IAS 1 PRESENTATION OF FINANCIAL

STATEMENTS

STATEMENT OF PROFIT OR LOSS & OCI (Function of expense method)

Revenue xxx
Cost of sales (xxx)
Gross profit xxx
Other income xxx
Selling and distribution costs (xxx)
Administrative expenses (xxx)
Other operating expenses (xxx)
Operating income before finance costs xxx
Investment income xxx
Finance costs (xxx)
Profit before tax xxx
Income tax expense (xxx)
Profit on ordinary activities xxx
Other Comprehensive Income
Gain or (loss) on revaluation of non-current assets xxx
Loss on expropriation of land xxx
Total comprehensive income for the year xxx

STATEMENT OF PROFIT OR LOSS & OCI (Nature of expense method)

Revenue xxx
Other operating income xxx
Changes in inventories of finished goods and work in progress xxx/(xxx)
Raw material consumed (xxx)
Staff costs (xxx)
Depreciation and amortisation (xxx)
Other operating expenses (xxx)
Operating income before finance costs xxx
Investment income xxx
Finance cost (xxx)
Profit before tax xxx
Income tax expense (xxx)
Profit on ordinary activities xxx
Other comprehensive income

Loss on expropriation of land (xxx)

1 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

Total comprehensive income for the year xxx

Statement of changes in Equity (SOCIE)

Ord. Share Revaluation General Retained

Shares Premium Reserve Reserve Profits
Balance b/d xxx xxx xxx xxx xxx
Profit for the year xxx
Transfer to General Reserves xxx (xxx)
Revaluation of Non-Current xxx
Assets
Issue of Ordinary Shares xxx xxx
Interim preference share (xxx)
dividend paid
Interim Ordinary share dividend (xxx)
paid
Proposed preference share (xxx)
dividend
Proposed Ordinary share ___ ___ ___ ___ (xxx)
dividend
Balance c/d xxx xxx xxx xxx xxx

Statement of Financial Position

Assets
Property, plant and equipment xxx
Investment property xxx
Intangible assets xxx
Other financial assets xxx
xxx
Current Assets
Inventories xxx
Trade receivables xxx
Prepaid expenses xxx
Cash and cash equivalents xxx
xxx
Equity and Liabilities
Capital and reserves
Issued Ordinary Shares xxx
Issued Preference shares xxx
Share premium xxx
Capital Redemption Reserve xxx
Revaluation Reserve xxx

2 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

General Reserve xxx
Retained Profits xxx
Share capital and reserves xxx

Non-current liabilities
Debentures xxx
Loan from Bank xxx
Deferred tax xxx
Long term provisions xxx
xxx
Current Liabilities
Trade payables xxx
Accrued expenses xxx
Bank Overdraft xxx
Taxation xxx
Proposed Dividends xxx
Total Equity and liabilities xxx

NOTES TO THE FINANCIAL STATEMENTS

According to IAS 1, notes to the financial statements should

a) Present information about the basis of preparation of the statements, and the specific
accounting polices used;
b) Disclose the information required by IFRS that is not presented elsewhere in the statements;
c) Provide information that is not presented elsewhere in the statements, but is relevant to an
understanding of any of them.

The standard states that an entity should cross-reference each item in the statements of financial
position and of comprehensive income, in the separate income statement (if one is presented) and in
the statement of changes in equity and of cash flows to any related information in the notes.

The recommended order of presenting notes financial statements is as follows:

a) Statement of compliance with IFRSs
b) Summary of significant accounting policies applied
c) Supporting information for items in the statements of financial position and of comprehensive
income, in the separate income statement (if one is presented), and in the statements of
changes in equity and of cash flows, in the order in which each statement and each line item is
presented
d) Other disclosures, including
i. Contingent liabilities and unrecognised contractual commitments; and
ii. Non-financial disclosures e.g. the entity’s financial risk management objectives and
policies

3 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

Disclosures of accounting policies
Entities are required to disclose in the summary of significant accounting policies
i. The measurement basis or bases used in preparing the financial statements
ii. The other accounting policies used that are relevant for an understanding of the
financial statements

Question 1
Belfast Limited
Trial balance as at 31 December 2018
          Ref Debit Credit
            $ $
Ordinary share capital         1    
Ordinary share             600,000
7% Redeemable preference shares           180,000
Land and Buildings         2 454,500  
Patents and trademarks at cost           90,000 
Plant and equipment at cost        3 1,086,000  
Investments:              
90 000 ordinary shares in Tendai Ltd at fair value  4 198,000  
Accumulated depreciation 1 January 2018              
Plant and equipment         5   99,000
Accumulated amortisation 1 January 2018              
Patents and trademarks        6   18,000
Revenue             723,000
Raw material purchases           141,000  
Work in progress at 31 December 2017      7 24,000 
Finished goods on hand at 31 December 2017    7 144,000  
Raw materials on hand at 31 December 2017    7 18,000 
Selling and distribution expenses         45,600 
Administrative expenses        8 266,400  
Proceeds from sale of plant and equipment    3   54,000
Loss on expropriation of land           12,000 
Retained earnings 1 January 2018            225,000
Dividends received from Sharon Ltd             32,400
Cash paid to preference shareholders              
On redemption of 60 000 pref shares at a premium            
of 5% on 30 June 2018           65,100 
Bank overdraft             54,000
Trade and other creditors        9   486,300
7% debentures         10   180,000

4 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

Trade and other receivables       11 479,100  
General reserves             372,000
            3,023,700 3,023,700

Notes to financial statement

1. Share Capital
The authorised share capital consists of:
720,000 ordinary shares of $1.00 each
180,000 7% preference shares of $1.00
The redeemable preference shares are redeemable at the company's discretion on and before 30 June
2022 at a premium of 5%.

There were no issues during the year

2. Land and buildings are regarded by directors as investment properties

3. Plant and equipment

During the year ended 31 December 2018 plant with a cost of $72,000 and accumulated depreciation of
$15,000 at 31 December 2017, was sold for $54,000. There were no other purchases or disposals of
plant and equipment during the year.

4. Investment in Tendai Limited

Investment in Tendai Limited, a company with issued share capital of 360,000 shares of $1.00 each, was
acquired during the year for speculative purposes.
The shares were quoted on the stock exchange at $2.20 per share on 31 December 2018.

5. Depreciation on plant and equipment must still be provided for the year ended
31 December 2018 $
For plant sold to date of sale             12,000
Depreciation on remaining plant and equipment        42,000
              54,000

6. Amortisation of patents and trademarks

The patents and trademarks are amortised over five years using the straight line method. The
amortisation charge for the year ended 31 December 2018 was $18,000

7. Stocks are valued at the lower of cost or net realisable value. The value of the stock
at 31 December 2018 $
Raw materials             18,000
Work in progress             36,000
Finished goods             135,000

5 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

8. Administrative expenses include the following, $
Interest on debentures and bank overdraft       17,400
Auditors remuneration for audit           8,000
Managing directors and director's salary         21,600
Salaries and wages             180,000

9. Trade and other payables include accrued interest on debentures.

10. Debentures
Debentures are secured by first mortgage bond on land and buildings. Interest on debentures is payable
half yearly in arrears on 1 July and 1 January.

11. Trade and other receivables include provisional tax payment of $84,000.

12. The following provisions must be made:

(i) Current tax at 25%. The tax values and carrying amounts of fixed assets were equal at 31 December
2018. The depreciation and amortisation per accounts are the same as are allowed by tax
authorities. The 'selling and distribution expenses' and 'administrative expenses' do not include any
expenditure which is disallowed for income tax purposes
(ii) Preference dividend not yet provided
(iii) Declared ordinary dividend of 10% of equity shares.

REQUIRED
1. Prepare the statement of comprehensive income using classification of expenses by function of
expenses. [10 marks]
2. Prepare the statement of comprehensive income using classification of expenses by nature of
expenses. [10 marks]
3. Prepare the statement of changes in equity and reserves. [5 marks]
4. Prepare the statement of Financial Position. [10 marks]

Question 2
Mujiche Limited
The trial balance as at 31 December 2018
Ref Debit Credit
$ $
Ordinary share capital 1
Ordinary share 900,000
7% Redeemable preference shares 270,000
Land and Buildings 2 681,750
Patents and trademarks at cost 135,000
Plant and equipment at cost 3 1,629,000
Investments:

6 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

22 500 ordinary shares in Tokwe Ltd at fair value 4 297,000
Accumulated depreciation 1 Jan 2018
Plant and equipment 5 148,500
Accumulated amortisation 1 Jan 2018
Patents and trademarks 6 27,000
Revenue 1,084,500
Raw material purchases 211,500
Work in progress at 31 Dec 2017 7 36,000
Finished goods on hand at 31 Dec 2017 7 216,000
Raw materials on hand at 31 December 2017 7 27,000
Selling and distribution expenses 68,400
Administrative expenses 8 399,600
Proceeds from sale of plant and equipment 3 81,000
Loss on expropriation of land 18,000
Retained earnings 1 January 2018 337,500
Dividends received from Sakarai Ltd 48,600
Cash paid to preference shareholders
On redemption of 90 000 pref shares at a premium
of 5% on 30 June 2018 97,650
Bank overdraft 81,000
Trade and other creditors 9 729,450
7% debentures 10 270,000
Trade and other receivables 11 718,650
General reserves 558,000
4,535,550 4,535,550

Notes to financial statement

1. Share Capital
The authorised share capital consists of: 1,080,000 ordinary shares of $1.00 each 270,000 7% preference
shares of $1.00
The redeemable preference shares are redeemable at the holder's discretion on and before 30 June
2018 at a premium of 5%.

There were no issues during the year

2. Land and buildings are regarded by directors as investment properties

3. Plant and equipment

During the year ended 31 December 2018 plant with a cost of $108,000 and accumulated depreciation
of $22,500 at 31 December 2017, was sold for $81,000. There were no other purchases or disposals of
plant and equipment during the year.

7 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

4. Investment in Tokwe Limited
Investment in Tokwe Limited, a company with issued share capital of 270,000 shares of $1.00 each, was
acquired during the year for speculative purposes. The shares were quoted on the stock exchange at
$13.20 per share on 31 December 2018.

5. Depreciation on plant and equipment must still be provided for the year ended

31 December 2017 $
For plant sold to date of sale 18,000
Depreciation on remaining plant and equipment 63,000
81,000

6. Amortisation of patents and trademarks

The patents and trademarks are amortised over five years using the straight line method. The
amortisation charge for the year ended 31 December 2018 was $27,000

7. Stocks are valued at the lower of cost or net realisable value. The value of the stock at 31 December
2018 $
Raw materials 27,000
Work in progress 54,000
Finished goods 202,500
283,500

8. Administrative expenses include the following, $

Interest on debentures and bank overdraft 26,100
Managing directors and director's salary 32,400
Salaries and wages 270,000

9. Trade and other payables include accrued interest on debentures.

10. Debentures
Debentures are secured by first mortgage bond on land and buildings. Interest on debentures is payable
half yearly in arrears on 1 July and 1 January.

11. Trade and other receivables include provisional tax payment of $126,000

12. The following provisions must be made:

(i) Current tax at 25%. The tax values and carrying amounts of fixed assets were
equal at 31 December 2018. The depreciation and amortisation per accounts
are the same as are allowed by tax authorities. The 'selling and distribution
expenses' and 'administrative expenses' do not include any expenditure which
is disallowed for income tax purposes

8 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

(ii) Provide for preference dividends which have not yet been provided
(iii) Provide for declared ordinary dividend at 10% of the issued share capital

REQUIRED
1. Prepare the statement of comprehensive income using classification of expenses by
function of expenses. [14 marks]
2. Prepare the statement of comprehensive income using classification of expenses by nature of
expenses. [12 marks]
3. Prepare the statement of changes in equity and reserves. [10 marks]
4. Prepare the statement of Financial Position. [16 marks]
[Total 40 marks]

Question 3
The Trial Balance for Hubert Limited, as at 31 July 2019, is shown below:
DR CR
Hubert Limited: Trial Balance as on 31 July 2019 Note $ million $ million
Revenue (i) 1,200
Cost of Sales 790
Distribution costs 86
Administration expenses 259
Land & Buildings at valuation (ii) 750
Accumulated depreciation at 1 August 2018 - buildings (ii) 60
Plant & equipment at cost (iii) 475
Accumulated depreciation at 1 August 2018 - plant & equipment (iii) 175
Intangible assets at cost (iv) 100
Financial assets (v) 260
Inventory at 31 July 2019 140
Trade receivables 194
Cash at bank 20
Trade payables 244
Equity shares of $1 each 500
Share premium account 400
Revaluation surplus 40
Retained earnings reserve 344
Investment income 22
Equity investment reserve (v) 71
Provision for warranty costs (vi) 18
3,074 3,074

The following notes are to be taken into account insofar as they are relevant:
(i) Revenue includes $40 million of goods sold to various customers on a sale or return basis. These
goods are not yet paid for. Payment is due only if the customer sells on the goods before 31

9 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

 October 2019. If this is not the case, they are to be returned to Hubert Ltd undamaged. The
average mark-up on these goods is 25% of cost.
(ii) Land and buildings were last revalued on 1 August 2014, when the land was valued at $150
million, and the buildings at $600 million. A loss of $50 million was charged to profit or loss in
respect of the land as a result of that revaluation. A further revaluation exercise took place on
31 July 2019, resulting in a value of $180 million for the land and $580 million for the buildings.
Land and buildings are treated as a single asset for the purpose of revaluations. The existing
revaluation surplus on the trial balance relates solely to plant and equipment. No revaluation of
plant or equipment was deemed necessary during the current year. The company treats
depreciation as a charge to cost of sales. Hubert Ltd has not yet charged depreciation for the
year to 31 July 2019.
(iii) Hubert Ltd depreciates plant and equipment at 20%, using the reducing balance basis.
(iv) The intangible assets on the trial balance comprise several ongoing projects, some of which
were launched on the market during the year. These represent $30 million of the total balance.
Hubert Ltd wishes to amortise these over 5 years on a straight line basis, applying a full year’s
charge in the current year. Further development costs of $12 million are included in
administration expenses. These meet the criteria for capitalisation as an intangible asset. No
amortisation should be charged except as indicated above.
(v) The financial assets represent equity investments. These had a fair value of $310 million at 31
July 2019, which has not yet been incorporated into the financial statements. Hubert Ltd has
made an irrevocable election to take all fair value gains and losses on equity investments to
“other comprehensive income” as permitted by IFRS 9 - Financial Instruments.
(vi) Hubert Ltd offers a 12-month warranty on all goods sold to retail customers and maintains a
provision for the expected cost of honouring this warranty. At 31 July 2019, Hubert Ltd has
estimated the cost of honouring this warranty over the next 12 months to be $23 million. All
costs are expected to be incurred within 12 months.
(vii) The corporation tax charge for the year has been estimated at $29 million. Ignore the taxation
effects of any adjustments you make.

REQUIREMENT:
Prepare the following for Hubert Limited:
a) The Statement of Profit or Loss and Other Comprehensive Income for year ended 31 July 2019.
(13 marks)
b) The Statement of Changes in Equity for year ended 31 July 2019. (4 marks)
c) The Statement of Financial Position as at 31 July 2019. (13 marks)
[Total: 30 Marks]

Question 4
The following trial balance was extracted from the books of Eaglesmount Limited on 31 July 2017.
Note Dr Cr
$’000 $’000
Cost of sales 76.8
Distribution costs 24.4

10 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

Administration expenses 12.0
Provision for warranty claim (i) 12.0
Land and buildings at cost (including land $24,000) (ii) 160.0
Accumulated depreciation 1 August 2016 – land & buildings (ii) 8.0
Revaluation surplus 1 August 2016 (ii) 24.0
Plant and equipment at cost (iii) 260.0
Accumulated depreciation 1 August 2016 - plant and equip (iii) 124.0
Revenue (iii) 240.8
Investment property (iv) 128.0
Equity investments (v) 33.6
Trade receivables 27.6
Inventory at 31 July 2017 24.8
Cash and bank 35.2
Trade payables 18.4
Corporation tax (vi) 1.6
Equity shares of 10c each (viii) 80.0
Share premium account (viii) 140.0
Equity investment reserve (v) 5.6
6% Debenture (issued on 1 March 2017) (vii) 80.0
Equity dividend paid 9.4
Retained earnings reserve 1 August 2016 60.6
793.4 793.4

The following notes are relevant to your answer:

(i) Eaglesmount Ltd maintains a provision for warranty claims expected to arise in the future on
goods sold. At the reporting date this provision was carried at $12,000. It has been agreed that
this provision should be increased to $17,500.
(ii) Land and buildings are carried under the revaluation model, as permitted by IAS 16. The most
recent valuation took place on 31 July 2015, resulting in the values included in the trial balance
above. The revaluation surplus of $24,000 resulted solely from these land and buildings. The
buildings were estimated to have a useful economic life of 17 years as at that date and zero
residual value. On 31 July 2017, the land was revalued to $20,000 and the buildings to $90,000.
There was no change to the useful life estimates of the buildings. Depreciation is recognised on
a straight line basis through cost of sales, and no depreciation has yet been charged for the year
ended 31 July 2017.
(iii) Plant & equipment is being depreciated through cost of sales at 20% per annum reducing
balance. On 31 July 2017, a piece of plant which cost $40,000 on 1 August 2015 was sold for
$22,000. The only entries made to record this transaction were to debit cash and credit sales
revenue with $22,000.
(iv) Investment properties are accounted for under the fair value model of IAS 40. The figure
included in the trial balance above represents the fair value of these properties at 1 August
2016. The fair value of these properties at 31 July 2017 was $140,000.
(v) The figure for equity investments represents the fair value of equities held at 1 August 2016 plus
the cost of equities purchased during the year. As permitted by IFRS 9, an election was made at
the date of purchase to account for any fair value gains and losses on all these equity
investments through ‘other comprehensive income’. Eaglesmount Ltd takes such gains and
losses to a separate component of equity. The fair value of the equity investments at 31 July
2017 was $25,000.

11 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

(vi) Corporation tax for the year was estimated at $22,000. The balance in the trial balance is a
residual amount following the payment of corporation tax for year ended 31 July 2016 and its
offset against the provision made that year.
(vii) The debentures were issued during the year. Interest is payable annually in arrears. No interest
has been provided for or paid as at 31 July 2017.
(viii) $40,000 was raised on 31 July 2017 through the issue of equity shares. This was correctly
accounted for by crediting $16,000 to equity share capital and $24,000 to share premium.

REQUIREMENT:
Prepare, in a form suitable for publication to the shareholders of Eaglesmount Ltd:
(a) Statement of Profit or Loss and Other Comprehensive Income of Eaglesmount Ltd for the year to 31
July 2017; (12 marks)
(b) Statement of Changes in Equity for year ended 31 July 2017; (4 marks)
(c) Statement of Financial Position as at 31 July 2017. (12 marks)
(d) Calculate basic earnings per share for the year. (2 marks)
[Total: 30 Marks]

Question 5
The following draft Statement of Financial Position was drawn up as at 31 July 2016 on the instructions
of the directors of Bedrock Ltd. On subsequent examination of the books and records the finance
director has prepared a list of issues which she believes may require amendments to the draft statement
presented.

Bedrock Plc: Statement of Financial Position as at 31 July 2016

$million
Non-current assets:
Land & buildings 420
Plant & equipment 600
Investment property 120
Equity investments 360
1,500
Current assets:
Inventory 80
Trade receivables 125
Cash & bank 30
235
Total assets: 1,735
Equity:
Equity share capital 400
Share premium 200
Retained earnings: Balance 1 August 2015 375
Profit for year 95
Dividend declared (30) 440
Other components of equity: Balance 1 August 2015 128

12 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

Other comprehensive income for year 35 163
1,203
Non-current liabilities:
Finance lease obligations 175
5% debenture 2020 150
325
Current liabilities:
Trade payables 110
Finance lease obligations 35
Provision for warranty claim 12
Corporation tax due 20
Final dividend due 30
207
Total equity & liabilities 1,735

The following notes are to be taken into account in so far as they are relevant:
(i) Land and buildings are carried after charging depreciation for the year. On 31 July 2016, a piece
of property, carried at $130 million, was revalued to $110 million. This revaluation has not been
accounted for. The revaluation reserve (included with other components of equity) had a
balance of $12 million due to previous revaluations of this property.
(ii) Plant and equipment are carried after charging depreciation for the year. A sale agreement was
entered into during July 2016 to sell some of this plant. The plant sold had a carrying value of
$45 million at the date of sale and was sold for an agreed price of $39 million. No cash has yet
been received in respect of this sale, as a 30- day credit period was agreed with the purchaser.
No entry has been made to record this transaction.
(iii) The above figure for investment properties does not take account of the results of a fair
valuation exercise carried out on 31 July 2016. The result of this was that the investment
properties had a fair value of $125 million at that date. Bedrock Plc adopts the fair value model
for investment properties.
(iv) The equity investments had a fair value of $380 million at 31 July 2016, which has not yet been
incorporated into the financial statements. Bedrock has made an election to take all fair value
gains and losses on equity investments to “other comprehensive income” as permitted by IFRS 9
- Financial Instruments.
(v) The 5% debenture was issued on 1 August 2015 for cash proceeds of $150 million, and was
correctly recorded. The redemption terms of this debenture are such that the effective rate of
interest to maturity was 6.5%. The only other entry made in respect of the debenture was the
payment of $7.5 million interest on the due date 31 July 2016.
(vi) Bedrock Ltd offers a 12-month warranty on all goods sold to retail customers. A provision is
maintained for the expected cost of honouring this warranty. This has not been updated as at 31
July 2016. Bedrock sold 40,000 units of its relevant product during the year, all of which qualify
for warranty. It expects 10% of these to need minor repairs at an average cost of $500 each, and

13 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

 3% to need major repair at a cost of $10,000 each. All costs are expected to be incurred within
12 months.
(vii) Ignore the taxation effects of any adjustments you make.
REQUIREMENT:
(a) Prepare a schedule showing any corrections required to the profit and other comprehensive income
for the year. (8 marks)
(b) Redraft the Statement of Financial Position at 31 July 2016 taking the above into account. (12 marks)

Question 6
Tariro Limited           $000 $000
Note
Trial balance on 31 December 2019         s    
            Dr. Cr
            $ $
Sales revenue         1 98880
Cost of sales           56000
Joint arrangement-joint operation         2 1200
Operating expenses           14000
Loan note interest paid           1800
Investment income           700
Investment Property at fair value           10000
25 year leasehold factory at cost         3 50000
15 year leasehold factory at cost           30000
Plant and equipment at cost           49800
Depreciation 1 January 2019 25 year leasehold     10000
Depreciation 1 January 2019 15 year leasehold     10000
Depreciation 1 January plant and equipment      19800
Accounts receivable         1 16700
Inventory 31 December 2019           7500
Cash and bank           500
Accounts payable           9420
Deferred tax 1 January 2019         4 2100
Ordinary shares of 25 cents each           40000
10% Redeemable (in 2022 at par) preference shares of $1 each     10000
12% Loan note (issued in 2017)           30000
Retained earnings 1 January 2019           6100
Investment property revaluation reserve           2000
Interim Dividends paid           1500
            239000 239000
               

The following notes are relevant:

14 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

(1) On 1 April 2019 Tariro Limited agreed to act as an agent for a company in DRC, Kabola Limited. The
terms of the agency are that Tariro receives a 10% commission on all sales on behalf of Kabola
Limited. This is achieved by Tariro remitting 90% of the cash received from Kabola Limited's
customers’ one month after Tariro had collected it. Tariro had included in its sale revenue of $7.2
million of sales on behalf of Kabola Limited of which there is one month’s outstanding balances of
$1.2 million included in Tariro Limited’s accounts receivable. The cash remitted to Kabola Limited
during the year was $5.4 million (that is being 90% of $6 million), in accordance with the terms of
the agency. This has been treated as the cost of the agency sales.
(2) The joint venture account represents the net balance of Tariro’s transactions in a joint venture with
Wabata, which commenced on 1 January 2019. Each venturer contributes their own assets and pays
their own expenses. The revenues for the venture are shared equally. The joint venture is not a
separate legal entity. This qualifies as a joint arrangement being a joint operation in terms of IFRS11.
Details of Tariro Limited’s joint venture transactions are:
$000
Plant and equipment at cost 1 500
Share of joint venture sales revenue (50% of total sales revenues) (800)
Related cost of sales excluding depreciation 400
Accounts receivable 200
Accounts payable (100)
Net balance of joint venture account 1 200

Plant and equipment is depreciated at 20% per annum on a reducing balance basis.

(3) On 1 January 2019 Tariro Limited had its two leasehold factories revalued for the first time, by an
independent evaluator(surveyor) as follows:

25-year leasehold $52 million

15-year leasehold $18 million
Tariro Limited depreciates its leaseholds on a straight-line basis over the life of the lease.
The directors of Tariro Limited are disappointed with the value placed on the 15-year leasehold surveyor
has said that the fall in its value is due mainly to its unfavourable location, but in time the surveyor
expects its value to increase. The directors are committed to incorporating the results of the 25-year
leasehold into the financial statements, but wish to retain the historical cost basis for the 15-year
leasehold. Revaluation surpluses are transferred to retained earnings in line with the realisation of the
related asset.
(4) Prior to the current year Tariro Limited had adopted a policy of carrying its investment property at
fair value, with the surplus being credited to reserves. For the current year it will be applying the fair
value method of accounting for investment properties in IAS 40 Investment Property. The value of
the investment property had increase by a further $500,000 in the year to 31 December 2019.
(5) A provision for income tax for the year to 31 December 2019 of $5 million is required. The
temporary differences (related to the difference between tax base of the plant and statement of
financial position written down value) on 1 January 2019 were $7 million and on 31 December 2019

15 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

 they had declined to $5 million. Assume a tax rate of 30%. Ignore deferred tax on the property
revaluations.
(6) The interim dividends paid include half of the full year’s preference dividends. On 23 December
2019 the directors declared a final dividend of 3 cents per share.

Required:
Prepare the financial statements for the year to 31 December 2019 for Tariro Limited in accordance with
International Accounting Standards and International Financial Reporting Standards, as far as the
information permits. They should include:
 A statement of profit or loss and other comprehensive income (14 marks)
 A statement of changes in equity and reserves (5 marks)
 A statement of financial position (21 marks)

Question 7
Angel Limited
Trial balance on 31 December 2019         Notes    
            Dr. Cr
            $000 $000
Freehold property         1 126000
Plant           110000
Investment property 1 January 2019 2 15000
Ordinary shares of 25 cents each           150000
Share premium           10000
Trade receivables and prepayments           31200
Bank           13800
Inventory         3 60400
Deferred tax 1 January 2019         4 18700
Retained earnings 1 January 2019           52500
Accumulated profits- year to 31 December 2019   47500
Suspense account         5 14100
Provision for plant overhaul         4 12000
Taxation payable           4200
Trade payables           47400
            356400 356400

Notes to financial statement:

(i) The income statement has been charged with $3.2 million being the first of the four equal
annual rental payments for an item of excavating plant. This first payment was made on 1
January 2019. Angel has been advised that this is a finance lease with an implicit interest rate of
10% per annum. The plant had a fair value of $11.2 million at the inception of the lease.

16 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

 None of the non-current assets have been depreciated for the current year. The freehold
property should be depreciated at 2% on its cost of $130 million, the leased plant is depreciated
at 25% per annum on a straight line basis and the non-leased plant is depreciated at 20% on the
reducing balance basis.
(ii) Angel Limited adopted the fair value model for its investment property. The value at 31
December 2019 has been assessed by a qualified surveyor at $12.4 million.
(iii) During an inventory count on 31 December 2019 items that had a cost of $6 million were
identified as being either damaged or slow moving. It is estimated that that they will only realise
$4 million in total, on which sales commission of 10% will be payable. An invoice for materials
delivered on 12 December 2019 for $500 000 has been discovered. It has not been recorded in
Angel’s bookkeeping systems, although the materials were included in the inventory count.
(iv) Angel operates some heavy excavating plant which requires a major overhaul every three years.
The overhaul is estimated to cost $18 million and is due to be carried out in January 2020. The
provision of $12 million represents two annual amounts of $6 million made in the years to 31
December 2018 and 2019.
(v) Deferred tax provision required on 31 December 2019 has been calculated at $22.5 million.
(vi) The suspense account contains the credit entry relating to the issue on 1 July 2019 of a $15
million 8% loan note. It was issued at a discount of 5% and incurred direct issue costs of $150
000. It is redeemable after four years at a premium of 10%. Interest is payable six months in
arrears. The first payment of interest has not been accrued and is due on 1 January 2020.
Apportionment of issue cost, discounts and premiums can be made on a straight line basis.
Required

(a) Commencing with the accumulated profit figure in the trial balance ($52.5 million and $47.5
million), prepare a schedule of adjustments required to these figures taking into account any
adjustments required by notes (i) to (vi) above. (18 marks).
(b) Prepare the statement of financial position of Angel Limited as at 31 December 2019 taking into
account the adjustments required in notes (i) to (vi) above. (22 marks)
[Total 40 marks]

17 Compiled by T T Herbert (0773 038 651 / 0712 560 772)