Q1.

The Following extract is from the trial balance of Surrey Co at 31 December 2020:

	000	000
Cost of sales	23,205
Finance costs	2,025
Investment Income (note(iii))		760
Operating expenses (note(iii))	10,320
Revenue (notes(i) and (ii))		37,675
Tax (note vi))	65

The following notes are relevant

i. Surrey Co made a large sale of goods on 1 July 2020, which was also the date of delivery. Under the terms of agreement, Surrey Co will receive payment of 4m on 30 June 2021. Currently, Surrey Co has recorded 2m in revenue and trade receivables. The directors intend to record the remaining 2m revenue in the year ended 31 December 2021. The costs of this sale have been accounted for correctly in the financial statements for the year ended 31 December 2020. Surrey Co has a cost of capital of 8% at which an appropriate discount factor would be 0.9259.

ii. Surrey Co also sold goods to an overseas customer on 1 December 2020 for $1.3m. They agreed a 60-day payment term. No entries have yet been made to record this sale, although the goods were correctly removed from inventory and expensed in cost of sales. The amount remains unpaid at 31 December 2020.

Relevant exchange rate are:

1 December 2020: 1.3 $/

31 December 2020: 1.2 $/

iii. Surrey Co acquired 4.5m 5% bonds at par value on 1 January 2020. The interest is receivable on 31 December each year. Surrey Co incurred 0.2m broker fees when acquiring the bonds, which has been expensed to operating expenses. These bonds are repayable at a premium so have an effective rate of 8%. Surrey Co has recorded the interest received on 31 December 2020 in investment income.

iv. During the year, Surrey Co revalued its head office for the first time, resulting in an increase in value of 6m at 31 December 2020. Deferred tax is applicable to this gain at 25%.

V. Surrey Co values its investment properties using the fair value model. The investment properties increased in value by 2m at 31 December 2020.

Vi. The tax figure in the trial balance represents the under/over provision from the previous year. The current tax liability for the year ended 31 December 2020 is estimated to be 1.6m.

Vii. At 1 January 2020, Surrey Co had 15 million 1 equity shares in issue. On 1 April 2020, Surrey Co issued an additional 2.5 million 1 equity shares at full market value. On 1 July 2020, Surrey Co performed a 2 for 5 rights issue, at 2 per share. The market value of a Surrey co share at 1 July 2020 was 3 per share.

Required: Complete Part A, B and C for 20 marks.

A) Produce a statement of profit or loss and other comprehensive income for Surrey Co for the year ended 31 December 2020.

B) Show your workings briefly on:

• W1 Sales with significant financing component
• W2 Overseas sale
• W3 Bonds

C) Calculate the earnings per share for Surrey Co for the year ended 31 December 2020.

Total 20 marks