How to solve

Section B $-$ ALL THREE questions are compulsory and MUST be attempted

Please write your answers to all parts of these questions on the lined pages within the Candidate Answer Booklet.

$1$ The following trial balance extracts $($i$.$e$.$ it is not a complete trial balance$)$ relate to Moston as at $30$ June $2015$:

$\backslash$table$[[,$$$\text{'}000,$$$\text{'}000],[$Revenue $($note $($i$)),,113,500],[$Cost of sales,$88,500,],[$Research and development costs $($note $($ii$)),7,800,],[$Distribution costs,$3,600,],[$Administrative expenses $($note $($iv$)),6,800,],[$Loan note interest and dividends paid $($notes $($iv$)$ and $($vii$)),5,000,],[$Investment income,,$300],[$Equity shares of $$1$ each $($note $($vii$)),,30,000],[5\%$ loan note $($note $($iv$)),,20,000],[$Retained earnings as at $1$ July $2014,,6,200],[$Revaluation surplus as at $1$ July $2014,,3,000],[$Other components of equity,,$9,300],[$Property at valuation $1$ July $2014($note $($iii$)),28,500,],[$Plant and equipment at cost $($note $($iii$)),27,100,],[$Accumulated depreciation plant and equipment $1$ July $2014,,9,100],[$Financial asset equity investments at fair value $1$ July $2014($note $($v$)),8,800,]]$

The following notes are relevant:

$($i$)$ Revenue includes a $$3$ million sale made on $1$ January $2015$ of maturing goods which are not biological assets. The carrying amount of these goods at the date of sale was $$2$ million. Moston is still in possession of the goods $($but they have not been included in the inventory count$)$ and has an unexercised option to repurchase them at any time in the next three years. In three years' time the goods are expected to be worth $$5$ million. The repurchase price will be the original selling price plus interest at $10\%$ per annum from the date of sale to the date of repurchase.

$($ii$)$ Moston commenced a research and development project on $1$ January $2015.$ It spent $$1$ million per month on research until $31$ March $2015,$ at which date the project passed into the development stage. From this date it spent $$1\mathrm{.}6$ million per month until the year end $(30$ June $2015),$ at which date development was completed. However, it was not until $1$ May $2015$ that the directors of Moston were confident that the new product would be a commercial success.

Expensed research and development costs should be charged to cost of sales.

$($iii$)$ Non$-$current assets:

Moston's property is carried at fair value which at $30$ June $2015$ was $$29$ million. The remaining life of the property at the beginning of the year $(1$ July $2014)$ was $15$ years. Moston does not make an annual transfer to retained earnings in respect of the revaluation surplus. Ignore deferred tax on the revaluation.

Plant and equipment is depreciated at $15\%$ per annum using the reducing balance method.

No depreciation has yet been charged on any non$-$current asset for the year ended $30$ June $2015.$ All depreciation is charged to cost of sales.

$($iv$)$ The $5\%$ loan note was issued on $1$ July $2014$ at its nominal value of $$20$ million incurring direct issue costs of $$500,000$ which have been charged to administrative expenses. The loan note will be redeemed after three years at a premium which gives the loan note an effective finance cost of $8\%$ per annum. Annual interest was paid on $30$ June $2015.$

$($v$)$ At $30$ June $2015,$ the financial asset equity investments had a fair value of $$9*6$ million. There were no acquisitions or disposals of these investments during the year.

$($vi$)$ A provision for current tax for the year ended $30$ June $2015$ of $$1\mathrm{.}2$ million is required, together with an increase to the deferred tax provision to be charged to profit or loss of $$800,000.$

$2$