B7AF102: The property has a remaining life of 25 years on 1 January 2017. The company policy is to revalue all property at each year-end and on 31 December 2017

Question 1

Over recent years, Wars Co has suffered from an industry-wide downturn and experienced poor performance with the result that its share price had fallen considerably. To help improve share price and market confidence Wars Co employed Star Ltd, a firm of management consultants to assess their position and performance and help produce a plan of action to improve both the income statement and statement of financial position. The directors immediately implemented the recommendations and are pleased with the effect that it has had on performance during the most recent year ended on 31 December 2017.

The following information relates to the draft financial statements of Wars Co for the year to 31 December 2017 together with the comparative figures for the year to 31 December 2016:

Question 2

The following trial balance has been extracted from the financial records of Pipsqueak plc as of 31 December 2017:

The following additional information is relevant:

(i) Non-current assets:
The property has a remaining life of 25 years on 1 January 2017. The company policy is to revalue all property at each year-end and on 31 December 2017, it was valued at €41 million.

All plant and equipment are depreciated at 20% per annum using the reducing balance method. Depreciation of all non-current assets is charged to the cost of sales.

(ii) Investment property:
This property is held for its investment potential and meets the criteria of IAS 40 to be classified as an investment property. Theresa plc purchased this property on 1 January 2017 at a cost of €15 million. The agreed valuation as at 31 December 2017 is €16 million. The property has an expected useful life of 30 years from the date purchased.

(iii) Included in Trade Receivables is an amount of €500,000 relating to a customer who went bankrupt during December. This fact has only become known during the review of “Events After the Reporting Date” and it has been identified as an adjusting event under IAS 10. Company policy is to make a provision for general bad debts equal to 6% of final Trade Receivables. All amounts in relation to bad debts should be included in the cost of sales.

(iv) The long-term loan of €20 million in the trial balance was received on 1 July 2017 and carries an annual interest rate of 7% per annum.

(v) The Directors have estimated the provision for income tax for the year ended 31 December 2017 at €2 million. The balance of income tax shown in the trial balance represents the over / under the provision for the previous year.

(vi) During the year there was a 1 for 5 issues of ordinary shares at a premium of 50% to the nominal value. The directors are unsure how to record this and have lodged the cash into the bank and shown the proceeds as a single figure in the trial balance.