Section A - Question 1

The following trial balance has been provided from the records of Starling plc for the year ended 31st July 2021.

Dr Cr m m

Non-current assets (Cost) Property, plant and equipment 806

Accumulated Depreciation (at 01/08/2020) Property, plant and equipment 200

Administrative expenses 225 Distribution expenses 148 Insurance 30 Rent and rates 70 Utilities 25 Interim ordinary dividend paid 22 Inventories (01/08/2020) 78 Allowance for doubtful debts (at 01/08/2020) 5 Revenue 860 Retained earnings 120 Ordinary Share Capital (25p) (at 01/08/2020) 200 Share Premium 65 General reserve 4

Trade payables Trade receivables 80 Bank 10% Debentures (2028) 120 Purchases 210 Debenture interest paid 6

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71 65

1,705 1,705

Additional Information

The following information was provided at the end of the year:

1. Inventory at 31st July 2021 was valued at 65 million.

2. Insurance costs unpaid at 31st July 2021 were 10 million. Insurance costs

   are to be allocated to cost of sales (10%), administrative expenses (40%) and

   distribution expenses (50%).

3. Utility costs totalling 3m for the quarter ended 30th September 2021 were

   unpaid as at the year end. Utilities are allocated equally to cost of sales and

distribution expenses. 4. Other costs are allocated as follows:

Cost of sales

Rent and rates 30% Depreciation 20%

Administrative expenses

10% 70% Continued...

Distribution

expenses 30% 40%

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5. The company depreciates property, plant and equipment at 20% on a reducing balance basis. Of the balance relating to cost of property, plant and equipment 46 million related to land.

6. A bad debt of 10m has not been accounted for in the trial balance above.

7. The allowance for doubtful debts is to be maintained at 10% of outstanding

   trade receivables at the trial balance date.

8. The company completed a rights issue and issued 8,000,000 shares at a

   price of 75p per share. All shares were paid for and no entries have been

   made to account for this share issue.

9. The directors of the company propose to:

   1. Account for corporation tax of 15 million for the year.

   2. Account for the outstanding debenture interest unpaid.

   3. Pay a final ordinary dividend of 6p per share on all shares that were

      issued and paid up at the statement of financial position date.

   4. Transfer 11 million to the general reserve.

Required The following statements should be prepared in a format suitable for publication.

1. a) Prepare the Income Statement for the year ended 31st July 2021, with expenses classified by function.

   (26 marks)

2. b) Prepare the Statement of Changes in Equity for the year ended 31st July 2021.

   (7 marks)

3. c) Prepare the Statement of Financial Position as at 31st July 2021. (17 marks)

4. d) Note to the accounts, where appropriate.

   (1 mark)

Your finance course director has asked questions about the preparation of accounts and wants information on the points below. .

e) Identify 3 subsidiary books.

(3 marks) f) Describe the purpose of, and information included in, each of the the

subsidiary books identified in part e above.

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(6 marks) TOTAL: 60 marks

Continued...

Question 2

Section B Answer ONE of TWO questions from this section.

Hannibal Lecter Ltd specialises in the production and retail of Chianti. Extracts of the companys financial statements for the year ended 31st May 2020 and 2021 have been provided below. *Please note that the presentation below should not be assumed to be suitable for publication but the information is factually correct.

Non-current Assets

Land & Buildings Plant & machinery

Current Assets

Inventory Trade receivables Cash and cash equiv

TOTAL ASSETS

Current Liabilities

Trade payables Corporation tax

Non-current Liabilities

6% Debentures

Equity

Share Capital (50p) Share Premium Retained earnings

2021 000s

20

40 304

100 25

000s

NBV

1,410 250 1,660

364

2,024

125

475

510 250 664

2020 000s 000s

NBV

1,450 280 1,730

86

1,816

60

600

350 170 636

1,816

Hannibal Lecter Ltd Statement of Financial Position as at 31st May;

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19 42 25

37 23

TOTAL EQUITY AND LIABILITIES 2,024

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Continued...

Income Statement for the year ended 31st May;

2021 2020 000s 000s Revenue 560 550

Less: Cost of Sales Gross Profit

Less: Operating Expenses

Operating Profit

Interest received/(paid)

Profit Before Tax

Corporation Taxation Charge

Profit for the year

Additional Information

(170) (130) 390 420

(290) (300)

100 120 (25) 5 75 125 (22) (30) 53 95

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• During the year 90,000 shares were issued, all of which were called up and paid for.

• Ordinary dividends paid during the year amounted to 25,000.

• A piece of plant was disposed of that had originally cost 50,000 for proceeds of

  20,000 with accumulated depreciation of 40,000.

• There were no other non-current asset disposals or acquisitions.

• An ordinary dividend of 7p per share was declared on 31st March 2021 to be paid

  on 10th May 2021.

  Required

  1. a) Prepare the Statement of Cash Flows for the year ended 31st May 2021 in

     a format suitable for publication.

     (30 marks)

  2. b) Apart from limited companies (Plc or Ltd) identify 2 other business structures.

     (2 marks)

  3. c) Describe the advantages and disadvantages of being a limited company (Plc or Ltd).

     (8 marks) TOTAL: 40 marks