Question 1

The following trial balance was extracted from the books of Fry Day Ltd as at 31 December 2019.

Fry Day Ltd
Trial Balance at 31 December 2019	Notes	'000	'000
Sales			11,800
Purchases		1,750
Selling and Distribution expenses		1,600
Administration expenses		1,360
Finance cost		40
Land		400
Buildings - Cost	(b)	1,100
Buildings - Depn at 1 January 2019	(b)		250
Plant and Machinery - Cost	(b)	500
Plant and Machinery - Depn at 1 January 2019	(b)		100
Research & Development	(d)	1,200
Inventory at 1 January 2019	(a)	5,600
Bank Loan (repayable 31 December 2023)	(f)		500
Frying System	(e)	250
Frying System (Depn at 31 December 2019)	(e)		100
Bank Account		350
Share Capital - Ordinary shares of 1 each			200
Retained Earnings at 1 January 2019			700
Receivables		250
Payables			550
Deferred tax provision			250
Dividend paid		50
Sub-Totals		14,450	14,450

The following matters have not been taken into account in the preparation of the above trial balance and must be considered and appropriate adjustments made in the preparation of the financial statements.

SHOW ALL YOUR WORKINGS

All figures below are 000 unless stated

1. Closing inventory was counted and valued at 6,300 on 31 December 2019.

1. The Buildings are depreciated on a straight line basis and the useful life has been calculated at 50 years. The Plant & Machinery is depreciated on a reducing balance basis at a rate of 4%. Depreciation costs must be processed as 50% through cost of sales and 50% through the adminstration expenses account.

1. Fry Day Ltd was involved in three legal cases at the year end. They were all unrelated. None of these have been accounted for.

The general details with amounts involved and % chance of success for Fry Day Ltd as advised by the Company lawyers can be summarised as follows:

	Action	Amount 000	% chance of success for Fry Day Ltd
Case C	The Company is being sued by a customer	75	20%
Case D	The Company is suing a professional advisor	100	90%
Case E	The Company is being sued by an employee. There are 2 possible claim amounts if they lose the case, along with unavoidable legal costs of 25k.	50 (80% possibility) 100 (20% possibility)	30%

All costs for Provisions, if required, must be processed through administration

expenses.

1. Research and Development
   1. Fizz Oil is a new project this year. The product is technically proven.

The research and development costs of 1,200 in the year relate to 2 projects, Fizz Oil and Batter Screen;

However there is still some doubt over whether it is commercially viable. Expenditure in the year on Fizz Oil was 500.

1. Batter Screen relates to a new product that has gone into production in the year. Sales to date are significantly above plan and latest projections are that the product will generate enough revenue to more than cover the costs of development. In 2019, the development costs were 700. Batter Screen went into production on the 1 July 2019 and it is estimated that the commercial life is 10 years.

All costs in relation to Research & Development issues are allocated to selling and distribution expenses when charged to the Statement of Profit or Loss.

1. A specialist Frying System was designed to ensure a reduction in fat content within the food. This system was used to supply specialist restaurants who pride themselves on healthy specialised food. At the year end Fry Day Ltd have been informed that there was an issue with the Frying System and this could have affected the value of the Frying system. Depreciation is up to date for the current year. The following information has been provided to assess whether an impairment test is required:

• Replacement cost 27
• Second hand value 115
• Disposal costs 5

• Income from the Frying System is estimated to be 10 p.a. for the remaining 15 years of the Frying Systems useful economic life.
• The cumulative discount factor for 15 years at the expected interest rate of 10% is 7.61.

Any impairment loss must be processed through selling and distribution expenses.

1. Interest for the year 2019 has not been processed and is calculated at 5% of the value of the bank loan.

1. The tax charge on the profits for the year has been calculated at 350.

REQUIRED:

Show all your workings

Round your answers to the nearest '000

a) Prepare a Statement of Profit or Loss for the year ended 31 December 2019

b) Prepare a Statement of Changes in Equity for the year ended 31 December 2019

c) Prepare a Statement of Financial Position as at 31 December 2019