1. Kumquat plc had the following trial balance as at 31 March 2020: 2,480,000 112,500 697,500 330,000 510,000 186,000 105,000 2,450,000 144,000 975,000 Revenue Inventories at 31 March 2019 Purchases Distribution costs Administrative expenses Dividends paid Development expenditure Land and buildings Cost Accumulated depreciation Plant and machinery Cost Accumulated depreciation Motor vehicles Cost Accumulated depreciation Trade receivables and trade payables Prepayments and accruals at 31 March 2020 Cash at bank and bank overdraft Bank loan Share capital - ordinary shares of 1 each Retained earnings Share premium account 240,000 375,000 135,000 1,055,550 570,000 418,950 150,000 358,500 225,000 300,000 1,275,000 1,980,000 75.000 7,574.000 7.574.000 The following items have yet to be accounted for: (1) Kumquat plc's land and buildings cost 2,450,000 (land element 750,000) on 1 April 2015 and were being depreciated over 50 years. On 1 April 2019 the remaining useful life of the buildings was estimated at 32 years. Depreciation on buildings should be allocated 60:40 to cost of sales and administrative expenses. (ii) Depreciation on plant and machinery is calculated straight line at a rate of 20%, and allocated 80:20 to cost of sales and distribution costs. (ii) Motor vehicles are depreciated on the reducing balance basis at a rate of 25%, and all depreciation on these assets is allocated to distribution costs. (iv) The bank loan was taken out on 1 October 2019 and is repayable in five years. No adjustments have been made for the interest charge of 6% per annum. (v) Tax on profits for the year has been estimated at 64,500. (vi) The development expenditure was incurred during the year and relates to a new delivery system. Development will be completed in 2021. The company believes it has a reasonable expectation of future benefits but has been unable to demonstrate this and so the cost will be written off to distribution costs. (vii) One of Kumquat ple's customers was declared insolvent on 9 April 2020. The customer owed Kumquat plc 72,000 at 31 March 2020 and no payment is expected to be made. Kumquat plc's management has decided that an allowance of 4% of trade receivables would be appropriate in respect of a number of other debts considered to be doubtful. Irrecoverable debts expense is written off to administrative expenses. (viii) Kumquat plc had inventories of 132,450 at 31 March 2020. (ix) Kumquat plc began renting an additional storage unit on 1 February 2020 at a cost of 5,500 per month. No payment has been made to date. Rental payments are charged to administrative expenses. (x) 225,000 of revenue recognised is in respect of service contracts for which the performance obligations have not yet been satisfied. Requirement (a) Prepare the Statement of Profit or Loss for Kumquat plc for the year ended 31 March 2020 and the Statement of Financial Position at that date. (35 marks) I (b) Using Kumquat plc as an example, briefly explain the accounting treatment of: (i) Development expenditure (2 marks) (ii) Deferred income (3 marks) (max 150 words for part b) (Total: 40 marks) 1. Kumquat plc had the following trial balance as at 31 March 2020: 2,480,000 112,500 697,500 330,000 510,000 186,000 105,000 2,450,000 144,000 Revenue Inventories at 31 March 2019 Purchases Distribution costs Administrative expenses Dividends paid Development expenditure Land and buildings Cost Accumulated depreciation Plant and machinery Cost Accumulated depreciation Motor vehicles Cost Accumulated depreciation Trade receivables and trade payables Prepayments and accruals at 31 March 2020 Cash at bank and bank overdraft Bank loan Share capital - ordinary shares of 1 each Retained earnings Share premium account 975,000 240,000 375,000 135,000 1,055,550 570,000 418,950 150,000 358,500 225,000 300,000 1,275,000 1,980,000 75.000 7.574.000 7.574.000 The following items have yet to be accounted for: (i) Kumquat plc's land and buildings cost 2,450,000 (land element 750,000) on 1 April 2015 and were being depreciated over 50 years. On 1 April 2019 the remaining useful life of the buildings was estimated at 32 years. Depreciation on buildings should be allocated 60:40 to cost of sales and administrative expenses. (ii) Depreciation on plant and machinery is calculated straight line at a rate of 20%, and allocated 80:20 to cost of sales and distribution costs. (ii) Motor vehicles are depreciated on the reducing balance basis at a rate of 25%, and all depreciation on these assets is allocated to distribution costs. (iv) The bank loan was taken out on 1 October 2019 and is repayable in five years. No adjustments have been made for the interest charge of 6% per annum. (v) Tax on profits for the year has been estimated at 64,500. (vi) The development expenditure was incurred during the year and relates to a new delivery system. Development will be completed in 2021. The company believes it has a reasonable expectation of future benefits but has been unable to demonstrate this and so the cost will be written off to distribution costs. (vii) One of Kumquat plc's customers was declared insolvent on 9 April 2020. The customer owed Kumquat plc 72,000 at 31 March 2020 and no payment is expected to be made. Kumquat ple's management has decided that an allowance of 4% of trade receivables would be appropriate in respect of a number of other debts considered to be doubtful. Irrecoverable debts expense is written off to administrative expenses. (viii) Kumquat plc had inventories of 132,450 at 31 March 2020. (ix) Kumquat plc began renting an additional storage unit on 1 February 2020 at a cost of 5,500 per month. No payment has been made to date. Rental payments are charged to administrative expenses. (x) 225,000 of revenue recognised is in respect of service contracts for which the performance obligations have not yet been satisfied. Requirement (a) Prepare the Statement of Profit or Loss for Kumquat plc for the year ended 31 March 2020 and the Statement of Financial Position at that date. (35 marks) (b) Using Kumquat plc as an example, briefly explain the accounting treatment of: (i) Development expenditure (2 marks) (ii) Deferred income (3 marks) (max 150 words for part b) (Total: 40 marks)