Cornwall Plc manufactures heavy duty construction equipment and prepares accounts to 31 March. The financial accountant...

 

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Cornwall Plc manufactures heavy duty construction equipment and prepares accounts to 31 March. The financial accountant of Cornwall Plc is determining how a number of situations need to be accounted for in the accounts for the year to 31 March 2021 and has asked for your advice. Situation 1 Cornwall decided to expand their operations and leased ten transportation vans from 1 April 2020 for five years. These vans have a market value of £30,300 each. Cornwall are to pay five annual lease payments of £70,000 starting on 31 March 2021. Due to the distance the vans will travel each year, it is expected that they will have no residual value at the end of the five years. Cornwall depreciates vehicles on a straight-line basis. Situation 2 Cornwall's main production line will require scheduled maintenance work in June 2021 in order to continue producing their equipment to required safety legislation. The estimated co of thi maintenance work £150,000. Situation 3 During the year to 31 March 2021, one of Cornwall's employees was involved in an accident at work and incurred medical bills of an estimated £250,000. The employee has asked Cornwall to pay for these medical bills. An investigation found that the accident had been the fault of the employee and Cornwall's lawyers have advised that Cornwall is not liable for the costs of medical treatment. However, Cornwall has a reputation for being a responsible and caring employer and in the past has paid for employees' medical treatment even when not at fault. Situation 4 Cornwall also received notification during the year to 31 March 2021 that one of their customers was taking legal action against them due to the non-delivery of an order which resulted in the customer missing a delivery deadline and a loss of both income and reputation for the customer. Cornwall's lawyers have advised that it is probable that the customer will win the legal case. Because of the complicated nature of the case and the loss of income and reputation, the lawyers have advised that the damages to be paid could be between £10,000 and £600,000. b) Prepare extracts from the financial statements of Cornwall Ltd for each of the years of the lease term to show how the leasing of the transportation vans in Situation 1 will be presented in accordance with IFRS 16 Leases. (13 marks) c) For Situations 2, 3 and 4, explain how the issues should be presented in the financial statement of Cornwall Ltd for the year ended 31 March 2021. Cornwall Plc manufactures heavy duty construction equipment and prepares accounts to 31 March. The financial accountant of Cornwall Plc is determining how a number of situations need to be accounted for in the accounts for the year to 31 March 2021 and has asked for your advice. Situation 1 Cornwall decided to expand their operations and leased ten transportation vans from 1 April 2020 for five years. These vans have a market value of £30,300 each. Cornwall are to pay five annual lease payments of £70,000 starting on 31 March 2021. Due to the distance the vans will travel each year, it is expected that they will have no residual value at the end of the five years. Cornwall depreciates vehicles on a straight-line basis. Situation 2 Cornwall's main production line will require scheduled maintenance work in June 2021 in order to continue producing their equipment to required safety legislation. The estimated co of thi maintenance work £150,000. Situation 3 During the year to 31 March 2021, one of Cornwall's employees was involved in an accident at work and incurred medical bills of an estimated £250,000. The employee has asked Cornwall to pay for these medical bills. An investigation found that the accident had been the fault of the employee and Cornwall's lawyers have advised that Cornwall is not liable for the costs of medical treatment. However, Cornwall has a reputation for being a responsible and caring employer and in the past has paid for employees' medical treatment even when not at fault. Situation 4 Cornwall also received notification during the year to 31 March 2021 that one of their customers was taking legal action against them due to the non-delivery of an order which resulted in the customer missing a delivery deadline and a loss of both income and reputation for the customer. Cornwall's lawyers have advised that it is probable that the customer will win the legal case. Because of the complicated nature of the case and the loss of income and reputation, the lawyers have advised that the damages to be paid could be between £10,000 and £600,000. b) Prepare extracts from the financial statements of Cornwall Ltd for each of the years of the lease term to show how the leasing of the transportation vans in Situation 1 will be presented in accordance with IFRS 16 Leases. (13 marks) c) For Situations 2, 3 and 4, explain how the issues should be presented in the financial statement of Cornwall Ltd for the year ended 31 March 2021.

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b Prepare extracts from the financial statements of Cornwall Plc for each of the years of the lease term to show how the leasing of the transportation vans in Situation 1 will be presented in accordan... View the full answer