. The issued share capital of Lilleshall consists of 100,000 ordinary shares of £1 each. The profits of Lilleshall for the year to 31 October 20X5 amounted to £40,000. (Ignore taxation.)

Required:

Explain how each of the above items should be dealt with in the published financial statements of Dorman plc.

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(i) (ii) Stocks of raw material, monolite: Cost Replacement cost Stocks of finished goods: Direct costs Proportion of fixed factory overhead Proportion of selling expenses Net realisable value Paramite £ 72,600 15,300 6,870 123,500 £ 26,500 48,100 Paraton £ 10,200 4,600 1,800 9,520