Part b)

During the year ended 31 October 2019 a former employee started

legal proceedings for wrongful dismissal against Fairfield plc. The

employee sought compensation for loss of earnings amounting to

85,000. At this time the companys solicitors were confident that

there was only a 35% likelihood that damages would be awarded in

favour of the former employee.

In March 2020 new government legislation means that the companys

solicitors now believe there is a 70% likelihood that Fairfield plc will

lose the case and be liable for damages of 85,000.

Requirement for question 3 part b)

Explain with reasons how this would be treated in financial statements

for the years ended 31 October 2019 and 2020.

[5 marks]

Part c)

You are provided with the following information for Darley plc:

Profit for the year ended 31 December 2020

3,435,000

0.50 ordinary share capital at 1 January 2020

1,500,000

On 1 May 2020 Darley plc made a rights issue of one ordinary share

for every 6 ordinary shares in issue at a price of 1.20 per share.

The share issue was fully subscribed. On 30 April 2020 the market

price of one share in Darley plc was 1.80.

Requirement for question 3 part c)

Calculate basic earnings per share for Darley plc for the year ended

31 December 2020.

[6 marks]

Parta) Fairfield plc is producing financial statements for the year ended 31 October 2020 and has sought your advice on the following issues all of which are considered material and none of which have been taken into consideration in arriving at the draft profit before tax: (1) In December 2019 Fairfield plc signed an agreement to act as guarantor for a loan for 250,000 taken out by Hartle Ltd (and repayable in full on 31 March 2022). During the year ended 31 August 2020 Hartle Ltd reported a loss of 14,000 and its financial statements showed negative cash and cash equivalents amounting to 6,378. Forecasts by financial analysts suggest there is a 30% likelihood that Hartle Ltd will become insolvent before 31 March 2022. [3 marks] (ii) Fairfield plc purchased a warehouse on 1 November 2009 at a cost of 400,000. The asset was depreciated on a straight-line basis over 50 years. A review at 1 January 2020 established that the market value of this warehouse was 290,000, however selling costs (including agent's commission) would amount to 5% of market value. The value in use was 280,000. No depreciation has been charged during the year ended 31 October 2020. [4 marks) (iii) On 1 November 2017 Fairfield plc purchased a machine for 225,000. It had a life of 8 years and a residual value of 25,000. On 31 August 2020 the company decided to sell the machine. At that date it had a fair value of 170,000 and it will cost 6,000 to dismantle and sell the machine. Agents expect that the machine will be sold within the next 6 months. The company provides a 12 month warranty on all goods sold. In previous years around 0.50% of items sold were returned under warranty. Sales of items with a 12-month warranty amounted to 15 million during the year ended 31 October 2020. [4 marks) (iv) [3 marks) Requirement for question 3 part a) Explain with reasons how each of the items in notes (i) (iv) should be treated in the financial statements of Fairfield plc for the year ended 31 October 2020. Where necessary full supporting calculations should be provided and you should show any corrective journals necessary. Note that the 14 marks available for question 3 part a) are broken down alongside notes (i) - (iv)