BMAN10501 FINANCIAL REPORTING 2019
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BMAN10501
FINANCIAL REPORTING
2019
SECTION A (compulsory)
Question 1 - Answer all parts of this question
The following information is taken from the accounting records of Harvard Froots Limited at 30th November 2018.
Harvard Froots Limited is a company which imports fresh fruit and vegetables from around the globe and sells them to independent grocers across the UK.
Trial Balance |
Dr £’000 |
Cr £’000 |
Equity shares of £1 each |
|
150,000 |
Retained earnings as at 1 December 2017 |
|
83,000 |
Inventory Purchases for the year to 30 November 2018 |
203,000 |
|
Bank loan @ 4% Interest |
|
40,000 |
Warehouse property cost |
600,000 |
|
Accumulated depreciation on warehouse property at 1 December 2017 |
|
360,000 |
Motor vehicles cost |
72,100 |
|
Accumulated depreciation on motor vehicles at 1 December 2017 |
|
56,000 |
Fixed asset purchases for the year to 30 November 2018 |
- |
|
Trade and other receivables |
28,000 |
|
Cash |
41,000 |
|
Trade and other payables |
|
29,300 |
Inventory at 1 December 2017 |
27,000 |
|
Tax expense for the year to 30 November 2018 |
700 |
|
Revenue for the year to 30 November 2018 |
|
304,500 |
Operating expenses for the year to 30 November 2018 |
51,000 |
|
|
1,022,800 |
1,022,800 |
Question 1 continued
In addition, the following information is provided regarding matters which are not reflected in the above figures:
(i) On 31 October 2018, they made a payment in cash of £24,000 for one years’ rental on their head office.
(ii) One of the two distribution warehouses was disposed of on 1 December 2017. It
cost £200,000 in 1985 and had been depreciated on a straight line basis , over 30 years. The proceeds of the sale were £350,000 .
(iii) Depreciation has not yet been accounted for. Motor vehicles are charged on a
reducing balance basis at 40%. The remaining warehouse property was bought for £400,000 and is charged on a straight line basis over 30 years, with a £100,000 scrap value.
(iv) The closing inventory balance is £25,000 and costs of sales is calculated on a periodic basis.
(v) One of Harvard Froot’s customers has gone bankrupt. Harvard Froot are unlikely to be able to recover the £5,000 owed to them and need to make a bad debt provision for this amount.
(vi) The interest on the loan has not yet been accounted for or paid.
Required
(a) Prepare accounting records to show the effect of the information provided in
points (i) to (vi) on the balances at 30th November 2018, as shown in the trial balance above.
You must use the Manchester Method to show the opening trial balance, the adjustments and the closing figures.
Please label your workings and show any calculations.
(16 marks)
(b) Prepare a draft Income Statement for the year to 30th November 2018 for
Harvard Froots Limited.
(6 marks)
(c) Show the cost, accumulated depreciation and net book value of each of the categories of fixed assets (warehouse property and vehicles) and the total for fixed assets at 1 December 2017 and 30 November 2018 for Harvard Froots Limited.
(9 marks)
Question 1 continued
(d) Briefly explain why the profit is different from the cash flow in a company and illustrate your answer with reference to your treatment of two of the items (i) to (vi) above.
(9 marks) (Total 40 marks)
SECTION B
Question 2 - Answer all parts of this question
Target Limited want to take out a new loan to fund the expansion of their business. The bank has agreed to lend them 50% of the total of their assets. When reviewing the assets of the company the Managing Director has suggested:-
1) Increasing the useful economic life of the fixed assets.
2) Revaluing the buildings up to the fair value.
3) Absorbing more of the overheads into the finished goods inventory value
4) Using a last in first out method to account for inventory, as the purchase price of materials is currently reducing.
Required
(a) Using the information provided above, explain how each of the above
suggestions would increase the value of the assets for Target Limited and which other area of the accounts would be affected.
(8 marks)
(b) From the points above, discuss which of these accounting policies is allowable
under IFRS and the effect on profit in the current year for each suggestion .
(4 marks)
(c) Give examples of two other areas of judgement in accounting and explain the guidance on how to value these items.
(4 marks)
(d) Explain to the Managing Director the meaning and the importance of the accounting principle of consistency.
(4 marks) (Total 20 marks)
Question 3. Answer all parts of this question.
The following information relates to EnGin, a handcrafted small-batch Gin distillery
on the outskirts of Manchester. It was set up 5 years ago by a female Turkish entrepreneur and MBA alumnus from AMBS. Infusing gin with oriental spices, it operates by selling high quality Gins to local independent retailers throughout the UK.
Income Statement for the years ended 31st December 2018 and 2017
|
2018 £000 |
2017 £000 |
Sales revenue |
2,270 |
1,680 |
Cost of Sales |
(1,325) |
(1,036) |
Gross Profit |
954 |
644 |
Administrative Expenses |
(505) |
(396) |
Profit before Interest and Taxes |
449 |
248 |
Interest expense |
(25) |
(5) |
Taxation |
(81) |
(62) |
Net Profit |
343 |
181 |
2022-01-13