Question
Hyper Ltd makes safety glass for windows. Set out below are the draft extracts from the financial statements for Hyper Ltd: Statement of financial position
Hyper Ltd makes safety glass for windows. Set out below are the draft extracts from the financial statements for Hyper Ltd:
Statement of financial position for the year ended 31 March 2020
| 000 |
PPE | 30,098 |
Inventories | 4,000 |
Total assets | 34,098 |
Equity and liabilities |
|
Share capital and reserves | 16,038 |
Non-current liabilities | 11,000 |
Current liabilities | 6,320 |
Net defined benefit pension obligation at 1 April 2019 (Issue 1) | 740 |
Total equity and liabilities | 34,098 |
Statement of profit or loss for the year ended 31 March 2020
| 000 |
Revenue | 115,425 |
Cost of sales | (80,120) |
Gross profit | 35,305 |
Operating expenses (Issue 1) | (22,084) |
Finance costs | (51) |
Profit for the year | 13,170 |
Other comprehensive income | - |
Total comprehensive income | 13,170 |
The following financial reporting issues are unresolved:
Issue 1 Defined benefit pension scheme
Operating expenses include 810,000 relating to the company's defined benefit pension scheme. This figure represents the contributions paid into the scheme in the year ended 31 March 2020. No other accounting entries have been made relating to this scheme in the year ended 31 March 2020.
The figures included in the draft statement of financial position for the net pension benefit obligation represent opening balances as at 1 April 2019:
| 000 |
Pension scheme assets | 4,320 |
Pension scheme liabilities | (5,060) |
Net defined benefit pension obligation | (740) |
After the year end 31 March 2020, a report was obtained from an independent actuary. This gave valuations as at 31 March 2020 as follows:
| 000 |
Pension scheme assets | 4,180 |
Pension scheme liabilities | (5,250) |
Other information in the report included:
Current service cost | 000 748 |
Pensions paid | 440 |
Interest rate on high quality corporate bonds | 10% |
Hyper Ltds accounting policy is to recognise any gains and losses on re-measurement of the net defined benefit pension obligation (actuarial gains and losses) in other comprehensive income.
Issue 2 Financial asset
On 1 January 2020, Hyper plc purchased shares issued in GY plc for a total consideration of 2,200,000. The shareholding represents less than 5% of the shares in GY plc.
Transaction costs were 10,000. Hyper plc has incorrectly recorded the share purchase and payment of transaction costs by the following journal:
| 000 |
Dr Inventory | 2,210 |
Cr Cash | 2,210 |
On 31 March 2020, the market price for the shares, which are publicly traded on a stock exchange, was 1,800,000. Hyper plc does not wish to classify the shares as fair value through other comprehensive income (FVOCI).
REQUIRED:
- Set out and explain, for each of Issue 1 and Issue 2, the appropriate financial reporting treatments in the financial statements of Hyper plc for the year ended 31 March 2020. Include references to relevant accounting standards, concepts and characteristics in your explanations
- Prepare a revised statement of financial position and a revised statement of profit or loss for Hyper plc for the year ended 31 March 2020 including your adjustments in part a).
- Explain the impact on the financial statements if Hyper plc had made an irrevocable election to classify the purchase of shares in GY plc as at fair value through other comprehensive income (FVOCI).
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