Further Aspects of Financial Accounting
Task 1
Total for this task: 22 marks
Jack, Henry and Len are in partnership, sharing profits and losses in the ratio 4:3:2 respectively.
The partnership balance sheet at 30 April 2013 was as follows.
Jack, Henry and Len Balance sheet at 30 April 2013
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Non-current assets
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£
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£
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£
216 000
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Current assets
Inventory
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22 944
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Trade receivables
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15 168
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Cash and cash equivalents
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3 274
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41 386
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Current liabilities
Trade payables
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11 376
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Net current assets
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30 010
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246 010
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Capital accounts
Jack
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102 000
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Henry
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84 000
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Len
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36 000
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222 000
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Current accounts
Jack
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18 816
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Henry
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10 968
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Len
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(5 774)
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24 010
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246 010
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On 1 May 2013, Len will retire from the partnership. Jack and Henry will continue in partnership, sharing profits and losses in the ratio 3:1 respectively. The partners have also agreed that the following will take effect on that date.
(1) Non-current assets will be revalued at £235 000.
(2) Inventory will be valued at the net realisable value of £17 444.
(3) Goodwill will be valued at £27 000 and will not be maintained in the books of account.
(4) The combined balances on Len’s capital account and current account will be transferred to a loan account because the partnership has insuffi cient liquid funds to repay the amount due to Len.
Prepare the partnership capital accounts for Jack, Henry and Len at 1 May 2013 after items (1) to (4) have been implemented.
Assess two sources of finance that could be used to fund the proposed expansion. Recommend and justify the most appropriate finance method.
Task 2
The directors of Giles plc are unsure about the correct accounting treatment of the following situations in the financial statements for the year ended 31 May 2013.
(1) Giles plc is being sued for a breach of contract and the compensation for damages has been estimated at £65 000. It is not known when the case will be concluded. However, it is probable that legal proceedings will result in a loss for Giles plc.
(2) Damaged fi nished goods for resale have been included in the inventory valuation at an original cost of £60 000. These goods will be sold with a profi t margin of 20%. However, before sale, the inventory will need to be modifi ed at an additional cost of £22 750.
(3) IT equipment, with a carrying amount of £42 500, is now inadequate due to changes in technology. This equipment has an estimated fair value of £30 000 and an estimated value in use of £34 750.
Identify the relevant international accounting standard to be applied to each of the situations (1) to (3)
Explain, with reference to the relevant international accounting standard, how each of the situations (1) to (3) should be treated in the financial statements.
Task 3
Eve Huffer, a retailer, did not keep a full set of accounting records for her business. She has provided the following information in order to complete her financial statements.
At 31 March 2012
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Insurance prepaid
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920
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Inventory
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11 990
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Non-current assets at net book value
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95 800
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Trade payables
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6 750
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Trade receivables
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19 670
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Wages accrued
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2 800
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Dr Bank Account Cr
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£
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£
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Receipts from sale of non-current assets
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13 800
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Balance b/d at 1 April 2012
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2 438
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Receipts from trade receivables
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158 600
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Insurance
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3 700
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Wages
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35 000
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General expenses
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7 640
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Rent
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12 500
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Drawings
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17 500
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Payments to trade payables
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86 300
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Balance c/d at 31 March 2013
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7 322
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172 400
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172 400
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Balance b/d at 1 April 2013 7 322
Eve Huffer has partially completed her income statement for the year ended 31 March 2013, as shown below.
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Revenue
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£
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£
153 400
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Cost of sales
Opening inventory
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11 990
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Purchases
Goods for own use
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?
(3 000)
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Closing inventory
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(6 365)
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?
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Gross profit Less expenses:
Insurance
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3 520
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?
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Wages
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34 720
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General expenses
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7 640
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Loss on sale of non-current assets Depreciation
Rent
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600
? 10 000
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?
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Profit (or loss) for the year
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?
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Additional information
(1) There were no cash sales or cash purchases during the year.
(2) All sales are calculated at cost plus 60% mark-up.
(3) Depreciation on non-current assets was provided at 20% using the reducing balance method. A full year’s depreciation is provided in the year of purchase and no depreciation is provided in the year of disposal.
(4) The rent paid is for the 15 months ended 30 June 2013.
Prepare a balance sheet for Eve Huffer’s business at 31 March 2013.
Task 4
The directors of Pearl plc have provided the following extract from the balance sheet at 30 April 2012.
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Cost
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Depreciation
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NBV
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£
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£
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£
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Property plant and equipment
Land and buildings
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187 500
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56 250
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131 250
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Motor vehicles
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112 500
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49 200
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63 300
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Fixtures and fittings
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50 000
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13 500
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36 500
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350 000
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118 950
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231 050
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The following is an extract from the company’s statement of accounting policies for depreciation.
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Non-current assets
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Policy
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Land and buildings
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Straight-line method at 4% per annum
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Motor vehicles
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Reducing balance method at 25% per annum
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Fixtures and fittings
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Straight-line method at 15% per annum
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A full year’s depreciation is charged in the year of purchase, but none is charged in the year of disposal.
During the year ended 30 April 2013, the following transactions took place.
(1) Land and buildings were revalued at £260 000 on 1 May 2012.
(2) A motor vehicle was purchased during the year at a cost of £24 950.
(3) A motor vehicle with a net book value of £18 450 was sold during the year for £15 500. It was originally purchased on 1 May 2010.
(4) Fixtures and fittings were purchased during the year at a cost of £5 200.
Prepare a schedule of non-current assets at 30 April 2013 (a total column is not required).