Prepare the Income Statement for the year ended 31 December 2014 and the Balance Sheet as at that date for Tor in accordance with International Accounting Standards (IASs)

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Prepare the Income Statement for the year ended 31 December 2014 and the Balance Sheet as at that date for Tor in accordance with International Accounting Standards (IASs)

Task 1: Understand the regulatory framework for financial reporting (LO 1: 1.1, 1.2, 1.3, 1.4 ) – Due Week 5

1.1. Explain who the different users of financial statements are; their need

1.2. Write a report as how regulatory bodies like (ASBs, IASB, IASC and IPSAS) influences on the preparation of financial statements. Students are required to mention companies act, stock exchange rules, and EU directives.

1.3. Assess the implication for users in the conceptual framework.

1.4. Explain reporting standards are dealing with regulatory requirements. Students are required to

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explain qualitative characteristics, underlying assumptions and capital maintenance concept in the light of these regulations.

Task 2: Be able to prepare financial statements from complete or incomplete records (LO 2: 2.1, 2.2, 2.3 and M1, M2) – Due Week 10

2.1. The trial balance for Tor enterprise as at 30 September 2015 is as follows:

	£000	£000
Revenue		72,900

Purchases	31,220
Inventory 1 October 2014	6,650
Distribution costs	3,240
Administration costs	7,480

Land at valuation (note (iv))	32,000
Property at cost (note (iii))	42,000
Property accumulated		7,410
depreciation as at 1
October 2014
Plant and equipment at cost	56,260
(note (iii))
Plant and equipment		10,920
accumulated depreciation
as at 1 October 2014
Trade receivables	18,740
Trade payables		9,860
Bank	14,060
Ordinary issued 50p shares		65,000
Share premium account		15,000
Revaluation reserve as at 1		11,500
October 2014
Retained earnings as at 1		11,560
October 2014
8% loan redeemable 2112		7,500
(note (ii))
	211,650	211,650

(Note that figures in the above table are in £000s - thousands)

The following notes are applicable:

(i) Inventory as at 31 September 2015 amounted to £6,240,000 at cost. A review of inventory revealed the following:

(a) Items costing £320,000 that had been included in the inventory at 30 September

2015 were found to have deteriorated, after remedial work of £80,000, these items could only be sold for £360,000.

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(ii) The interest on the loan has not been paid for the year ended 30 September 2015 and must be accrued.

(iii) Depreciation is to be calculated for the year ended 31 December 2014 as follows:

(a) Property 2% per annum on cost

(b) Plant and equipment 15% per annum on cost

(iv) Land is to be revalued to £40,000,000 as at 30 September 2015.

(v) Tax for the year ended 31 December 2014 is chargeable at 20% of profits for the year before receiving or paying dividends.

(vi) Adjustments for accruals and prepayments are required as follows:

Accruals Prepayments

Distribution costs £26,000

Administration costs £22,000

Required:

Prepare the Income Statement for the year ended 31 December 2014 and the Balance Sheet as at that date for Tor in accordance with International Accounting Standards (IASs)

Task 2.2

Sajid is running Corner shop due to the fire in the office some of the accounting records has been burned you are required to prepare the income statement and balance sheet from given information for the year ended 31-12-2014

The balance sheet of Sajid’s a trader, on 1 January 2014 was as follows:

BALANCE SHEET AS AT 01 JAN 2014

Assets	£
Non-Current Assets
Property Plant and Equipment	126,000
Current assets
Closing Stock	10,360
Trade receivables	21,360
Bank	13,690
	171,410
Equity & Liabilities
Capital	150,000

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Current liabilities
Trade Payables		21,410
		171,410

Sajid pays all his takings into his bank account and draws cheque for all business payments. The following transactions incurred during the year 2014:

RECEIPTS AND PAYMENTS

	£
Salaries and wages paid	6,532
Repair and maintenance	4,560
General Expenses paid	4,361
Receipts from Trade receivables	130,130
Payment to Trade payables	124,356

Additional information:

Closing Balances

At December 2014 trade receivables amounted £ 45,650 and trade payables amounted to £ 13,654. Closing stock is valued at £ 4,560.

There are no transactions other than those which can be ascertained from the information given above.

Depreciation on Property, plant and equipment is to be charged at the rate of 10% per annum on the value at 01 January each year.

Required: Prepare the Income Statement and Balance sheet for the year ended 31-12-2014 according to format explained in the class.

2.3 On 1st October 2014, Parent enterprise acquired 80% of Subsidiary enterprise’s ordinary shares paying £3.20 per share. At the date of acquisition, the retained earnings of Sabine were £600,000. The draft Income statement and Statement of Financial Position of the two enterprises as at 30th September 2015 were as follows:

Income Statement for the year ended 30 September 2015

	Parent	Subsidiary
	£000	£000
Revenue	92,500	45,000
Cost of Sales	70,500	36,000

Gross Profit	22,000	9,000
Distribution Cost	2,500	1,200
Administrative Expenses	5,500	2,400
Finance Cost	1,000

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Profit before Tax	13,900	5,400
Income Tax Expense	3,900	1,500

Profit for the Year	10,000	3900

Statement of Financial Position as at 30 September 2015

	Parent	Subsidiary
Assets	£000	£000
Non-current assets
Land	5,500	3,900
Plant and equipment	20,000	10,000
Investment in Subsidiary	12,800	—
	38,300	13,900
Current assets:

Inventory	4,925	1,295
Trade receivables (debtors)	5,710	1,105
Cash	1,865	—

Total assets	50,800	16,300

Equity and liabilities
Equity:

Ordinary shares £1	13,000	5,000
Revaluation reserve	2,500	-
Retained Earnings	12,300	4,500
	27,800	9,500
Non-current liabilities:

10% loans	13,000	-
Current liabilities:
Trade payables (creditors)	7,000	5,000
Bank overdraft	—	875
Tax	3,000	925
Total equity and liabilities	50,800	16,300

The following information is also relevant:

The fair value of Subsidiary’s land at the date of acquisition was £1.2million, in excess of the carrying values. Subsidiary’s Statement of Financial Position has not taken account of these fair values. Group depreciation policy is land not depreciated.

An impairment review has been carried out on the consolidated goodwill as at 30^th September 2015 and it has been found that the goodwill has been impaired by £1,000,000 during the year.

Required

Prepare the Consolidated Income statement and Statement of Financial Position of the Parent group as at 30th September 2015.

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For M1: An effective approach of study is required to solve the complex problem (Task 2.1)

For M2: Appropriate learning methods/technique should have to apply (Task 2.3)

NOTE: 2.2 will be assessed by a time constraint assessment in the class. Student will be required to prepare the financial statements from incomplete records.

Task 3: Be able to present financial information in accepted formats for publication (LO 3: 3.1, 3.2 and M3

& D2) – Due Week 14

3.1. Identify the different users of financial statements and analyse the fact that every user groups have different information need which need to be served by the financial reporting.

3.2. Students are required to prepare the financial statements for sole traders, partnerships and limited companies. Student should also highlight the difference between financial statements in a separate paragraph for different business organisations.

For D2: Autonomy / Independence should be presented (Task 3.1)

For M3: Appropriate structure and approach should have been used (Task 3.2)

Task 4: Be able to interpret financial statements (LO 4: 4.1, 4.2 and D1, D3) - Due 5^th Jan 2015

Alpha Ltd is a construction firm and Beta Ltd is a property company which specialises in letting property to professional firms. The following information is relevant:

		Alpha Ltd £	Beta Ltd £
	£1 ordinary shares	600,000	150,000
	£1 preference shares (10%)	15,000	450,000
	Retained profits	600,000	75,000
	8% debentures	75,000	450,000
	Operating profit for the year	300,000	300,000
	Current market price per	£3.65	£10.20
	ordinary share
The rate of corporation tax is 25%
*Required:*
4.1:

(a) (i) What do you understand by the term gearing?

(ii) Calculate the gearing ratios for both Alpha Ltd and Beta Ltd.

(b) Prepare a schedule for each company in which you indicate the profit remaining after allowing for debenture interest, taxation and the preference dividend.

(d) Calculate the price earnings ratio for each company.

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