Question 2 [25 marks) Parta) The following are the summarised income statements of three companies, Bartley plc, Illey Ltd, and Kitwell Ltd for the year ended 31 March 2020: Income statement for the year ended 31 March 2020 Bartley plc m Revenue 5,000 Cost of sales (3,060) Gross profit 1,940 Distribution costs (280) Admin expenses (880) Interest receivable 35 Bank and debenture interest payable Profit before tax 776 Taxation (160) Profit for the year 616 Illey Ltd m 960 (360) 600 (120) (240) Kitwell Ltd m 550 (231) 319 (105) (145) 10 (28) 51 (11) 40 (39) (48) 192 (36) 156 Additional Information: 1) On 1 August 2019 Bartley plc purchased 80m out of a total of 100m issued ordinary shares in illey Ltd. At the date of acquisition illey Ltd had retained earnings of 552m Each ordinary share in Illey Ltd carries one vote and there are no voting rights other than those attached to the ordinary shares. Illey Ltd has not issued any ordinary shares since this date. 2) 3) 4) A review at 31 March 2020 established impairment of goodwill amounting to 10m. This is not included in the financial statements above. Bartley plc also owns 30% of shares in Kitwell Ltd. These were acquired in July 2015 at a cost of 47m, when Kitwell Ltd had retained earnings of 80m. Kitwell Ltd has not paid a dividend during the period since July 2015. Between 1 August 2019 and 31 March 2020, Bartley plc sold goods to Illey Ltd for 90m. These had been marked up by 50%. At 31 March 2020 illey Lid still had 30% of these goods in closing inventory. For many years lley Ltd has had in issue 500m, 7% debentures. Since April 2015 Bartley plc has owned 60% of these debentures. Retained earnings at 1 April 2019 were: Bartley plc 2,640m Illey Ltd 500m Kitwell Ltd 250m 5) 6) . Continued... 7) During the year ended 31 March 2020 Bartley plc paid an interim ordinary dividend of 89m. The directors have proposed a final ordinary dividend of 15 pence per share. 8) The profits of all three companies are deemed to accrue evenly over the accounting year. . (0) Requirement for question 2 part a) Prepare with full supportive workings a consolidated income statement for the year ended 31 March 2020. Your answer should distinguish between profit for the year attributable to the non-controlling interest and that attributable to the group. [12 marks] Calculate consolidated retained earnings for the year ended 31 March 2020 14 marks] Note: Round all numbers to the nearest Em [4 marks] Part b) ) On 1 November 2019 Cofton plc sold computer software to a customer for 4,000. The software was available for use by the customer from 1 November 2019 and the customer is not required to pay for the software until 31 October 2021. Cofton plc obtains finance at a cost of 5% per annum. On 1 November 2019 Cofton plc sold a new software package to a client. The selling price was 45,000, and requires Cofton plc to provide software updates and technical support until 31 October 2021. The software has a stand-alone selling price of 32.000; the stand alone selling price for software updates is 10,000 and for technical support the stand alone selling price is 18,000. (5 marks Requirement for question 2 part (b) Explain with supporting calculations how these transactions should be recorded in financial statements for the year ended 31 October 2020. Note that the 9 marks available for question 2 part b) are broken down alongside notes (1)-(ii). Continued... Question 2 [25 marks) Parta) The following are the summarised income statements of three companies, Bartley plc, Illey Ltd, and Kitwell Ltd for the year ended 31 March 2020: Income statement for the year ended 31 March 2020 Bartley plc m Revenue 5,000 Cost of sales (3,060) Gross profit 1,940 Distribution costs (280) Admin expenses (880) Interest receivable 35 Bank and debenture interest payable Profit before tax 776 Taxation (160) Profit for the year 616 Illey Ltd m 960 (360) 600 (120) (240) Kitwell Ltd m 550 (231) 319 (105) (145) 10 (28) 51 (11) 40 (39) (48) 192 (36) 156 Additional Information: 1) On 1 August 2019 Bartley plc purchased 80m out of a total of 100m issued ordinary shares in illey Ltd. At the date of acquisition illey Ltd had retained earnings of 552m Each ordinary share in Illey Ltd carries one vote and there are no voting rights other than those attached to the ordinary shares. Illey Ltd has not issued any ordinary shares since this date. 2) 3) 4) A review at 31 March 2020 established impairment of goodwill amounting to 10m. This is not included in the financial statements above. Bartley plc also owns 30% of shares in Kitwell Ltd. These were acquired in July 2015 at a cost of 47m, when Kitwell Ltd had retained earnings of 80m. Kitwell Ltd has not paid a dividend during the period since July 2015. Between 1 August 2019 and 31 March 2020, Bartley plc sold goods to Illey Ltd for 90m. These had been marked up by 50%. At 31 March 2020 illey Lid still had 30% of these goods in closing inventory. For many years lley Ltd has had in issue 500m, 7% debentures. Since April 2015 Bartley plc has owned 60% of these debentures. Retained earnings at 1 April 2019 were: Bartley plc 2,640m Illey Ltd 500m Kitwell Ltd 250m 5) 6) . Continued... 7) During the year ended 31 March 2020 Bartley plc paid an interim ordinary dividend of 89m. The directors have proposed a final ordinary dividend of 15 pence per share. 8) The profits of all three companies are deemed to accrue evenly over the accounting year. . (0) Requirement for question 2 part a) Prepare with full supportive workings a consolidated income statement for the year ended 31 March 2020. Your answer should distinguish between profit for the year attributable to the non-controlling interest and that attributable to the group. [12 marks] Calculate consolidated retained earnings for the year ended 31 March 2020 14 marks] Note: Round all numbers to the nearest Em [4 marks] Part b) ) On 1 November 2019 Cofton plc sold computer software to a customer for 4,000. The software was available for use by the customer from 1 November 2019 and the customer is not required to pay for the software until 31 October 2021. Cofton plc obtains finance at a cost of 5% per annum. On 1 November 2019 Cofton plc sold a new software package to a client. The selling price was 45,000, and requires Cofton plc to provide software updates and technical support until 31 October 2021. The software has a stand-alone selling price of 32.000; the stand alone selling price for software updates is 10,000 and for technical support the stand alone selling price is 18,000. (5 marks Requirement for question 2 part (b) Explain with supporting calculations how these transactions should be recorded in financial statements for the year ended 31 October 2020. Note that the 9 marks available for question 2 part b) are broken down alongside notes (1)-(ii). Continued