Highgrove plc is a manufacturing and distribution company. You are acting as auditor to Highgrove plc and
Question:
Highgrove plc is a manufacturing and distribution company. You are acting as auditor to Highgrove plc and you have been asked by the Board of Directors of the company to explain how the following items should be treated in the published accounts of the company for the year ended 31 December 2017:
(a) On 11 February 2018 Highgrove plc raised additional share capital of €100,000 by way of an issue of shares at full market price. This action had been planned and approved in October 2017; and :
(b) On 19 December 2017 Highgrove plc sold an old warehouse that was surplus to requirements. The profit on sale was recorded in the accounts at €100,000. On 20 January 2018 the purchaser discovered that the roof of the warehouse was defective.
Under the terms of the sale agreement, Highgrove plc was responsible for rectifying the problem. On 3 March 2018 Highgrove plc received a bill for €30,000 in connection with this rectification work.
Requirement You are required to prepare a memorandum to the Board of Directors of Highgrove plc in which you state how each of the above items should be reflected in the company’s published financial statements for the year ended 31 December 2017.
Step by Step Answer:
International Financial Accounting And Reporting
ISBN: 9781912350025
6th Edition
Authors: Ciaran Connolly