1/3 Blink - Listening with your eyes in the language of accounting! The Case Camille started...

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1/3 Blink - Listening with your eyes in the language of accounting! The Case Camille started her business on 1 November 2020 and has ever since been waiting in the wings to see the light of day. Her dreams have come close to fruition but not close enough. She has always set sail for distant oceans but has never been able to muster up enough courage to lose sight of the shore. Hanging in the balance. Saved by the bell, she has started to Blink. When Camille started her business, it looked picture-perfect and had all the ingredients to take a giant leap into the future. Today, she is thinking twice about the idea of a new business and challenging her propositions. Here are the financial transactions of her company since inception: The financial year of Camille starts from 1 January and ends on 31 December. Accounting Year 1 Financing: 1 November 2020 - She started her business by investing GBP 10,000,000 of her own money by issuing 10,000,000 ordinary shares at a par value of GBP 1 per share. 1 Dec 2020 - She took a loan from her local bank amounting to GBP 50,000,000. The term of the loan is 5 years and the interest rate on the loan is 3.5% p.a. The principal amount of loan will be repaid after 5 years. Investments: 1 December 2020 - She purchased a car using the company's cash at a cost of GBP 20,000 for personal use from her business and never used it for business purposes. The expected useful life of the car was 5 years and the salvage value was expected to be GBP 3,000. 1 December 2020 - She purchased 5 laptops for her staff at a cost of GBP 3,500 each. The laptops were used in business and had an expected useful life of 5 years with an expected salvage value of GBP 500 each. She used fair value method to measure the Property, plant and equipment. At the end of the year the fair value of laptops was GBP 3,600 each. Business transactions: 31 Dec 2020 - Her purchases during the accounting year ended 31 December 2020 were GBP 1,500,000. 31 Dec 2020 - Her sales during the accounting year ended 31 December 2020 were GBP 1,200,000. 31 Dec 2020 - At the end of the year she had inventories valued at GBP 350,000. Accounting Year 2 During the next accounting year here is her transactions: 1 March 2021 - She rented a shop in London. The rent of GBP 50,000 is payable quarterly in advance. Investments: 1 February 2021 - She purchased equipment amounting to GBP 100,000 with an expected useful life of 6 years and an expected salvage value of GBP 30,000. The equipment is measured at the fair value model of valuation of Property, plant and equipment. The fair value of the equipment on 31 December 2021 was estimated to be Euro 110,000. 1 May 2021 - Camille made the following investments in financial instruments: In stocks: Qty Price/share Transaction FV/share at Category Date of sale Sales price 2/3 Date of purchase cost reporting date Security A 01-May-21 Security B 01-May-21 Security C 01-May-21 100 609 E 598 Security D 01-May-21 6,969 Security E 01-May-21 769 6,868 6,990 E 659 589 E 698 46 E 57 78 65 E 58 7.980 FVOO FVDCI 02-Jul-21 E 7,990 Security F 01-May-21 698 875 76 E Security G 01-May-21 5,845 756 70 Security H 01-May-21 589 Security ' 01-May-21 6,598 Security J 01-May-21 Security K 01-May-21 599 98 698 E 659 699 E 698 96 466 FVDO 588 FVDC FVDC 865 FVTPL 639 FVTPL ENTRI 03-Aug-21 466 10-Sep-21 689 68 639 FUTPL 79 97 FVDO 899 FVOCI 03-Oct-21 897 Investment in Bitcoin 01-May-21 50 E 1,789 E 1,560 Intangible Asset Investment in debt instruments Date of acquisition Qty Bond L 01-May-21 Bond M 01-May-21 Acquisition cost 867 E 79 Par value Coupon (p.a.) Term Category 89 100 2% 4 years 5 10 3% 6 years Preferred Stock N 01-May-21 689 112 E 100 4% 20 years Convertible Preferred stock 01-May-21 Convertible Bond P 01-May-21 69 67 E 189 E 90 E 100 100 3.50% 4.50% 10 years Amortized cost Amortized cost Amortized cost Amortized cost 5 years Amortized cost Other transactions during the year Camille also started a Brokerage division in the same company through which she invested in Crypto Assets. The schedule of investments in Crypto assets through the Brokerage Company is attached in appendix 1. The results of the trade are included in the financial statements for the year. Arbitrage transactions During the year Camille also noticed that the spot FX rate for GBP/EUR is 1.3106, while 12- month sterling interest rates are 0.8% compared to 0.6% for the euros. The one-year forward FX rate for GBP/EUR is 1.31. Camille decides to do an arbitrageur and borrows 44.230 million at 0.6% and convert the Euro's into sterling in the spot market. This would give her 33.7479 million to invest at 0.8% for one year. At the same time, Camille enters into a one- year forward contract to sell the principal and interest from the deposit of 34.0179 million at 1.31. The spot FX rate for EUR/GBP is 0.7626 at the end of the year. The net result is an arbitrage profit which is the euro's that were received from converting the sterling deposit back into euros, less the euros that are the required repayment for the euro borrowing. All the arbitrage trades are settled during year 2 and the net results of the deal are included in the statement of comprehensive income. Financing during the year During the year 2 Camille issued the following financial instruments: 1 January 2021 - Camille issued convertible bonds at an issue price of GBP 9.5 million. The nominal value of the bonds is GBP 10 million. The term of the bond is 10 years. The issue cost of the bond is GBP 90,000. The bonds carry an interest rate of 1.5% p.a. Interest is paid annually in arrears. Similar bonds with no conversion option carry interest rates of 3% p.a. The amount of paid on the convertible bond has been charged to retained earnings. 1 July 2021 - Camille issued convertible redeemable Preference shares with a nominal value of GBP 2 million at a dividend rate of 2% p.a. The issue costs are GBP 10,250. The shares are redeemable at par for cash on 30 June 2026 into ordinary shares of the company. The interest rates on similar financial instruments without the conversion option are 5% p.a. 31 December 2021 - Camille declared a dividend on ordinary shares amounting to GBP 1 million. 31 December 2021 - Camille issued 1 for 8 bonus shares of ordinary shares. Other transactions during the year 30 November 2021 - Camille sold one of the laptops she purchased on 1 December 2020 at a sales price of GBP 2,190. 31 December 2021 - Purchases of inventories during the accounting year amounted to GBP 20 million. 31 December 2021 - The sales during the accounted year amounted to GBP 19 million. 31 December 2021 - Camille had GBP 8 million left in inventories at the end of the accounting year. 31 December 2021 - At the end of the year the fair value of the remaining laptops was GBP 2,900 each. Required: Based on the information provided in the above schedule, prepare the following for Year 2 i.e., for the accounting year ended 31 December 2021: 1. Statement of Comprehensive income. 2. Statement of Financial Position 3. Statement of Changes in Equity 4. Statement of Cashflows (20 points) (20 points) (20 points) (20 points) 20 points are exclusively reserved for proper presentation and clear calculations for the workings in the preparation of the financial statements. Note: Total (100 points) Show workings for all the calculations with a proper presentation of each working. Presentation and proper calculations matter. Appendix 1 Investment in Crypto-Assets through the Crypto Trading Company -END OF DOCUMENT 3/3 1/3 Blink - Listening with your eyes in the language of accounting! The Case Camille started her business on 1 November 2020 and has ever since been waiting in the wings to see the light of day. Her dreams have come close to fruition but not close enough. She has always set sail for distant oceans but has never been able to muster up enough courage to lose sight of the shore. Hanging in the balance. Saved by the bell, she has started to Blink. When Camille started her business, it looked picture-perfect and had all the ingredients to take a giant leap into the future. Today, she is thinking twice about the idea of a new business and challenging her propositions. Here are the financial transactions of her company since inception: The financial year of Camille starts from 1 January and ends on 31 December. Accounting Year 1 Financing: 1 November 2020 - She started her business by investing GBP 10,000,000 of her own money by issuing 10,000,000 ordinary shares at a par value of GBP 1 per share. 1 Dec 2020 - She took a loan from her local bank amounting to GBP 50,000,000. The term of the loan is 5 years and the interest rate on the loan is 3.5% p.a. The principal amount of loan will be repaid after 5 years. Investments: 1 December 2020 - She purchased a car using the company's cash at a cost of GBP 20,000 for personal use from her business and never used it for business purposes. The expected useful life of the car was 5 years and the salvage value was expected to be GBP 3,000. 1 December 2020 - She purchased 5 laptops for her staff at a cost of GBP 3,500 each. The laptops were used in business and had an expected useful life of 5 years with an expected salvage value of GBP 500 each. She used fair value method to measure the Property, plant and equipment. At the end of the year the fair value of laptops was GBP 3,600 each. Business transactions: 31 Dec 2020 - Her purchases during the accounting year ended 31 December 2020 were GBP 1,500,000. 31 Dec 2020 - Her sales during the accounting year ended 31 December 2020 were GBP 1,200,000. 31 Dec 2020 - At the end of the year she had inventories valued at GBP 350,000. Accounting Year 2 During the next accounting year here is her transactions: 1 March 2021 - She rented a shop in London. The rent of GBP 50,000 is payable quarterly in advance. Investments: 1 February 2021 - She purchased equipment amounting to GBP 100,000 with an expected useful life of 6 years and an expected salvage value of GBP 30,000. The equipment is measured at the fair value model of valuation of Property, plant and equipment. The fair value of the equipment on 31 December 2021 was estimated to be Euro 110,000. 1 May 2021 - Camille made the following investments in financial instruments: In stocks: Qty Price/share Transaction FV/share at Category Date of sale Sales price 2/3 Date of purchase cost reporting date Security A 01-May-21 Security B 01-May-21 Security C 01-May-21 100 609 E 598 Security D 01-May-21 6,969 Security E 01-May-21 769 6,868 6,990 E 659 589 E 698 46 E 57 78 65 E 58 7.980 FVOO FVDCI 02-Jul-21 E 7,990 Security F 01-May-21 698 875 76 E Security G 01-May-21 5,845 756 70 Security H 01-May-21 589 Security ' 01-May-21 6,598 Security J 01-May-21 Security K 01-May-21 599 98 698 E 659 699 E 698 96 466 FVDO 588 FVDC FVDC 865 FVTPL 639 FVTPL ENTRI 03-Aug-21 466 10-Sep-21 689 68 639 FUTPL 79 97 FVDO 899 FVOCI 03-Oct-21 897 Investment in Bitcoin 01-May-21 50 E 1,789 E 1,560 Intangible Asset Investment in debt instruments Date of acquisition Qty Bond L 01-May-21 Bond M 01-May-21 Acquisition cost 867 E 79 Par value Coupon (p.a.) Term Category 89 100 2% 4 years 5 10 3% 6 years Preferred Stock N 01-May-21 689 112 E 100 4% 20 years Convertible Preferred stock 01-May-21 Convertible Bond P 01-May-21 69 67 E 189 E 90 E 100 100 3.50% 4.50% 10 years Amortized cost Amortized cost Amortized cost Amortized cost 5 years Amortized cost Other transactions during the year Camille also started a Brokerage division in the same company through which she invested in Crypto Assets. The schedule of investments in Crypto assets through the Brokerage Company is attached in appendix 1. The results of the trade are included in the financial statements for the year. Arbitrage transactions During the year Camille also noticed that the spot FX rate for GBP/EUR is 1.3106, while 12- month sterling interest rates are 0.8% compared to 0.6% for the euros. The one-year forward FX rate for GBP/EUR is 1.31. Camille decides to do an arbitrageur and borrows 44.230 million at 0.6% and convert the Euro's into sterling in the spot market. This would give her 33.7479 million to invest at 0.8% for one year. At the same time, Camille enters into a one- year forward contract to sell the principal and interest from the deposit of 34.0179 million at 1.31. The spot FX rate for EUR/GBP is 0.7626 at the end of the year. The net result is an arbitrage profit which is the euro's that were received from converting the sterling deposit back into euros, less the euros that are the required repayment for the euro borrowing. All the arbitrage trades are settled during year 2 and the net results of the deal are included in the statement of comprehensive income. Financing during the year During the year 2 Camille issued the following financial instruments: 1 January 2021 - Camille issued convertible bonds at an issue price of GBP 9.5 million. The nominal value of the bonds is GBP 10 million. The term of the bond is 10 years. The issue cost of the bond is GBP 90,000. The bonds carry an interest rate of 1.5% p.a. Interest is paid annually in arrears. Similar bonds with no conversion option carry interest rates of 3% p.a. The amount of paid on the convertible bond has been charged to retained earnings. 1 July 2021 - Camille issued convertible redeemable Preference shares with a nominal value of GBP 2 million at a dividend rate of 2% p.a. The issue costs are GBP 10,250. The shares are redeemable at par for cash on 30 June 2026 into ordinary shares of the company. The interest rates on similar financial instruments without the conversion option are 5% p.a. 31 December 2021 - Camille declared a dividend on ordinary shares amounting to GBP 1 million. 31 December 2021 - Camille issued 1 for 8 bonus shares of ordinary shares. Other transactions during the year 30 November 2021 - Camille sold one of the laptops she purchased on 1 December 2020 at a sales price of GBP 2,190. 31 December 2021 - Purchases of inventories during the accounting year amounted to GBP 20 million. 31 December 2021 - The sales during the accounted year amounted to GBP 19 million. 31 December 2021 - Camille had GBP 8 million left in inventories at the end of the accounting year. 31 December 2021 - At the end of the year the fair value of the remaining laptops was GBP 2,900 each. Required: Based on the information provided in the above schedule, prepare the following for Year 2 i.e., for the accounting year ended 31 December 2021: 1. Statement of Comprehensive income. 2. Statement of Financial Position 3. Statement of Changes in Equity 4. Statement of Cashflows (20 points) (20 points) (20 points) (20 points) 20 points are exclusively reserved for proper presentation and clear calculations for the workings in the preparation of the financial statements. Note: Total (100 points) Show workings for all the calculations with a proper presentation of each working. Presentation and proper calculations matter. Appendix 1 Investment in Crypto-Assets through the Crypto Trading Company -END OF DOCUMENT 3/3