SECTION A (COMPULSORY)

Answer BOTH questions

Question 1 (40 marks)

Below is the trial balance of Primrose Ltd. as at 30th June 2020.

Additional information:

1.  During the year, some fixtures and fittings were disposed of. Its cost was 8,000 when originally acquired in January 2018. The proceeds from the disposal was

£2,800. The disposal of the fixtures and fittings has not been accounted for.

The fixtures and fittings are depreciated on a 25% reducing balance basis.

The  company  policy  on  all  its  non-current  assets  is  to  charge  a  full  year depreciation in the year of purchase and none in the year of disposal.

2.  Motor vehicles were bought on 1st November 2018. Their useful economic life is 4 years,  and the  residual value  is £2,000. The  straight-line  method  is  used to calculate the depreciation expense of these motor vehicles.

3.  At the financial year end, trade receivables include a balance of £3,800 which is considered uncollectable. Given the current economic conditions, Primrose Ltd wishes to adjust the allowance for trade receivables to 4% of the trade receivables amount for the current financial year.

4.  Salaries relating to June each year are paid in early July. Salaries for June 2020, amounting to £3,000 has not been accounted for.

5.  Interest charges are paid annually in the first week of July.

6.  The motor vehicle insurance paid during the year was £2,160. The insurance policy runs from 1st June 2020 to 31st May 2021.

7.  The closing inventory was £13,675. This question ignores tax.

Required:

a)   Prepare workings to show how to account for:

i)    The disposal of the fixtures and fittings                                                 (4 marks)

ii)   Depreciation charges for the non-current assets for the year                (4 marks)

iii)  Accrued expenses                                                                                 (2 marks)

iv)  Prepayments                                                                                          (3 marks)

v)   The amount of allowance for trade receivables in the income statement and statement of financial position

(3 marks)

b)   Using your workings from a) and the information provided in the question, prepare for Primrose Ltd:

i)    Income Statement for year ending 30 June 2020.

ii)   Statement of Financial Position as at 30 June 2020.

(7 marks) (9 marks)

c)   Identify Primrose's form of business and outline its legal and financial reporting       requirements.                                                                                               (8 marks)

(Total 40 marks)

Question 2

Extracts  from  the  financial  statements  for  Bridgestone  Plc  for  the  year  ended  31 December are as follows:

Income Statement for the year ended 31 December 2020

Operating profit

Interest expense

Profit before tax

Income tax

Profit for the year

Statements of Financial Position at 31

£

819,640

(15,000)

804,640

(245,000)

559,640

December

Additional information:

(1) Included in operating profit is a loss of £84,810 in respect of the disposal of machinery in the year. This machinery had a carrying amount of £127,800 at the disposal date. Bridgestone acquired plant and machinery amounting to £440,000 during the year.

(2) Bridgestone took out a new loan for £300,000 with a 5% interest during the year to help finance the purchase of the plant and machinery. Interest paid during the year was £5,000.

(3) The ordinary shares issued during the year was fully paid up.

(4) Tax paid during the year was £145,000 .

(5) Cash and cash equivalents balance at 31 December 2019 was £3,800.

Required:

a) Using the information provided, prepare the Cash Flow Statement for Bridgestone Plc for the year ended 31 December 2020 using the indirect method in accordance with IAS 7. (25 marks)

b) June  has just joined  Bridgestone  Plc as an Accounts Trainee for her summer internship. She has been requested by her supervisor to prepare a short report explaining why the profit made in the income statement is different from the cash flow results during the same period under the indirect method. In her report, her supervisor has suggested that she should identify and briefly discuss four examples of these differences based on the interconnected relationships between the Income Statement, Statement of Financial Position and the Cash Flow Statement.

(10 marks)

(Total 35 marks)