Question 1

The relationships of Tree Ltd are summarised as follows:

• Tree Plc owns 70% of equity shares of Leaf Plc and 15% of equity shares in Branch Plc.
• Bryan owns 25% of equity shares of Tree Plc and Gill is his wife.
• Ruth is a director of Tree Plc. She owns 60% of the equity shares in Root Plc. Paul is her partner and owns 10% of equity shares in Twig Plc.
• Hannah works for Tree Plc as a manager, but she is not a director, and Bill is her son.
• Tree Plc has a pension scheme for its employees.

Tree Plc buys approximately 35% of its main product from one overseas supplier.

Requirement:

For each of the organisations and individuals above, explain whether they

are classed as related parties to Tree Plc according to IAS 24.

(maximum word count 300 words)

Question 2

Table Plc is currently preparing financial statements for the year ended 31 March 2019.

The accounting team discover that the sales figure for 31 March 2018 was understated by 200,000. The Trade Receivables at 31 March 2018 was also understated by the same amount.

This error is regarded as material.

Table Plcs draft Profit or Loss Comprehensive Income Statement for the year to 31 March 2019, before correction of the error, is as follows:

2018 2019

000 000

Revenue 1,660 1,740

Cost of Sales (670) (730)

Gross Profit 990 1,010

Expenses (590) (560)

Profit before taxation 400 450

Income tax expense (80) (90)

Profit for the year 320 360

Retained earnings at 1 April 2017 were 950,000. No dividends were paid during the two years to 31 March 2019. It should be assumed that Table Plcs tax liability is always 20% of its profit before tax.

Requirement:

1. Prepare a Profit or Loss Statement of Comprehensive Income for the year ended 31 March 2019, including the restated comparative figures for the year ended 31 March 2018.

2. Calculate Table Plcs restated retained earnings at 31 March 2019, after correcting the above error.

Question 3

Lace Plc is a UK company and needs to be IAS compliant. Lace Plc has recently been purchased by Shoe Inc, a US company.

Mr Sole, the finance director of Shoe Inc, has come to Lace Plc to evaluate their accounts. He notes that Lace Plc is using the FIFO method of inventory valuation. This is not comparable to Shoe Incs inventory valuation as they have adopted the LIFO system of valuation. Mr Sole suggests that Lace Plc should change their system of valuation to the US LIFO system adopted by Shoe Inc.

Lace Plc has the following inventory transactions:-

Day 1 Opening inventory nil

Day 2 Purchased 50 units at 15 per unit

Day 3 Sold 20 units at 35 per unit

Day 4 Purchased 60 units at 17 per unit

Day 5 Purchased 80 units at 30 per unit

Day 5 Sold 30 units at 40 per unit

Requirement:

1. Apply the Average costing method to each transaction and calculate the closing value of inventory.

2. Evaluate the LIFO and FIFO inventory valuation methods and advise Mr Sole which method Lace Plc should use to remain IAS compliant.

(maximum word count 300 words)

Question 4

Frank Plc received a grant in the sum of 200,000 in 2015 as a contribution towards the 600,000 paid for plant and machinery purchased in 2015. The machine has a life expectancy of 5 years.

The Financial Director of Frank Plc has asked for your advice in respect of why it is necessary to distinguish between research and development expenditure and how this distinction affects the accounting treatment.

Requirement:

1. Calculate the amount of annual depreciation charge to be shown within the depreciation expense shown in the 2020 Income Statement.

2. Write an explanation of the accounting standards approach in relation to research and development expenditure addressing the Financial Directors concerns. (maximum word count 120 words)