The following extract is from the trial balance of Falmer Co at 31 December 2020:

	£'000	£'000
Cost of sales	23,205
Finance costs	2,025
Investment income (note (iii))		760
Operating expenses (note (iii))	10,320
Revenue (notes (i) and (ii))		37,675
Tax (note vi))	65

The following notes are relevant:

1. Falmer Co made a large sale of goods on 1 July 2020, which was also the date of delivery. Under the terms of the agreement, Falmer Co will receive payment of £4m on 30 June 2021. Currently, Falmer Co has recorded £2m in revenue and trade receivables. The directors intend to record the remaining £2m revenue in the year ended 31 December 2021. The costs of this sale have been accounted for correctly in the financial statements for the year ended 31 December 2020. Falmer Co has a cost of capital of 8% at which an appropriate discount factor would be 0.9259.
2. Falmer Co also sold goods to an overseas customer on 1 December 2020 for $1.3m. They agreed a 60-day payment term. No entries have yet been made to record this sale, although the goods were correctly removed from inventory and expensed in cost of sales. The amount remains unpaid at 31 December 2020.

Relevant exchange rates are:

1 December 2020: 1.3 $/£

31 December 2020: 1.2 $/£

1. Falmer Co acquired £4.5m 5% bonds at par value on 1 January 2020. The interest is receivable on 31 December each year. Falmer Co incurred £0.2m 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%. Falmer Co has recorded the interest received on 31 December 2020 in investment income.
2. During the year, Falmer Co revalued its head office for the first time, resulting in an increase in value of £6m at 31 December 2020. Deferred tax is applicable to this gain at 25%.
3. Falmer Co values its investment properties using the fair value model. The investment properties increased in value by £2m at 31 December 2020.
4. The tax figure in the trial balance represents the under/over provision from the previous year. The current tax liability for the year ended 31 December 2020 is estimated to be £1.6m.
5. At 1 January 2020, Falmer Co had 15 million £1 equity shares in issue. On 1 April 2020, Falmer Co issued an additional 2.5 million £1 equity shares at full market value. On 1 July 2020, Falmer Co performed a 2 for 5 rights issue, at £2 per share. The market value of a Falmer Co share at 1 July 2020 was £3 per share.

Required:

(a) Produce a statement of profit or loss and other comprehensive income for Falmer Co for the year ended 31 December 2020. 

(b) Show your workings briefly on:

• W1 Sales with significant financing component 
• W2 Overseas sale 
• W3 Bonds 

(c) Calculate the earnings per share for Falmer Co for the year ended 31 December 2020. 

Answer rating: 100% (QA)

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