You have recently joined Piping Ltd, a manufacturer of kitchen appliances, as the newly appointed financial...

Transcribed Image Text:

You have recently joined Piping Ltd, a manufacturer of kitchen appliances, as the newly appointed financial controller following the recent resignation of the previous one. You have joined during the preparation of the year- end financial statements. Below is the trial balance for Piping Ltd at 31 December 2022: Revenue Purchases Administrative expenses Finance costs 6% Loan (repayable in 2025) Distribution costs Land and buildings carrying amount at 31 December 2021 (land £800,000) Plant and machinery cost Accumulation depreciation at 31 December 2021 Brand Retained earnings at 31 December 2021 Ordinary share capital (£1 shares) Cash at bank Inventories at 31 December 2021 Trade and other receivables Trade and other payables Suspense account £'000 13,486 3,815 120 2,512 5,694 6,357 500 988 1,918 35,390 £'000 19,807 1,000 3,361 3,064 5,000 347 1,011 1,800 35,390 Distribution costs Land and buildings carrying amount at 31 December 2021 (land £800,000) Plant and machinery cost Accumulation depreciation at 31 December 2021 Brand Retained 2021 earnings at 31 December Ordinary share capital (£1 shares) Cash at bank Inventories at 31 December 2021 Trade and other receivables Trade and other payables Suspense account 2,512 5,694 6,357 500 988 1,918 3,361 3,064 5,000 347 1,011 1,800 35,390 35,390 You have been provided with the following additional information: (1) Inventories held on 31 December 2022 cost £1,028,000. (2) Within inventory is a product line of SEN400s, the units left in stock at 31 December 2022 are recorded at cost £11,000 and would usually sell for £13,000. However, they are faulty and require £4,000 of rectification work to be saleable. (3) On 1 January 2022 the company sold and delivered appliances to customer A. Buildcredit. The sales price is £20,000, payable in full on 31 December 2023 and the market rate of interest is 12%. The previous financial controller recognised the £20,000 in revenue on 1 January 2022. (4) Leggit Co, a local building company and regular customer of Piping has gone out of business. At 31 December 2022 they owed Piping £13,000. (5) Data from previous years is captured to predict the future outcome of warranty claims, for goods sold in the year (with 12 month warranties) but not yet claimed against at the reporting date. Claims are typically settled within the next 12 months. No adjustment to the accounts has been made in relation to the data this year because the owner would rather deal with claims as they arise: Percentage of goods sold 90% 8% 2% 1% Defect None Minor Moderate Major Compensation payable £2,000,000 £800,000 £700,000 0 (6) The owner decided to adopt the revaluation model for land and buildings this year. An independent surveyor valued Piping's land and buildings on 1 January 2022 at £13.6 million (land £2.1 million). The owner doesn't think it makes sense to depreciate following the revaluation, since it reflects the market value. The remaining useful life of buildings at 1 January 2022 was estimated as 25 years. Depreciation of land and buildings are treated as an administrative expense. (7) Plant and machinery are being depreciated at 25% reducing balance. Depreciation of plant and machinery are treated as a cost of sale. (8) On 1 July 2022 the owner and previous financial controller recognised the 'Piping' brand as an intangible asset on the basis that sales have grown consistently over the last few years and have attributed this to the familiarity of the brand in the industry. They recognised the other side of the adjustment as a credit to administrative expenses. (9) On 1 October 2022 the company raised funds through a 1 for 5 rights issue at £1.80 per share. The proceeds have been recorded in the suspense account. (10) Income tax for the year to 31st December 2022 is estimated to be £33,000. (11) On 31st December 2022 the directors declared a dividend of 2p per share. This is to be paid in January 2023. Requirements: a) Prepare a schedule of adjustments, detailing the debits and credits required to deal with the additional information (refer to appendix 1, where the first entry has been done for you). (10 marks) b) Prepare the following financial statements for Piping Ltd for the year ended 31 December 2022: i) A Statement of Profit or Loss and Other Comprehensive Income A Statement of Financial Position as at that date A Statement of Changes in Equity ii) (10 marks) c) Explain the appropriate accounting treatment required in relation additional information (3), (5), (6) and (8). Your explanation should refer to the relevant IFRS standard(s) and the IASB's Conceptual Framework for Financial Reporting. You should set out clear workings for any calculations and the required double entry adjustments within your explanation. (45 marks) d) The original profit before tax based on the trial balance (and adjusted for closing inventory (adjustment 1)) was £902,000. Describe the impact on profit for the period following your You have recently joined Piping Ltd, a manufacturer of kitchen appliances, as the newly appointed financial controller following the recent resignation of the previous one. You have joined during the preparation of the year- end financial statements. Below is the trial balance for Piping Ltd at 31 December 2022: Revenue Purchases Administrative expenses Finance costs 6% Loan (repayable in 2025) Distribution costs Land and buildings carrying amount at 31 December 2021 (land £800,000) Plant and machinery cost Accumulation depreciation at 31 December 2021 Brand Retained earnings at 31 December 2021 Ordinary share capital (£1 shares) Cash at bank Inventories at 31 December 2021 Trade and other receivables Trade and other payables Suspense account £'000 13,486 3,815 120 2,512 5,694 6,357 500 988 1,918 35,390 £'000 19,807 1,000 3,361 3,064 5,000 347 1,011 1,800 35,390 Distribution costs Land and buildings carrying amount at 31 December 2021 (land £800,000) Plant and machinery cost Accumulation depreciation at 31 December 2021 Brand Retained 2021 earnings at 31 December Ordinary share capital (£1 shares) Cash at bank Inventories at 31 December 2021 Trade and other receivables Trade and other payables Suspense account 2,512 5,694 6,357 500 988 1,918 3,361 3,064 5,000 347 1,011 1,800 35,390 35,390 You have been provided with the following additional information: (1) Inventories held on 31 December 2022 cost £1,028,000. (2) Within inventory is a product line of SEN400s, the units left in stock at 31 December 2022 are recorded at cost £11,000 and would usually sell for £13,000. However, they are faulty and require £4,000 of rectification work to be saleable. (3) On 1 January 2022 the company sold and delivered appliances to customer A. Buildcredit. The sales price is £20,000, payable in full on 31 December 2023 and the market rate of interest is 12%. The previous financial controller recognised the £20,000 in revenue on 1 January 2022. (4) Leggit Co, a local building company and regular customer of Piping has gone out of business. At 31 December 2022 they owed Piping £13,000. (5) Data from previous years is captured to predict the future outcome of warranty claims, for goods sold in the year (with 12 month warranties) but not yet claimed against at the reporting date. Claims are typically settled within the next 12 months. No adjustment to the accounts has been made in relation to the data this year because the owner would rather deal with claims as they arise: Percentage of goods sold 90% 8% 2% 1% Defect None Minor Moderate Major Compensation payable £2,000,000 £800,000 £700,000 0 (6) The owner decided to adopt the revaluation model for land and buildings this year. An independent surveyor valued Piping's land and buildings on 1 January 2022 at £13.6 million (land £2.1 million). The owner doesn't think it makes sense to depreciate following the revaluation, since it reflects the market value. The remaining useful life of buildings at 1 January 2022 was estimated as 25 years. Depreciation of land and buildings are treated as an administrative expense. (7) Plant and machinery are being depreciated at 25% reducing balance. Depreciation of plant and machinery are treated as a cost of sale. (8) On 1 July 2022 the owner and previous financial controller recognised the 'Piping' brand as an intangible asset on the basis that sales have grown consistently over the last few years and have attributed this to the familiarity of the brand in the industry. They recognised the other side of the adjustment as a credit to administrative expenses. (9) On 1 October 2022 the company raised funds through a 1 for 5 rights issue at £1.80 per share. The proceeds have been recorded in the suspense account. (10) Income tax for the year to 31st December 2022 is estimated to be £33,000. (11) On 31st December 2022 the directors declared a dividend of 2p per share. This is to be paid in January 2023. Requirements: a) Prepare a schedule of adjustments, detailing the debits and credits required to deal with the additional information (refer to appendix 1, where the first entry has been done for you). (10 marks) b) Prepare the following financial statements for Piping Ltd for the year ended 31 December 2022: i) A Statement of Profit or Loss and Other Comprehensive Income A Statement of Financial Position as at that date A Statement of Changes in Equity ii) (10 marks) c) Explain the appropriate accounting treatment required in relation additional information (3), (5), (6) and (8). Your explanation should refer to the relevant IFRS standard(s) and the IASB's Conceptual Framework for Financial Reporting. You should set out clear workings for any calculations and the required double entry adjustments within your explanation. (45 marks) d) The original profit before tax based on the trial balance (and adjusted for closing inventory (adjustment 1)) was £902,000. Describe the impact on profit for the period following your