The directors are preparing the published accounts of Dorman plc for the year to 31 October 2005. The following information is provided for certain of the items which are to be included in the final accounts.

(i) Inventories of raw material, monolite:

(ii) Inventory of finished goods:

(iii) Plant and machinery. An item of plant was shown in the 2004 accounts at a net book value of £90,000 (£160,000 cost less accumulated depreciation £70,000). The plant was purchased on 1 November 2002 and has been depreciated at 25% reducing balance. The directors now consider the straight line basis to be more appropriate: they have estimated that at 1 November 2004 the plant had a remaining useful life of six years and will possess zero residual value at the end of that period.
(iv) Freehold property. The company purchased a freehold property for £250,000 11 years ago, and it is estimated that the land element was worth £50,000 at that date.
The company has never charged depreciation on the property but the directors now feel that it should have done so; the building is expected to have a total useful life of AO years.
(v) | Research expenditure incurred in an attempt to discover a substitute for raw materials currently purchased from a politically sensitive area of the world amounted to £17,500 during the year.
(vi) Development expenditure on Tercil, which is nearly ready for production, amounted to £30,000. Demand for Tercil is expected significantly to exceed supply for at least the next four years.
(vii) Accident. On 1 December 2005 there was a fire in the warehouse which damaged inventory, other than the items referred to in (/) and (i/) above. The book value of the damaged inventory was £92,000. The company has discovered that it was underinsured and only expects to recover £71,000 from the insurers.
(viii) Investments. Dorman purchased 30,000 ordinary shares in Lilleshall Ltd on 1 November 2004 for £96,000, and immediately succeeded in appointing two of its directors to Lilleshall’s board. The issued share capital of Lilleshall consists of 100,000 ordinary shares of £1 each. The profits of Lilleshall for the year to 31 October 2005 amounted to £40,000. (Ignore taxation.)

Required:
Explain how each of the above items should be dealt with in the published financial statements of Dorman plc.

Transcribed Image Text:

Cost 26,500 Replacement cost 48,100