Question 1 [50 marks] The following trial balance has been extracted from the accounting records of Norton plc at 30 September 2020, the end of the company's most recent financial year. E 198,000 Note 1 2 3 3 490,000 550.000 50.000 45,000 3 3 3 77,000 24.400 22,500 4 36.000 4 7,200 Draft profit for the year before tax Investment properties - fair value at 1 October 2019 Freehold property-cost Fixtures and fittings -cost Office equipment -cost Accumulated depreciation at 1 October 2019 Freehold property Fixtures and fittings Office equipment Development Costs - at cost Accumulated amortisation at 1 October 2019 Development costs Inventory at 30 September 2020 Trade receivables Allowance for receivables at 30 September 2020 Bank Cash in hand Trade payables Corporation tax Provision for liabilities at 1 October 2019 Suspense account Ordinary share capital (nominal value 1 per share) Share premium account Interim dividend paid 6% Debentures repayable in 2030 Retained earnings at 1 October 2019 5 6 160,000 97.500 4,500 465.300 250 43,250 1,800 90,000 7 8 8 9 83.000 775,000 135,000 17 500 10 11 500.000 119.500 1.996,350 1,996,350 In addition to the trial balance you are provided with the following information all of which is considered to be material. Unless stated otherwise the information below has not been taken into consideration in arriving at the draft profit for the year before tax shown in the trial balance: 1) During the year ended 30 September 2020 Norton plc received payments in advance from customers that amounted to 45,000. This is currently included in revenue for the year ended 30 September 2020, but relates to services that Norton will provide during the year ended 30 September 2021. 2) Norton plc records investment properties at fair value. At 30 September 2020 investment properties had a fair value of 460,000 Continued... Page 2 of 8 3) The company's policy is to charge a full 12 months depreciation on all non-current assets held at the year end. The rates to be used are as follows: Freehold property - 2% straight line Fixtures and fittings - 20% reducing balance Office equipment - 25% straight line 4) During the year ended 30 September 2020. Norton plc discovered that research expenditure amounting to 36,000 had been incorrectly capitalised as development costs during the year ended 30 September 2019. The company's policy is to charge a full 12 months amortisation on all intangible non-current assets held at the year end. Development costs are amortised over 5 years. 5) A flood on 2 October 2020 damaged inventory that had originally cost 50,000. These items were included in closing inventory at 30 September 2020. It is anticipated that following repairs costing 4,000, these items can be sold for 20,000 6) On 3 October 2020 a customer went into liquidation owing Norton plc 7,500. The money owing is included in trade receivables at 30 September 2020 however the company does not expect to recover any of this debt. 7) The company estimated corporation tax of 17.000 for the year ended 30 September 2019. In February 2020 Norton plc agreed corporation tax of 18,800 and paid this amount to HMRC. The estimated corporation tax liability for the year ended 30 September 2020 is 15,700. 8) In 2018 Norton plc set up a provision of 90,000 for a legal claim being made against the company. In May 2020 Norton plc paid 83,000 in settlement of this claim. This amount has been credited to the bank account and debited to a suspense account pending the correct accounting treatment. 9) At the beginning of the year. 350,000 ordinary shares were in issue (all were fully paid). A further 250,000 ordinary shares were issued on 30 April 2020 at the market price of 1.70 per share. The company accountant correctly debited proceeds from the share issue to bank but was not sure how to treat the credit entry and the whole of the proceeds from the issue (which was received in full), have been credited to the ordinary share capital account 10) The interim dividend in the trial balance was paid to ordinary shareholders during the year ended 30 September 2020. At a board meeting on 7 October 2020, it was proposed that the final dividend for ordinary shareholders would be 9 pence per share. 11) Interest on debentures needs to be accrued for the 6 months to 30 September 2020. Continued... . . . Requirement for question 1 a) Explain with supporting calculations your treatment of the following items outlined above. Wherever necessary you should make reference to relevant accounting standards and show any corrective journals that are required: Advance payment by customers (Note 1) 3 Investment properties (Note 2) 3.5 Development costs (Note 4) 4 Inventory (Note 5) 1.5 Bad debt (Note 6) 2.5 Corporation tax (Note 7) 3 Legal claim (Note 8) 3.5 Share issue (Note 9) 3 Final ordinary dividend (Note 10) 1 [25 marks] b) Prepare a calculation of the profit for the year ended 30 September 2020 starting with the draft profit for the year before tax given in the trial balance and using the additional information, in notes 1) - 11). [7 marks) c) Prepare a statement of changes in equity for Norton plc for the year ended 30 September 2020 in accordance with IAS 1 Presentation of Financial Statements, [5 marks] d) Prepare a statement of financial position for Norton plc at 30 September 2020 in accordance with IAS 1 Presentation of Financial Statements. [13 marks] Note: You are not required to produce a statement of comprehensive income in a format that is suitable for publication. Your statements of changes in equity and financial position should be in a format that is suitable for publication. You must clearly show all workings and calculations Continued... Question 1 [50 marks] The following trial balance has been extracted from the accounting records of Norton plc at 30 September 2020, the end of the company's most recent financial year. E 198,000 Note 1 2 3 3 490,000 550.000 50.000 45,000 3 3 3 77,000 24.400 22,500 4 36.000 4 7,200 Draft profit for the year before tax Investment properties - fair value at 1 October 2019 Freehold property-cost Fixtures and fittings -cost Office equipment -cost Accumulated depreciation at 1 October 2019 Freehold property Fixtures and fittings Office equipment Development Costs - at cost Accumulated amortisation at 1 October 2019 Development costs Inventory at 30 September 2020 Trade receivables Allowance for receivables at 30 September 2020 Bank Cash in hand Trade payables Corporation tax Provision for liabilities at 1 October 2019 Suspense account Ordinary share capital (nominal value 1 per share) Share premium account Interim dividend paid 6% Debentures repayable in 2030 Retained earnings at 1 October 2019 5 6 160,000 97.500 4,500 465.300 250 43,250 1,800 90,000 7 8 8 9 83.000 775,000 135,000 17 500 10 11 500.000 119.500 1.996,350 1,996,350 In addition to the trial balance you are provided with the following information all of which is considered to be material. Unless stated otherwise the information below has not been taken into consideration in arriving at the draft profit for the year before tax shown in the trial balance: 1) During the year ended 30 September 2020 Norton plc received payments in advance from customers that amounted to 45,000. This is currently included in revenue for the year ended 30 September 2020, but relates to services that Norton will provide during the year ended 30 September 2021. 2) Norton plc records investment properties at fair value. At 30 September 2020 investment properties had a fair value of 460,000 Continued... Page 2 of 8 3) The company's policy is to charge a full 12 months depreciation on all non-current assets held at the year end. The rates to be used are as follows: Freehold property - 2% straight line Fixtures and fittings - 20% reducing balance Office equipment - 25% straight line 4) During the year ended 30 September 2020. Norton plc discovered that research expenditure amounting to 36,000 had been incorrectly capitalised as development costs during the year ended 30 September 2019. The company's policy is to charge a full 12 months amortisation on all intangible non-current assets held at the year end. Development costs are amortised over 5 years. 5) A flood on 2 October 2020 damaged inventory that had originally cost 50,000. These items were included in closing inventory at 30 September 2020. It is anticipated that following repairs costing 4,000, these items can be sold for 20,000 6) On 3 October 2020 a customer went into liquidation owing Norton plc 7,500. The money owing is included in trade receivables at 30 September 2020 however the company does not expect to recover any of this debt. 7) The company estimated corporation tax of 17.000 for the year ended 30 September 2019. In February 2020 Norton plc agreed corporation tax of 18,800 and paid this amount to HMRC. The estimated corporation tax liability for the year ended 30 September 2020 is 15,700. 8) In 2018 Norton plc set up a provision of 90,000 for a legal claim being made against the company. In May 2020 Norton plc paid 83,000 in settlement of this claim. This amount has been credited to the bank account and debited to a suspense account pending the correct accounting treatment. 9) At the beginning of the year. 350,000 ordinary shares were in issue (all were fully paid). A further 250,000 ordinary shares were issued on 30 April 2020 at the market price of 1.70 per share. The company accountant correctly debited proceeds from the share issue to bank but was not sure how to treat the credit entry and the whole of the proceeds from the issue (which was received in full), have been credited to the ordinary share capital account 10) The interim dividend in the trial balance was paid to ordinary shareholders during the year ended 30 September 2020. At a board meeting on 7 October 2020, it was proposed that the final dividend for ordinary shareholders would be 9 pence per share. 11) Interest on debentures needs to be accrued for the 6 months to 30 September 2020. Continued... . . . Requirement for question 1 a) Explain with supporting calculations your treatment of the following items outlined above. Wherever necessary you should make reference to relevant accounting standards and show any corrective journals that are required: Advance payment by customers (Note 1) 3 Investment properties (Note 2) 3.5 Development costs (Note 4) 4 Inventory (Note 5) 1.5 Bad debt (Note 6) 2.5 Corporation tax (Note 7) 3 Legal claim (Note 8) 3.5 Share issue (Note 9) 3 Final ordinary dividend (Note 10) 1 [25 marks] b) Prepare a calculation of the profit for the year ended 30 September 2020 starting with the draft profit for the year before tax given in the trial balance and using the additional information, in notes 1) - 11). [7 marks) c) Prepare a statement of changes in equity for Norton plc for the year ended 30 September 2020 in accordance with IAS 1 Presentation of Financial Statements, [5 marks] d) Prepare a statement of financial position for Norton plc at 30 September 2020 in accordance with IAS 1 Presentation of Financial Statements. [13 marks] Note: You are not required to produce a statement of comprehensive income in a format that is suitable for publication. Your statements of changes in equity and financial position should be in a format that is suitable for publication. You must clearly show all workings and calculations Continued