The following Trial Balance has been extracted from the books of O'Keane Ltd for the

year ended 31 December 2018

Buildings at cost

Accumulated depreciation 1 January 2018 Plant and Machinery at cost

Accumulated depreciation 1 January 2018 Land at cost

8% Debenture Loan 2028 Trade receivables

Trade payables Bank balance

Ordinary Share Capital

Retained earnings, 1 January 2018 Sales revenue

Opening inventory 1 January 2018 Purchases

Selling and distribution expenses Rent and Rates

General and administration expenses Provision for bad debts

Sundry expenditure

DR 7,800,000

3,450,000

3,500,000

3,922,000

633,000

3,560,000 5,712,000 744,000 350,000 1,931,000

192,000 31,794,000

CR

780,000

345,000

4,000,000

2,892,000

5,000,000 4,097,000 14,380,000

300,000

31,794,000

The following information is also available:

1. Land and buildings were purchased for 11.3 million on 1 January 2013 with a useful life of 50 years. Land and buildings were revalued at 1 January 2018 at 15 million, 4.2 million related to land and the

remaining amount related to buildings. The buildings estimated useful life has not changed and from 1 January 2018, there are 45 years of useful economic life remaining.

The directors want to include the revaluation in the financial statements for the year ended 31 December 2018 and have decided to use the elimination method to account for accumulated depreciation on revalued buildings. No entries have been made in the accounts to reflect this revaluation.

IAS 16 Revaluation & Depreciation

2. Plant and machinery are depreciated at 10% per annum using a straight-line basis. All depreciation on plant and machinery is included in cost of sales.

3. The closing inventory as at 31 December 2018 is valued at cost of 6,250,000. The net realisable value of this inventory is valued at 6,175,000.

4. In June 2018, OKeane Ltd was approved for a grant which relates to investment in plant and machinery in the company. The company wishes to account for the grant using the deferred income method. Details of the grant and related costs are as follows:

	Grant 000	Cost 000	Notes
Plant and machinery cost	2,000	5,000	Assume 10 years useful life with nil residual value. Full year depreciation is charged in year 1.

IAS 2

IAS 20 and IAS 16

All the plant and machinery was purchased in late November 2018. The grant was received in

December 2018 however the supplier invoices for the plant and machinery purchased were only IAS 20

received and paid during January 2019. No entries related to the grant or the purchase of equipment have been booked

5. During the year, OKeane Limited undertook a construction contract for the first time, details of which are as follows:

A price of 1,250,000 was agreed with the client. The contract will take three years to complete.

At 31 December 2018, costs had been incurred of 192,000 which have been included in sundry contract expenditure in the trial balance, this amount is made up as follows:

Allocation of general administration costs 32,000 Direct material costs 80,000 Direct labour costs 55,000 Depreciation of plant and machinery being 25,000 used on the project.

Output method

IFRS 15

It is estimated that future costs to complete the contract are 240,000

The client has been sent invoices totalling 100,000, which have been recorded within receivables and revenue, but no cash has been received to date. The customer has a good record of paying invoices and there are no doubts over the recoverability of the debt.

The company will use the input basis to determine the stage of completion.

6. The directors have estimated the tax charge for the year at 150,000 but no entries have been made to reflect this in the accounts. Loan interest must be accrued for as at 31 December 2018.

Required:

a) Prepare the following financial statements for OKeane Ltd. In accordance with the requirements of international financial reporting standards:

(i) Statement of comprehensive income for the year ended 31 December 2018;

IAS 37

IAS 1

(ii) Statement of changes in equity for the year ended 31 December 2018; (iii) Statement of financial position as at 31 December 2018.

(40 marks)

b) The stated purpose of IAS 8 Accounting policies, Changes in Accounting Estimates and Errors is to enhance the relevance and reliability of an entitys financial statements, and the comparability of those financial statements over time and with the financial statements of other entities. Discuss how the standard achieves this purpose.

(10 marks)