(1) The land is not depreciable. On 15 November 2019 a real estate agent revalued the land at 9,050,000. The directors of LiteLeather plc decided to reflect the revalued amount in the accounts for the year to 30 April 2020.

(2) The company depreciates its other assets to zero residual value as follows:

Factory 20% per year reducing balance

Equipment 10% per year straight-line

The company provides full depreciation in the year of acquisition and none in the year of disposal.

The company disposed of equipment bought on 5 January 2016 for 740,000 and sold on 29 June 2019 for 125,000. No entries have been made in the books for this disposal.

(3) The directors have decided that 400,000 of trade receivables are not expected to be collected and should be written off and that the provision for doubtful debts should then be adjusted to 4% of the remaining balance.

(4) A stock count was carried out on 30 April 2020 and inventory was valued at normal selling price of 5,600,000. The company marks up the cost of inventory by 60%. Included in this total are inventory items costing 100,000 which have become obsolete. It has been decided to sell these items at 40% of their cost.

(5) Insurance premiums are paid three months in advance. The last quarterly payment of 210,000 was made on 1 April 2020. The accrued expense at 1 May 2019 was for insurance.

(6) Provision is to be made for the current years remaining directors fee of 15,000. The prepayment at 1 May 2019 was for directors fee.

(7) The market price of the existing shares has increased to 3.25 per share.

(8) The company has not yet estimated the tax for the current financial year. Included in the administrative expenses is entertainment expenses of 19,000. Capital allowances for the year are 142,000. The rate of corporation tax is 20%. Estimate the tax expense for the current year. This tax amount will be paid in the next financial year. Corporation tax for 30 April 2019 was under estimated.

REQUIRED:

1. (a) Prepare the income statement of LiteLeather plc for the year ended 30 April 2020 and the statement of financial position at that date in a form suitable for presentation to the directors of the company (i.e. compliance with the accounting requirements of the Companies Act 2006 or with IAS1 Presentation of Financial Statements is not required). [50 marks]

2. (b) Mirage Ltd acquired a company in 2017 and noted goodwill of 10 million. In 2020, the director of the company tells the accountant that since the employees of the newly acquired firm were slowly leaving every year, he expected the value of goodwill to go down. He asked the accountant to amortise the value of goodwill. Discuss whether you agree or disagree with this approach. [6 marks]. [Word limit : 80 words]

3. (c) Explain the two types of reserves in a statement of financial position. [4 marks] [Word limit : 70 words]

The following information has been extracted from the bookkeeping records of LiteLeather plc, a retailer of handbags and wallets as at 30 April 2020. Trial Balance as at 30 April 2020 000 000 7,000 4,500 250 Inventory 1.5.2019 Trade receivables Provision for doubtful debts 1.5.2019 Prepaid directors' fee 1.5.2019 Cash and cash equivalents Land Factory: cost Factory: accumulated depreciation 1.5.2019 70 6,255 8,750 5,000 570 3,460 Equipment: cost Equipment: accumulated depreciation 1.5.2019 870 3,189 78 800 5,000 6,300 35 170 Trade payables Accrued insurance 1.5.2019 8% Debentures 2022 Share capital (1 ordinary shares) Share premium Revaluation reserve Retained earnings Sales Purchases Administrative expenses Heat and light Distribution costs Directors' fees Underprovision of corporation tax 30.4.2019 Insurance Interest Interim dividend paid 46,100 22,970 3,430 305 31 602 10 848 64 67 63,362 63,362 The following information has been extracted from the bookkeeping records of LiteLeather plc, a retailer of handbags and wallets as at 30 April 2020. Trial Balance as at 30 April 2020 000 000 7,000 4,500 250 Inventory 1.5.2019 Trade receivables Provision for doubtful debts 1.5.2019 Prepaid directors' fee 1.5.2019 Cash and cash equivalents Land Factory: cost Factory: accumulated depreciation 1.5.2019 70 6,255 8,750 5,000 570 3,460 Equipment: cost Equipment: accumulated depreciation 1.5.2019 870 3,189 78 800 5,000 6,300 35 170 Trade payables Accrued insurance 1.5.2019 8% Debentures 2022 Share capital (1 ordinary shares) Share premium Revaluation reserve Retained earnings Sales Purchases Administrative expenses Heat and light Distribution costs Directors' fees Underprovision of corporation tax 30.4.2019 Insurance Interest Interim dividend paid 46,100 22,970 3,430 305 31 602 10 848 64 67 63,362 63,362