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In calculations, show clearly all workings

1.The following trial balance has been extracted from the books of Maple plc as at 31 March 2017:

￡’000 ￡’000
Freehold land and buildings at cost 750
Accumulated depreciation as at 1 April 2016 250
Plant and equipment at cost 345
Accumulated depreciation as at 1 April 2016 180
Inventories as at 1 April 2016 125
Trade receivables 153
Trade payables 86
Bank 340
Purchases 615
Sales 1,000
Distribution expenses 80
Administrative expenses 251
Debentures (8%) 200
Ordinary Share capital 200
Share premium 60
5% irredeemable preference shares 100
Retained earnings as at 1 April 2016 69
Allowance against receivables as at 1 April 2016 17
Ordinary share dividend paid 23
Sale of non-current asset 185
Costs of new building 350
Provision for warranty 5
2,692 2,692
In preparing the company’s financial statements as at 31 March 2017, the following further information has not yet been taken into account:

(i)Inventory as at 31 March 2017, valued at cost, amounted to
￡300,000. Certain of the inventory having a cost of ￡50,000 had been damaged in a fire and at the year-end had a residual value of ￡30,000

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(ii)The freehold land and buildings were revalued during the year at ￡1,200,000 (of which ￡600,000 relates to buildings), and the value had not changed in the year. The directors have decided to bring these amounts into the accounts.

(iii)Depreciation is to be provided on buildings at a rate of 2% on valuation and on other plant and equipment at a rate of 20% adopting the reducing balance method for depreciation. The historical cost depreciation for buildings would have been
￡8,000. Depreciation is to be charged 50% to cost of sales, 30% to administrative expenses and 20% to distribution expenses.

(iv)Included in freehold land and buildings is land which had cost ￡80,000, had been revalued at ￡120,000 and was sold in March 2017 for ￡185,000. The only entries made relating to the sale transaction have been to debit cash and to credit the Sale of non-current asset account with ￡185,000.

(v)During the year the company began construction of a new building. The costs incurred to date include the following:

￡’000
Site preparation 120
Materials used 80
Labour costs 50
Overheads 100
Total 350

Overheads comprise overheads of ￡60,000 related to the construction of the building and overheads of ￡40,000 that are general to the business as a whole.

(vi)A customer had gone into liquidation owing the company
￡40,000; the company does not expect to recover any of this debt. It has also been agreed that the allowance against receivables should be increased to ￡25,000.

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(vii)The company sells certain goods under warranty. Customers are covered for the cost of repairing any defects that become apparent within the first year after purchase. It has been estimated that if minor defects were detected in all products sold, repair costs of ￡30,000 would result. If major defects were detected in all products sold repair costs of ￡100,000 would result. The company’s past experience and future expectations indicate that 75% of goods sold will have no defects, 20% of goods sold will have minor defects and 5% of goods sold will have major defects.

(viii)Corporation tax based on the profit for the year is expected to be ￡30,000.

(ix)The preference dividend is not mandatory but the Directors have chosen to pay it. The dividend paid has been recorded erroneously within Administrative expenses in the trial balance.

(x)The Directors have decided to make the necessary transfers to retained earnings according to best practice.

Required:

(a)As far as the information permits, prepare Maple plc’s Statement of Comprehensive Income for the year to 31 March 2017, and a Statement of Financial Position as at that date, in accordance with International Financial Reporting Standards.
(40 marks)

(b)Explain the rationale for your accounting treatment of items
(vii) and (ix) in the above. Refer to the IASB Conceptual Framework (2010) and relevant International Financial Reporting Standards.

(10 marks)
(Total: 50 marks)

2.Beech plc has produced a draft Statement of Profit or Loss for the year ended 31 March 2017 and a draft Statement of Financial Position as at the same date. The draft Statement of Financial Position is given below.

To assist with the finalisation of the financial statements the following additional information has been prepared:

(i)During the year Beech discontinued part of its business. As a result, certain plant and equipment was classified as Held for Sale early in the year. The plant and equipment was purchased on the 1 April 2013 at a cost ￡200,000 and had an estimated useful life of five years on acquisition. On classification as Held for Sale the fair value of the plant and equipment was estimated as ￡100,000 with costs to sell estimated at 5% of fair value.

As the asset had not been sold at the end of the year, annual depreciation had been charged and had been included in the draft financial statements. The fair value of the plant and equipment and the related costs to sell remained the same as on initial classification as Held for Sale.

(ii)Beech has an agreement with a number of third party retailers of its products to provide a number of items on a sale or return basis. Retailers pay for items sold on 90-day credit terms and return any unsold items at that date. Beech makes a standard 10% mark-up on all goods sold. As at the end of the financial year, sales of ￡88,000 on a sale or return basis were recognised in the draft Statement of Financial Position. At the financial year end these goods had not yet been sold by the retailers.

(iii)Beech has ￡750,000 of research and development costs recorded during the year within its intangible asset account in the draft Statement of Financial Position. Of this amount,
￡600,000 relates to research and development costs of a new product. This product was judged commercially viable half way through the year, though it will not be launched into the market until 2018. Prior to the mid-year point, the product was a more speculative venture.

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The remaining ￡150,000 relates to specialised technical equipment recorded within the intangible asset account as it is used solely in association with the new product. This equipment is estimated to have a useful life of three years before it will be superseded by a more sophisticated version. Neither amortisation nor depreciation had been accounted for.

Draft Statement of Financial Position as at 31 March 2017

￡ ￡
Assets
Non-current assets
Property, plant and equipment 2,002,450
Intangibles 750,000
Current assets
Inventory 146,500
Trade and other receivables 151,000
Bank 121,500 419,000
Total assets 3,171,450
Equity and Liabilities
Equity
Share capital 832,000
Retained earnings 2,030,050
2,862,050
Non-current liabilities
Bank loan 150,000
Current liabilities
Trade and other payables 123,700
Current tax payable 35,700 159,400
Total equity and liabilities 3,171,450

Question continued

Required:
(a)Prepare a revised Statement of Financial Position as at 31 March 2017 in a form suitable for publication taking into account the above information.

Where relevant show all workings
(20 marks)

(b)Explain the rationale for your accounting treatment of item (i). Refer to the IASB Conceptual Framework (2010) and International Financial Reporting Standards where relevant.

(5 marks)
(Total: 25 marks)

3.Standard setting can be understood by applying theoretical perspectives to events that take place.

Required:

Using at least one example, apply theoretical perspectives that you are familiar with to the events of standard setting to explain the standard setting process and its outcome.
(25 marks)