Question 1 M Ltd is preparing its draft financial statements for the year ended 31 March 2020. Draft profit for the year was 1,671,400. The following outstanding issues have been identified. (1) The draft financial statements for the year ended 31 March 2020 included the correct figure for inventories of raw materials. However, no figure for inventories of finished goods was included in the draft totals. The production manager made the following notes: Finished goods J 400 units counted. 4,000 were produced during the year although production was expected to be 5,000 units. Production costs were: Materials 32,000 Direct labour 20,000 Variable overheads 12,000 Fixed overheads 7,500 A - 150 units counted. A costs 20 per unit to produce. However, due to technological advances by competitors they were being sold for only 12 per unit from March 2020. (2) Ion 1 April 2019 a full review of the operating capabilities of M Ltd's machinery was carried out. One machine was identified as requiring significant maintenance work to continue operating at the required level. This was because routine maintenance work had not been carried out. The work was carried out immediately at a cost of 5,000, crediting cash and debiting property, plant and equipment. The machine's remaining useful life was reassessed as being 10 years at 1 April 2019 and was being depreciated on a straight-line basis. At 31 March 2020 the machine's carrying amount was 39,000. The machine was assessed at 31 March 2020 as having a fair value of 30,000 with costs to sell estimated at 1,000 and a value in use of 32,000. (3) A review of customer contracts during the year identified one customer, P Ltd, has significantly longer credit terms than M Ltd's other customers. On further investigation, it was discovered that P Ltd is owned by the daughter of F, one of M Ltd's directors. Sales of 25,000 were made to P Ltd during the year and there was a balance of 9,000 due from P Ltd at 31 March 2020 At 1 April 2019 M Ltd had 400,000 1 ordinary shares in issue. On 1 July 2019 the company made a 1 for 4 bonus issue. On 1 January 2020, 50,000 ordinary shares were issued at full market price of 2.70 per share. Requirements 1.1 Explain the required IFRS financial reporting treatment of Issues (1) to (4) above in M Ltd's financial statements for the year ended 31 March 2020, preparing all relevant calculations. (15 marks) 1.2 Calculate M Ltd's: revised profit for the year ended 31 March 2020; and basic earnings per share. (5 marks) Question 1 M Ltd is preparing its draft financial statements for the year ended 31 March 2020. Draft profit for the year was 1,671,400. The following outstanding issues have been identified. (1) The draft financial statements for the year ended 31 March 2020 included the correct figure for inventories of raw materials. However, no figure for inventories of finished goods was included in the draft totals. The production manager made the following notes: Finished goods J 400 units counted. 4,000 were produced during the year although production was expected to be 5,000 units. Production costs were: Materials 32,000 Direct labour 20,000 Variable overheads 12,000 Fixed overheads 7,500 A - 150 units counted. A costs 20 per unit to produce. However, due to technological advances by competitors they were being sold for only 12 per unit from March 2020. (2) Ion 1 April 2019 a full review of the operating capabilities of M Ltd's machinery was carried out. One machine was identified as requiring significant maintenance work to continue operating at the required level. This was because routine maintenance work had not been carried out. The work was carried out immediately at a cost of 5,000, crediting cash and debiting property, plant and equipment. The machine's remaining useful life was reassessed as being 10 years at 1 April 2019 and was being depreciated on a straight-line basis. At 31 March 2020 the machine's carrying amount was 39,000. The machine was assessed at 31 March 2020 as having a fair value of 30,000 with costs to sell estimated at 1,000 and a value in use of 32,000. (3) A review of customer contracts during the year identified one customer, P Ltd, has significantly longer credit terms than M Ltd's other customers. On further investigation, it was discovered that P Ltd is owned by the daughter of F, one of M Ltd's directors. Sales of 25,000 were made to P Ltd during the year and there was a balance of 9,000 due from P Ltd at 31 March 2020 At 1 April 2019 M Ltd had 400,000 1 ordinary shares in issue. On 1 July 2019 the company made a 1 for 4 bonus issue. On 1 January 2020, 50,000 ordinary shares were issued at full market price of 2.70 per share. Requirements 1.1 Explain the required IFRS financial reporting treatment of Issues (1) to (4) above in M Ltd's financial statements for the year ended 31 March 2020, preparing all relevant calculations. (15 marks) 1.2 Calculate M Ltd's: revised profit for the year ended 31 March 2020; and basic earnings per share