Please show some important workings.
The following information has been extracted from the bookkeeping records of Storytime plc, a books manufacturer as at 31 March 2017 Trial Balance as at 31 March 2017 000 000 5,550 3,300 165 262 7,275 11,475 5,100 510 3,840 Inventory 1.4.2016 Trade receivables Provision for doubtful debts 1.4.2016 Prepaid insurance 1.4.2016 Cash and cash equivalents Land Factory: cost Factory: accumulated depreciation 1.4.2016 Equipment: cost Equipment: accumulated depreciation 1.4.2016 Trade payables Accrued expenses 1.4.2016 6% Debentures 2020 Share capital (1 ordinary shares) Share premium Revaluation reserve Retained earnings Sales Purchases Administrative expenses Heat and light Distribution costs Directors' fees Insurance Audit fee Interest Underprovision for corporation tax for year ended 31.3.2016 Disposal account Interim dividend paid Dividend received 1,421 4,035 36 2,400 7,500 3,750 414 5,250 51,870 30,743 1,853 1.755 1,410 600 3,600 144 405 525 210 77.891 15 77,891 (1) The land is not depreciable. On 15 February 2017 a real estate agent revalued the land at 11,500,000. The directors of Storytime plc decided to reflect the revalued amount in the accounts for the year to 31 March 2017. (2) The company depreciates its other assets to zero residual value as follows: Factory Equipment 5% per year straight-line 20% per year reducing balance the year of disposal. The disposal account reflects the sale proceeds of equipment bought on 5 July 2012 for 750,000 and sold on 29 March 2017 for 525,000. No entries have been made in the books for this disposal, apart from recording the disposal proceeds. (3) The directors have decided that 200,000 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 31 March 2017 and inventory was valued at normal selling price of 4,800,000. The company marks up the cost of inventory by 20%. Included in this total inventory are items costing 40,000 which were books written by an author who has just won the Pulitzer prize. It has been decided that they will sell these items in the future at 130% of their cost. (5) Insurance premiums on the factory building are paid three months in advance. The last quarterly payment of 450,000 was made on 1 March 2017. (6) The accrual at 1 April 2016 was for the audit fee. Provision is to be made for the current year's remaining audit fee of 40,000. The company took a new loan for 150,000 on 29 March 2017 at the rate of 8% per annum that matures in 2022. There is no interest to be paid on this loan in the current year. No entries have yet been made in the company's accounting records with respect to cash received or the loan issued. (8) Corporation tax for the year to 31 March 2016 was under-estimated. Corporation tax for the year to 31 March 2017 is estimated to be 275,000. REQUIRED: (a) Prepare the income statement of Storytime plc for the year ended 31 March 2017 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] (b) Another company, Aurora plc, spends 50,000 on advertising paid for in cash which is expected to improve its brand value by 900,000. What will be the impact of this expenditure on its income statement and statement of financial position? Explain. [6 marks] (c) Give two examples of non-deductible expenses for calculating taxable income. Explain why these expenses are non-deductible for tax purposes [4 marks] [Total 60 marks] The following information has been extracted from the bookkeeping records of Storytime plc, a books manufacturer as at 31 March 2017 Trial Balance as at 31 March 2017 000 000 5,550 3,300 165 262 7,275 11,475 5,100 510 3,840 Inventory 1.4.2016 Trade receivables Provision for doubtful debts 1.4.2016 Prepaid insurance 1.4.2016 Cash and cash equivalents Land Factory: cost Factory: accumulated depreciation 1.4.2016 Equipment: cost Equipment: accumulated depreciation 1.4.2016 Trade payables Accrued expenses 1.4.2016 6% Debentures 2020 Share capital (1 ordinary shares) Share premium Revaluation reserve Retained earnings Sales Purchases Administrative expenses Heat and light Distribution costs Directors' fees Insurance Audit fee Interest Underprovision for corporation tax for year ended 31.3.2016 Disposal account Interim dividend paid Dividend received 1,421 4,035 36 2,400 7,500 3,750 414 5,250 51,870 30,743 1,853 1.755 1,410 600 3,600 144 405 525 210 77.891 15 77,891 (1) The land is not depreciable. On 15 February 2017 a real estate agent revalued the land at 11,500,000. The directors of Storytime plc decided to reflect the revalued amount in the accounts for the year to 31 March 2017. (2) The company depreciates its other assets to zero residual value as follows: Factory Equipment 5% per year straight-line 20% per year reducing balance the year of disposal. The disposal account reflects the sale proceeds of equipment bought on 5 July 2012 for 750,000 and sold on 29 March 2017 for 525,000. No entries have been made in the books for this disposal, apart from recording the disposal proceeds. (3) The directors have decided that 200,000 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 31 March 2017 and inventory was valued at normal selling price of 4,800,000. The company marks up the cost of inventory by 20%. Included in this total inventory are items costing 40,000 which were books written by an author who has just won the Pulitzer prize. It has been decided that they will sell these items in the future at 130% of their cost. (5) Insurance premiums on the factory building are paid three months in advance. The last quarterly payment of 450,000 was made on 1 March 2017. (6) The accrual at 1 April 2016 was for the audit fee. Provision is to be made for the current year's remaining audit fee of 40,000. The company took a new loan for 150,000 on 29 March 2017 at the rate of 8% per annum that matures in 2022. There is no interest to be paid on this loan in the current year. No entries have yet been made in the company's accounting records with respect to cash received or the loan issued. (8) Corporation tax for the year to 31 March 2016 was under-estimated. Corporation tax for the year to 31 March 2017 is estimated to be 275,000. REQUIRED: (a) Prepare the income statement of Storytime plc for the year ended 31 March 2017 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] (b) Another company, Aurora plc, spends 50,000 on advertising paid for in cash which is expected to improve its brand value by 900,000. What will be the impact of this expenditure on its income statement and statement of financial position? Explain. [6 marks] (c) Give two examples of non-deductible expenses for calculating taxable income. Explain why these expenses are non-deductible for tax purposes [4 marks] [Total 60 marks]
