Question 2 The following trial balance relates to BORING as at 30 September 2014 Revenue (note...

  

Transcribed Image Text:

Question 2 The following trial balance relates to BORING as at 30 September 2014 Revenue (note 1) Cost of Sales Distribution costs Administrative expenses (note 2) Loan note interest paid (note 2) Investment Income Equity Shares of 25 cents each 6% loan note (note 2) Retained Earnings at 1 October 2013 Land and Buildings at cost (Land element $10 million) (note 3) Plant and equipment at cost (note 3). Accumulated depreciation at 1 October 2013: buildings Plants and equipments Equity financial asset investments (note 4) Inventory at 30 September 2014 Trade receivables Bank Current tax (note 5) Deferred tax (note 5) Trade payables S'000 136,800 17,500 19,000 1,500 Den 8 of 9 50,000 83,000 17,000 24,800 28,500 2,900 1.100) 382,800 $'000 213,500 400 60,000 25,000 4,300 8,000 33,700 1,200 36,700 382.800 The following notes are important. 1 On 1 October 2013, Boring sold one of its products for $10 million (included in revenue in the trial balance). As part of the sale agreement, Boring is committed to the ongoing of his product until 30 September 2016 (1.e. three years from the date of sale). The value of this service has been included in the selling price of $10 million. The estimated cost Boring of servicing is $600,000 per annum and Quincy's normal gross profit margin on this type of servicing is 25%. Ignore discounting. II. Boring issued a $25 million 6% loan 1 October 2013, issue costs were $1 million and these have been charged to administrative expenses. Interest is paid annually on 30 September each year. The loan will be redeemed on 30 September 2016 at a premium which gives an effective interest rate on the loan of 8%. III. Non-current Assets:: Boring had been carrying land and building at depreciated cost, but due to a recent rise in property prices, it decided to revalue its property on 1 October 2013 to market value. An independent valuer confirmed the value of the property at $60 million (land element $12 million) as at that date and the directors accepted this valuation. The property had a remaining life of 16 years at the date of it revaluation. Boring will make a transfer from the revaluation reserve to retained earnings in respect of the realization. Ignore deferred tax on the revaluation balance figure of plant and equipment at cost. The process the plant performs will cause immediate contamination On 1 October 2013, Boring had a processing plant installed at a cost of $10 million which is included in the trial of the nearby land. Boring will have to decontaminate (clean up) this land at the end of the plants ten-year life decontamination is $6 million. Boring has not made any accounting entries in respect of this cost. (straight-line depreciation). The present value (discounted at a cost of capital of 10% per annum) of the All other plant and equipment is depreciated at 12% per annum using straight the reducing balance method. No depreciation has yet been charged on any non-current asset for the year ended 30 September 2014. All depreciation is charged to cost of sale. Other than referred to above, there were no acquisitions or disposals of non-current assets. IV. The investments had a fair value of $15.7 million as at 30 September 2014. There were no acquisition or disposal of these investments during the year ended 30 September 2014. V. The balance on current tax represents the under/over provision of the tax liability for the year ended 30 September 2013. A provision for income tax for the year ended 30 September 2014 of $7.4 million is required. At 30 September 2014, Boring had taxable temporary difference of $5 million requiring a provision for deferred tax. Any deferred tax adjustment should be reported in profits or loss. The income tax rate Boring is 20%. Required a. Prepare the statement of profit or loss and other comprehensive income for Boring for the year ended 30 September 2014. b. Prepare the statement of changes in equity for Boring for the year ended 30 September 2014. C. Prepare the statement of financial position for Boring as at 30 September 2014. d. Calculate the increase in the amount of property, plant and equipment during the year ended 30 September 2014 from the perspective of: 1. The change between the opening and closing statements of financial position and; II. The statement of cash flows (20 marks) ACCA 2014 Question 2 The following trial balance relates to BORING as at 30 September 2014 Revenue (note 1) Cost of Sales Distribution costs Administrative expenses (note 2) Loan note interest paid (note 2) Investment Income Equity Shares of 25 cents each 6% loan note (note 2) Retained Earnings at 1 October 2013 Land and Buildings at cost (Land element $10 million) (note 3) Plant and equipment at cost (note 3). Accumulated depreciation at 1 October 2013: buildings Plants and equipments Equity financial asset investments (note 4) Inventory at 30 September 2014 Trade receivables Bank Current tax (note 5) Deferred tax (note 5) Trade payables S'000 136,800 17,500 19,000 1,500 Den 8 of 9 50,000 83,000 17,000 24,800 28,500 2,900 1.100) 382,800 $'000 213,500 400 60,000 25,000 4,300 8,000 33,700 1,200 36,700 382.800 The following notes are important. 1 On 1 October 2013, Boring sold one of its products for $10 million (included in revenue in the trial balance). As part of the sale agreement, Boring is committed to the ongoing of his product until 30 September 2016 (1.e. three years from the date of sale). The value of this service has been included in the selling price of $10 million. The estimated cost Boring of servicing is $600,000 per annum and Quincy's normal gross profit margin on this type of servicing is 25%. Ignore discounting. II. Boring issued a $25 million 6% loan 1 October 2013, issue costs were $1 million and these have been charged to administrative expenses. Interest is paid annually on 30 September each year. The loan will be redeemed on 30 September 2016 at a premium which gives an effective interest rate on the loan of 8%. III. Non-current Assets:: Boring had been carrying land and building at depreciated cost, but due to a recent rise in property prices, it decided to revalue its property on 1 October 2013 to market value. An independent valuer confirmed the value of the property at $60 million (land element $12 million) as at that date and the directors accepted this valuation. The property had a remaining life of 16 years at the date of it revaluation. Boring will make a transfer from the revaluation reserve to retained earnings in respect of the realization. Ignore deferred tax on the revaluation balance figure of plant and equipment at cost. The process the plant performs will cause immediate contamination On 1 October 2013, Boring had a processing plant installed at a cost of $10 million which is included in the trial of the nearby land. Boring will have to decontaminate (clean up) this land at the end of the plants ten-year life decontamination is $6 million. Boring has not made any accounting entries in respect of this cost. (straight-line depreciation). The present value (discounted at a cost of capital of 10% per annum) of the All other plant and equipment is depreciated at 12% per annum using straight the reducing balance method. No depreciation has yet been charged on any non-current asset for the year ended 30 September 2014. All depreciation is charged to cost of sale. Other than referred to above, there were no acquisitions or disposals of non-current assets. IV. The investments had a fair value of $15.7 million as at 30 September 2014. There were no acquisition or disposal of these investments during the year ended 30 September 2014. V. The balance on current tax represents the under/over provision of the tax liability for the year ended 30 September 2013. A provision for income tax for the year ended 30 September 2014 of $7.4 million is required. At 30 September 2014, Boring had taxable temporary difference of $5 million requiring a provision for deferred tax. Any deferred tax adjustment should be reported in profits or loss. The income tax rate Boring is 20%. Required a. Prepare the statement of profit or loss and other comprehensive income for Boring for the year ended 30 September 2014. b. Prepare the statement of changes in equity for Boring for the year ended 30 September 2014. C. Prepare the statement of financial position for Boring as at 30 September 2014. d. Calculate the increase in the amount of property, plant and equipment during the year ended 30 September 2014 from the perspective of: 1. The change between the opening and closing statements of financial position and; II. The statement of cash flows (20 marks) ACCA 2014

Answer rating: 100% (QA)

a Prepare the statement of profit or loss and other comprehensive income for Boring for the year end... View the full answer