tesources/professional/financial-accounting-and-reporting/march-2021-financial-accounting 5/11 100% + 1 Question 2 Gabriel, the finance director of Tarascon Ltd, prepared the draft financial statements for the year ended 30 September 2020, before being taken ill. The managing director has given Gabriel's file to Elodie, the financial controller, to enable her to complete the financial statements. Both Gabriel and Elodie are ICAEW Chartered Accountants. The managing director told Elodie that the directors need a large profit for the year ended 30 September 2020 as they wish to expand their operations further and will need additional funding. An earnings per share figure in excess of 2.00 is needed to secure additional funding. The directors hold all of the shares in Tarascon Ltd and have a bonus scheme based on the earnings per share target of 2.00 being exceeded. Draft profit for the year was 1,096,500 and based on this Gabriel calculated an earnings per share of 2.15 At 1 October 2019 Tarascon Ltd had 400,000 1 ordinary shares in issue. On 1 January 2020 Tarascon Ltd made a 1 for 5 bonus issue, On 1 July 2020 Tarascon Ltd issued 123,000 1 ordinary shares at market price. Gabriel's file contains the following outstanding items. (1) On 1 January 2020 Tarascon Ltd borrowed 300,000 at a rate of 5% pa to part finance the construction of a new head office building. Due to bad weather causing detays in the first quarter of the year, work on the building only started on 1 April 2020. The building is expected to take 12 months to complete Interest of 3,800 was earned on surplus funds invested and credited to finance income in the statement of profit or loss, of which 1,500 was earned up to 31 March 2020 Gabriel debited property, plant and equipment with interest payable for the nine months to 30 September 2020. (2) A new manufacturing plant housing the latest robotics technology was set up during the year. The following costs were incurred during the year and capitalised as part of property, plant and equipment: 210 HUAWEI Interest 04:33,800 was eamed on surplus funds invested and credited to finance income In the statement of profit or loss, of which 1,500 was earned up to 31 March 2020 Gabriel debited property, plant and equipment with interest payable for the nine months to 30 September 2020 (2) A new manufacturing plant housing the latest robotics technology was set up during the year. The following costs were incurred during the year and capitalised as part of property, plant and equipment: Construction costs 180,000 Assembly and installation of equipment 45,000 Allocated general overheads 20,000 Testing of equipment 8,000 Employee training 3,000 Advertising of new products being manufactured 1,300 Safely inspection 1,000 Sales launch event for new product 1,500 259.800 The manufacturing plant was ready for use on March 2020. However, the appropriately trained staff were not immediately available to run the plant and therefore it did not open until 1 April 2020. Six months' depreciation has been charged on the plant's capitalined cost. The manufacturing plant is depreciated on a straight-line basis over 20 years (3) In November 2013. as part of Tarascon Lid's business expansion, it acquired a number of gaming and entertainment venues, where customers can play video games and take part in virtual reality experiences There are two different payment options available to customers visiting each venue Pay on entry customers pay a fixed price per hour at any venue when they arrive. Annual membership: an annual subscription of 480 is paid in advance. Members can use any of the venues for an unlimited amount of time throughout the year of membership By 30 September 2020. 350 members had signed up and paid for annual membership 21C HUAWEI (3) In November 2019, as part of Tarascon Ltd's business expansion, it acquired a number of gaming and entertainment venues, where customers can play video games and take part in virtual reality experiences There are two different payment options available to customers visiting each venue: Pay-on-entry, customers pay a fixed price per hour at any venue when they arrive. Annual membership: an annual subscription of 480 is paid in advance. Members can use any of the venues for an unlimited amount of time throughout the year of membership By 30 September 2020, 350 members had signed up and paid for annual membership All of these receipts were recognised as revenue. The average unexpired period of membership at 30 September 2020 was seven months. Members used the gaming facilities evenly throughout the year. Requirements 1. Explain the required IFRS financial reporting treatment of Iters (1) to (3) above in Tarascon Ltd's financial statements for the year ended 30 September 2020. Include all relevant calculations and set out the required adjustments in the form of Journal entries. 24 marks) 2. For the year ended 30 September 2020, calculate Tarascon Lid's: revised proft, showing each adjustment made; and basic earings per share (4 marks) Describe the differences between IFRS and UK GAAP in respect of the financial reporting treatment of them (1) and (3) above. (3 marks) Discuss the ethical issues arising from the scenario for Elodie and Gabriel and set out any action that Elodie should take. (5 marks) 3 4 Total: 36 marks 210 HUAWEI tesources/professional/financial-accounting-and-reporting/march-2021-financial-accounting 5/11 100% + 1 Question 2 Gabriel, the finance director of Tarascon Ltd, prepared the draft financial statements for the year ended 30 September 2020, before being taken ill. The managing director has given Gabriel's file to Elodie, the financial controller, to enable her to complete the financial statements. Both Gabriel and Elodie are ICAEW Chartered Accountants. The managing director told Elodie that the directors need a large profit for the year ended 30 September 2020 as they wish to expand their operations further and will need additional funding. An earnings per share figure in excess of 2.00 is needed to secure additional funding. The directors hold all of the shares in Tarascon Ltd and have a bonus scheme based on the earnings per share target of 2.00 being exceeded. Draft profit for the year was 1,096,500 and based on this Gabriel calculated an earnings per share of 2.15 At 1 October 2019 Tarascon Ltd had 400,000 1 ordinary shares in issue. On 1 January 2020 Tarascon Ltd made a 1 for 5 bonus issue, On 1 July 2020 Tarascon Ltd issued 123,000 1 ordinary shares at market price. Gabriel's file contains the following outstanding items. (1) On 1 January 2020 Tarascon Ltd borrowed 300,000 at a rate of 5% pa to part finance the construction of a new head office building. Due to bad weather causing detays in the first quarter of the year, work on the building only started on 1 April 2020. The building is expected to take 12 months to complete Interest of 3,800 was earned on surplus funds invested and credited to finance income in the statement of profit or loss, of which 1,500 was earned up to 31 March 2020 Gabriel debited property, plant and equipment with interest payable for the nine months to 30 September 2020. (2) A new manufacturing plant housing the latest robotics technology was set up during the year. The following costs were incurred during the year and capitalised as part of property, plant and equipment: 210 HUAWEI Interest 04:33,800 was eamed on surplus funds invested and credited to finance income In the statement of profit or loss, of which 1,500 was earned up to 31 March 2020 Gabriel debited property, plant and equipment with interest payable for the nine months to 30 September 2020 (2) A new manufacturing plant housing the latest robotics technology was set up during the year. The following costs were incurred during the year and capitalised as part of property, plant and equipment: Construction costs 180,000 Assembly and installation of equipment 45,000 Allocated general overheads 20,000 Testing of equipment 8,000 Employee training 3,000 Advertising of new products being manufactured 1,300 Safely inspection 1,000 Sales launch event for new product 1,500 259.800 The manufacturing plant was ready for use on March 2020. However, the appropriately trained staff were not immediately available to run the plant and therefore it did not open until 1 April 2020. Six months' depreciation has been charged on the plant's capitalined cost. The manufacturing plant is depreciated on a straight-line basis over 20 years (3) In November 2013. as part of Tarascon Lid's business expansion, it acquired a number of gaming and entertainment venues, where customers can play video games and take part in virtual reality experiences There are two different payment options available to customers visiting each venue Pay on entry customers pay a fixed price per hour at any venue when they arrive. Annual membership: an annual subscription of 480 is paid in advance. Members can use any of the venues for an unlimited amount of time throughout the year of membership By 30 September 2020. 350 members had signed up and paid for annual membership 21C HUAWEI (3) In November 2019, as part of Tarascon Ltd's business expansion, it acquired a number of gaming and entertainment venues, where customers can play video games and take part in virtual reality experiences There are two different payment options available to customers visiting each venue: Pay-on-entry, customers pay a fixed price per hour at any venue when they arrive. Annual membership: an annual subscription of 480 is paid in advance. Members can use any of the venues for an unlimited amount of time throughout the year of membership By 30 September 2020, 350 members had signed up and paid for annual membership All of these receipts were recognised as revenue. The average unexpired period of membership at 30 September 2020 was seven months. Members used the gaming facilities evenly throughout the year. Requirements 1. Explain the required IFRS financial reporting treatment of Iters (1) to (3) above in Tarascon Ltd's financial statements for the year ended 30 September 2020. Include all relevant calculations and set out the required adjustments in the form of Journal entries. 24 marks) 2. For the year ended 30 September 2020, calculate Tarascon Lid's: revised proft, showing each adjustment made; and basic earings per share (4 marks) Describe the differences between IFRS and UK GAAP in respect of the financial reporting treatment of them (1) and (3) above. (3 marks) Discuss the ethical issues arising from the scenario for Elodie and Gabriel and set out any action that Elodie should take. (5 marks) 3 4 Total: 36 marks 210 HUAWEI