Question: The following is an extract from the trial balance of Wolrus Ltd for the year end 31st December 2015.
Purchase (production costs) 2,573,000
Leasehold property—cost 1,500,000
Plant—cost at 1 January 2005 1,320,000
Plant—accumulated depreciation 660,000
Equipment—cost—cost at 1 January 2007 350,000
Equipment—accumulated depreciation 140,000
Capitalised development expenditure—at 1 January 2015 200,000
—accumulated amortisation 40,000
Inventories as at 01 January 2015 765,000
Distribution cost 19,660
Administrative expenses 98,000
Retained earnings 284,660
Trade receivable 815,000
Cash at bank 249,000
5% bank loan repayable 2018 800,000
Share capital 1,000,000
Share premium 500,000
Trade payable 2,970,000
1. The share capital of the company consists of ordinary shares with a nominal value of £1 each.
2. The sales figure in the trial balance includes sales made on credit for January 2016 amounting to £445,000.
3. Interest on the bank loan for the fiscal year 2015 has not been included in the trial balance.
4. The board has decided to pay dividends as 5p/share.
5. An accruals for wages of £30,000 is required. Suggestion: These are included in administration expenses.
6. The allowance for doubtful debt is to be maintained at 5% of the ending balance of the trade receivable accounts
7.The inventories at the close of business on 31st December, 2015 cost £825,000 before adjusting for the following:
Items which had cost £80,000 and which would normally sell for £120,000 were found to be faulty. £20,000 needs to be spent on these items in order to sell them for £90,000.
8. Non-current assets-tangible
a). The leasehold property has a remaining life of 20 years at 31 December, 2014. The company's policy is to revalue its property at each year end and at 31 December, 2015 it was valued at £1,400,000. Ignore deferred tax on the revaluation.
b). On 1 Janaury 2015 an item of equipment was disposed of for £25,000. The proceeds have been treated as sales revenue by Wolrus Ltd. The equipment is still included in the above trial balance figures at its cost of £100,000 and accumulated depreciation of £60,000.
c). Straight-line method is applied to the whole Property, Plant and Equipment category. Plants have expected useful life of 20 years, and Equipments have expected useful life of 8 years. Depreciation of all non-current-tangible assets is charged to administration cost.
9. Non-current assets-intangible
In addition to the capitalised development expenditure (of £200,000), further research and development costs were incurred on a new poject which commenced on 1 January 2015. The research stage of the new project lasted until 31 March, 2015 and incurred £85,000 of costs. From that date the project incurred development costs of £25,000 per month. On 1st July, 2015 the directors are confident that the project would be successful and yield a profit well in excess of its costs. The project is still in development at 31 December, 2015.
Capitalised development expenditure is amortised at 20% per annum using the straight-line method. All expensed research and development is charged to cost of sales.
1. Show relevant journal entries for all the transactions whenever adjustment is needed. (30%)
2. Draft the statement of comprehensive income of Wolrus Ltd. for the year ended 31st December, 2015. (10%)
3. Draft the statement of financial position of Wolrus Ltd. for the year ended 31st December, 2015. (20%)
4 . If the board decided to change the measurement of Plant to revaluation model from 31st December, 2014. The Plant is revalued at £720,000 with a residual value of nil. The original life of the Plant has not been changed as a result of the revaluation module, but the depreciation method was decided to change to straight line method. If the revaluation model is used, show relevant journal entries, the statement of comprehensive income and the statement of financial position of Wolrus Ltd. for the year ended 31st December 2015 (other transactions remain the same). (20%)
5. Explain the purpose of depreciation according to its definition, and the factors affecting the assessment of useful life according to IAS 16 Property, Plant and Equipment. (10%)
6. Distinguish between the cost model and the revaluation model for the measurement of property, plant and equipment subsequent to its initial recognition. (10%)
TutorTeddy.com & Boston Predictive Analytics
[ Email your Statistics or Math problems to email@example.com (camera phone photos are OK) ]
Boston Office (Near MIT/Kendall 'T'):
Cambridge Innovation Center,
One Broadway, 14th Floor,
Cambridge, MA 02142,
Dallas Office (Near Galleria):
15950 Dallas Parkway,
Dallas, TX 75248,