Question 2 Answer both parts of the question in this section. The balances below have been extracted from the accounting records of Angel Lights Limited at 31 December 2014: Cr Dr s000s S000s 2,000 5,300 S Freehold land, at cost #2 S Buildings: cost 1,060 : accumulated depreciation at 1.1.14 2,400 4 Fixtures and fittings: cost 960 : accumulated depreciation at 1.1.14 Inventory at 1.1.14 + Trade receivables Provision for bad debts 700 2,095 88 365 Bank Trade payables Ordinary shares of 25c each Preference shares (7%) of $1 each Share premium account 5% loan, 2028 Retained profits at 1.1.14 Prepaid insurance at 1.1.14 Accrued heat and light at 1.1.14 1,100 1,400 100 1,350 4,000 195 20 75 Accrued interest at 1.1.14 100 Sales 13,380 Purchases Salaries 9,465 1,370 210 Light and heat 3 Insurance 3 Administration and distribution expenses Dividend paid 30.9.14 Interest paid 68 390 120 200 15 Taxation Disposal of fittings 180 24,353 24,353 You are given the following information: 1. Inventory at 31 December 2014 has a selling price of $1,200,000. company marks up goods at 60%. The 2. The land is to be revalued to $3.8m. 3. The charge for insurance includes a premium of $24,000 for the year ended 31 August 2015. Heat and light for the 3 months to 28 February 2015, paid in March 2015 was $90,000. 4. An item of fixtures and fittings, the cost of which had been $230,000 and whose net book value was $161,000, had been sold in the year for $180,000. No accounting entries relating to the disposal have been made in the company's books of account other than in relation to the disposal proceeds. 5. Depreciation on non-current assets is to be charged as follows: freehold land: no depreciation is charged buildings: fixtures and fittings: 20% per annum on a reducing balance basis. A full year's depreciation is charged in the year of acquisition while no depreciation is charged in the year of disposal. 2% per annum on a straight-line basis 6. A debt of $145,000 is to be written off while the bad debt provision is to be 4% of remaining receivables. 7. A final dividend of 3c per ordinary share is to be proposed by the directors. 8. The dividend on the cumulative preference shares, due to be paid on 1 January 2015 is to be provided. 9. Corporation Tax of $287,000 on the current year's profits is to be provided together with any unpaid interest on the loan. 10. A 1 for 2 bonus issue of shares was made on the 28 December 2014 but this has not yet been recorded in the accounting records. Required: an income statement for the year ended 31 December 2014, a statement of (a) financial position at that date, and a statement of movements in equity note for 2014, all in good style, for the directors. (22 marks) "What is the point of revaluing the freehold land? (b) Surely accounts are supposed to be based on the historical cost convention, aren't they?" Comment on this statement. (3 marks) Total 25 marks Question 2 Answer both parts of the question in this section. The balances below have been extracted from the accounting records of Angel Lights Limited at 31 December 2014: Cr Dr s000s S000s 2,000 5,300 S Freehold land, at cost #2 S Buildings: cost 1,060 : accumulated depreciation at 1.1.14 2,400 4 Fixtures and fittings: cost 960 : accumulated depreciation at 1.1.14 Inventory at 1.1.14 + Trade receivables Provision for bad debts 700 2,095 88 365 Bank Trade payables Ordinary shares of 25c each Preference shares (7%) of $1 each Share premium account 5% loan, 2028 Retained profits at 1.1.14 Prepaid insurance at 1.1.14 Accrued heat and light at 1.1.14 1,100 1,400 100 1,350 4,000 195 20 75 Accrued interest at 1.1.14 100 Sales 13,380 Purchases Salaries 9,465 1,370 210 Light and heat 3 Insurance 3 Administration and distribution expenses Dividend paid 30.9.14 Interest paid 68 390 120 200 15 Taxation Disposal of fittings 180 24,353 24,353 You are given the following information: 1. Inventory at 31 December 2014 has a selling price of $1,200,000. company marks up goods at 60%. The 2. The land is to be revalued to $3.8m. 3. The charge for insurance includes a premium of $24,000 for the year ended 31 August 2015. Heat and light for the 3 months to 28 February 2015, paid in March 2015 was $90,000. 4. An item of fixtures and fittings, the cost of which had been $230,000 and whose net book value was $161,000, had been sold in the year for $180,000. No accounting entries relating to the disposal have been made in the company's books of account other than in relation to the disposal proceeds. 5. Depreciation on non-current assets is to be charged as follows: freehold land: no depreciation is charged buildings: fixtures and fittings: 20% per annum on a reducing balance basis. A full year's depreciation is charged in the year of acquisition while no depreciation is charged in the year of disposal. 2% per annum on a straight-line basis 6. A debt of $145,000 is to be written off while the bad debt provision is to be 4% of remaining receivables. 7. A final dividend of 3c per ordinary share is to be proposed by the directors. 8. The dividend on the cumulative preference shares, due to be paid on 1 January 2015 is to be provided. 9. Corporation Tax of $287,000 on the current year's profits is to be provided together with any unpaid interest on the loan. 10. A 1 for 2 bonus issue of shares was made on the 28 December 2014 but this has not yet been recorded in the accounting records. Required: an income statement for the year ended 31 December 2014, a statement of (a) financial position at that date, and a statement of movements in equity note for 2014, all in good style, for the directors. (22 marks) "What is the point of revaluing the freehold land? (b) Surely accounts are supposed to be based on the historical cost convention, aren't they?" Comment on this statement. (3 marks) Total 25 marks