Question 4 Halom plc are preparing their financial statements for the year to 31 December 2020...

 

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Question 4 Halom plc are preparing their financial statements for the year to 31 December 2020 and have asked for your advice on the following three issues: (a) The company has received aid from the government during the year. They received £3m as a grant of 25% towards the cost of a new machine that will have an expected life of 5 years. They also received £250k from the government for continuing to employ 250 members of staff who had previously been furloughed. Prepare the information that would need to be disclosed in the financial statements to reflect these matters. (6 Marks) (b) In October 2020 200 of the 400 members of staff employed in the main factory operated by Halom plc tested positive for Covid-19. One of those who tested positive, who also required hospital treatment, is suing the company for £50,000 on the grounds that the company did not take adequate precautions to prevent the spread of the virus in the workplace. The company's legal advisers are unsure of the likely outcome if the case goes to court. Prepare the information that would need to be disclosed in the financial statements to reflect these matters. (6 Marks) (c) The company has spent £50m in 2020 developing a new product that they hope to start selling in 2022. The new product is not yet ready to be sold and future costs to complete the development will be £30m and the company expects to spend a further £20m on marketing the product. The directors are confident that the product will be successful, but significant testing is still to be done in relation to the safety of the product and to test the market. The company has sufficient funds to complete the development and are keen to capitalise the expenditure to date. What should be disclosed in the financial statements? Fully justify your answer. (8 Marks) Question 4 Halom plc are preparing their financial statements for the year to 31 December 2020 and have asked for your advice on the following three issues: (a) The company has received aid from the government during the year. They received £3m as a grant of 25% towards the cost of a new machine that will have an expected life of 5 years. They also received £250k from the government for continuing to employ 250 members of staff who had previously been furloughed. Prepare the information that would need to be disclosed in the financial statements to reflect these matters. (6 Marks) (b) In October 2020 200 of the 400 members of staff employed in the main factory operated by Halom plc tested positive for Covid-19. One of those who tested positive, who also required hospital treatment, is suing the company for £50,000 on the grounds that the company did not take adequate precautions to prevent the spread of the virus in the workplace. The company's legal advisers are unsure of the likely outcome if the case goes to court. Prepare the information that would need to be disclosed in the financial statements to reflect these matters. (6 Marks) (c) The company has spent £50m in 2020 developing a new product that they hope to start selling in 2022. The new product is not yet ready to be sold and future costs to complete the development will be £30m and the company expects to spend a further £20m on marketing the product. The directors are confident that the product will be successful, but significant testing is still to be done in relation to the safety of the product and to test the market. The company has sufficient funds to complete the development and are keen to capitalise the expenditure to date. What should be disclosed in the financial statements? Fully justify your answer. (8 Marks)

Answer rating: 100% (QA)

A The grants disclosing accounr for following disclosures The company has received grant of 3m to tu... View the full answer