Brachol plc is preparing its accounts for the year ended 30 November 1992. The following information is

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Brachol plc is preparing its accounts for the year ended 30 November 1992.

The following information is available from the previous year's balance sheet: At 30 November 1991 there were credit balances on the share premium account of \(£ 2025000\), the revaluation reserve of \(£ 4050000\), and the profit and loss account of \(£ 2700000\).

During 1992 the following transactions occurred:

1. One million shares of \(£ 1\) each were issued in exchange for net assets that had a fair value of \(£ 3755000\).
2. A factory property that had been revalued from \(£ 500000\) to \(£ 1310000\) in 1990 was sold for \(£ 2525000\).
3. A fixed asset investment was revalued from \(£ 1305000\) to \(£ 900000\).
4. There was a currency translation loss of \(£ 270000\) arising on foreign currency net investments.
5. A warehouse property was revalued from \(£ 1000000\) to \(£ 1540000\).
A prior period adjustment of \(£ 1350000\) was required which had arisen from a change in accounting policy that had overstated the previous year's profit.
The profit and loss account for the year ended 30 November 1992 showed a profit attributable to members of the company of \(£ 810000\) and a dividend of \(£ 675000\).
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(a) (i) Draft a note showing the movements on reserves as at 30 November 1992.
(ii) Draft a statement of total recognised gains and losses to show the net deduction from or addition to net assets as at 30 November 1992.

(b) Explain briefly (i) the purpose of the statement of total recognised gains and losses; and (ii) the extent to which a user of the accounts will be better able to make decisions by referring to a statement of total recognised gains and losses rather than the statement of movements on reserves that is produced to comply with the Companies Act 1985.

(c) Explain briefly (i) the nature of the adjustments that would be required to reconcile the profit on ordinary activities before tax to the historical cost profit; and (ii) the possible use that can be made of such information by a potential investor.

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Advanced Financial Accounting

ISBN: 9780273638339

6th Edition

Authors: Richard Lewis, David Pendrill

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