Sunshine plc was established in 2006 and manufactures windows and doors. The following draft trial balance has been produced for the year ended 31 March 2022.

Revenue		26,620
Dividends received from non-current asset investments		52
Cost of sales	12,710
Distribution costs	3,290
Administrative expenses	2,300
Finance Costs	327
Interim dividend paid	90
Freehold land	2,790
Freehold buildings	6,200
Leasehold building	1,200
Plant and machinery	5,429
Furniture and fittings	3,840
Provisions for depreciation:
Freehold buildings		1,300
Plant and machinery		1,250
Furniture and fittings		1,100
Non-current asset investments (at cost)	940
Closing inventory	2,016
Trade receivables/payables	1,838	834
Bank account		100
Under provision for corporation tax in previous year	6
Share capital (50p ordinary shares)		4,000
Share premium account		320
Loan stock (redeemable 2030)		2,750
Deferred tax account		650
Retained earnings	-	4000

42,976

42,976

The following notes are relevant:

1) Depreciation for the year has not been provided. The depreciation policy is as follows: Leasehold buildings Straight line over the period of the lease, charged to cost of sales Plant and machinery 20% reducing balance, charged to cost of sales Furniture and fittings 25% reducing balance, charged to administrative expenses The company’s depreciation policy is to charge a full year in the accounting year of acquisition of the asset, but none in the year of disposal.

2) On 1 April 2021 the freehold buildings were valued at a figure of £7,000. The directors wish to incorporate this figure into the accounts. The buildings have an estimated remaining life of 40 years. Depreciation of buildings is charged to cost of sales.

3) Plant and machinery bought on 30 September 2019 and costing £100,000 was sold on 31 August 2020 for £48,000. No adjustment for this sale has been made and the sale proceeds have been included in revenue in the trial balance.

4) The leasehold building was acquired on 6 July 2021. The lease is for a period of 30 years.

5) During the year, a research and development department was established, incurring costs to the year-end of £800,000, including £200,000 for specialised machinery (bought on 11 January 2022) . The whole of this expenditure is included in cost of sales. The directors of the company estimate that £500,000 of the expenditure relates to the development of a new window frame that will be launched later in 2022 and the remaining expense relates to pure research. It is confidently expected that the new product will earn substantial profits.

6) On 1 September 2021, Sunshine plc closed a division of the company. The division’s results from 1 April 2021 to the date of closure, which are included in the figures in the trial balance were:

(£000)

Revenue 1,850

Cost of sales 2,220

The directors of the company decided at a board meeting to dispose of the plant and machinery used by the discontinued division and started actions to locate a buyer. The plant had a carrying value at 1 April 2021 of £420,000, made up of a cost of £820,000 and accumulated depreciation of £400,000. The plant is in short supply, so the company is confident that the asset will be sold quickly. The current market value of the plant is £350,000 and it will cost £8,000 to dismantle the machinery to make it available to the purchaser.

7) Additional slow moving Inventory of Sunshine with a cost value of £1,500,000 and market value of £1,000,000 has not been included in the accounts. Also the year-end stock take found that £200,000 of the inventory was missing, which had been included in the trial balance value. It is suspected that pilfering had taken place.

8) The inventory at 31 March 2022 includes £200,000 of slow-moving goods. Sunshine plc is trying to sell these to another company, but has not been successful in obtaining a reasonable offer. The best price it has been offered is £160,000.

9) Corporation tax is to be provided at a rate of 20% of the net profit on continuing activities as shown in the statement of profit or loss. The company also accounts for deferred taxation in accordance with IAS12. At 31 March 2022 the difference between the carrying amounts of the net assets of Sunshine plc and their (lower) tax base was £3,175,000.

a) Prepare for Sunshine plc, a Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 March 2022 and

b) A Statement of Financial Position as at 31 March 2022

Answer rating: 100% (QA)

Statement of Profit or Loss and Other Comprehensive Income For the Year Ended 31 March 2022 Revenue ... View the full answer