ANSWER ANY TWO QUESTIONS OUT OF THREE Question 1 Blue Stream pic is a small company with interests in retailing and property. The financial director of Blue Stream plc is currently finalising the financial statements for the year ended 28 February 20X5. The trial balance at that date is shown below: BLUE STREAM PIC TRIAL BALANCE AT 28 FEBRUARY 20X5 Debit Credit 2000 E000 Ordinary share capital (1 par value) 2,500 Retained earnings at 28 February 20X4 1.424 Investment property. Fair value (at 28 February 20X4) 1.950 1.740 Equipment: Accumulated depreciation (at 28 February 480 20X4) Right of use asset 2,000 Lease liability 2,000 Accounts receivable 1,115 Inventory at cost 1.245 HMRC / Tax authority 200 Cash at bank 974 Accounts payable 870 Sales 9.850 Cost of sales 5.100 Rental income 100 Salaries and wages 1.200 Other costs 1,700 17 224 17 224 The following relevant information needs to be taken into account: The company classifies its expenses using the function method. The financial director has identified three functions, namely sales, administration and distribution The salaries and wages of 1,200,000 are allocated 700,000 to the administration function and 500,000 to the distribution function. 100,000 of the other costs are prepaid and 70,000 are accrued. The other costs are allocated 50% to the administration function and 50% to the distribution function. These costs include expenses for rent, advertising and repairs and are all individually immaterial The equipment is all used within the administrative function and the leased vehicles are all used within the distribution function Any bad debts are allocated to the administration function. The company regards any expenses over 100,000 as material. 2 All the equipment was purchased on 1 March 20X2 at a cost of 1,740,000. At acquisition, the useful life was estimated at seven years and the residual value estimated at 60,000. During the year ended 28 February 20X5, the total useful life was re-estimated at eight years and the residual value estimated to be zero. On 1 March 20X4 Blue Stream plc entered into a lease agreement with Bends plc for the lease of a fleet of delivery vehicles. The contract is a lease. The lease agreement requires Blue Stream plc to pay five instalments of 555,000 in arrears on 28 February each year. The present value of future lease payments at inception of the lease is 2,000,000, discounted at the implicit interest rate of 12% per annum. The estimated useful life of the vehicles is five years and the estimated residual value is zero. The only entry recorded in respect of the lease contract is the recognition of the right of use asset and lease liability at inception On 28 February 20x5, the investment property was measured at its fair value of 2,100,000. The investment property was purchased on 1 September 20X2 and is held to earn rental income. The investment property is measured using the fair value model. The closing inventory has a net realisable value of 1,165,000 and the accounts receivable are expected to realise 995,000 The tax expense for the year has not been recorded. The corporation tax rate is 20% Dividends of six pence per share were declared and approved at a shareholder meeting on 25 March 20X5. The financial statements were authorised for issue on 30 March 20X5. Required: a) Prepare the statement of comprehensive income of Blue Stream pic for the year ended 28 February 20X5, in accordance with International Financial Reporting Standards. (Present your answer to the nearest 000) (15 marks) b) Prepare the statement of financial position of Blue Stream pic at 28 February 20X5. in accordance with International Financial Reporting Standards. (Present your answer to the nearest 000) (15 marks) 3 C) Prepare the following notes to the financial statements in accordance with International Financial Reporting Standards. Profit from operating activities Dividends (5 marks) (Total: 35 marks)