Tutorial 4

Question - Alloa Ltd (IAS 38)

During the year £228,000 was spent on research and development of two new
software products, Uig and Brora. The breakdown of expenditure was:
£
Research into product development 26,000
Development activities
Uig 118,000
Brora 68,500
Pre-launch testing of Uig 9,600
Staff training 5,900
228,000

On 1 October 2012 Uig was considered to be commercially viable. Uig was

launched on 1 April 2013 and has been selling well. It is estimated that Uig will
have a useful life of two years at which point technological advances are likely
to have been made which will make the product obsolete. Uig's development costs
were incurred between 1 October 2012 and 31 March 2013.

Brora has yet to be launched and requires additional development before it can
be reasonably expected to generate probable future economic benefits. All
expenses relating to intangible assets should be presented in cost of sales.

Requirements
Explain the required IFRS financial reporting treatment on the issue above and
preparing all relevant calculations

Question - Burgos plc (IAS 2)

Burgos plc is a UK manufacturing company. Burgos plc owns a number of
subsidiaries, including Conil Ltd and Elche Ltd, all of which are wholly owned.

The draft consolidated financial statements of Burgos plc did not include a figure
for closing inventories. Closing inventories for Burgos plc and all other group
companies, except for Conil Ltd and Elche Ltd, were £102,300.

The following information relates to inventories held by Conil Ltd and Elche Ltd
at 30 September 2017.

1
Conil Ltd

The physical inventories count showed 210 finished units. Normal planned
production was 4,500 units however only 4,000 units were made during the year
due to a fault on one of the machines. Production costs were:
£
Labour and material costs 182,000
Variable overheads 38,000
Fixed production overheads 63,000

Elche Ltd

Closing inventories for Elche Ltd were £32,300. However, this included an
obsolete product, the Haro. At 30 September 2017 there were 300 units of the
Haro in inventories and these were included at a cost of £45 per unit. The Haro
had been selling at a discounted price of £30 per unit during September and
October 2017.

Requirements

Explain the required IFRS financial reporting treatment on the issue above and
preparing all relevant calculations

Question - Porcaro Plc (IAS 23)

The draft financial statements of Porcaro plc, which has a number of wholly-
owned subsidiaries, are being prepared by your trainee, Carmine. A number of
outstanding issues are set out below which require your attention, as financial
controller, as Carmine was unsure of the correct accounting treatment.

The draft consolidated profit for the year ended 30 September 2014 is £483,150.
1. On 1 October 2013 Porcaro plc borrowed £600,000 at 6% pa, repayable in
three years' time, to help fund the construction of an office block. Porcaro
plc immediately paid £200,000 to acquire land and gained planning
permission on this date but construction did not start until 31 December
2013. The remaining amount was put into a deposit account earning
interest at 3% pa and was used to make payments to the construction
company of £100,000 on 1 March 2014 and £200,000 on 1 September
2014. The building was not complete at the year end and a further payment
of £100,000 was due to the construction company after 30 September 2014.
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 All relevant interest was received and paid on 30 September 2014. Carmine
recognised the net interest paid in the statement of profit or loss and
capitalised all other costs incurred as an asset in the course of construction.

Requirements
Explain the required IFRS financial reporting treatment of the issue above in the
financial statements for the year ended 30 September 2014, preparing all
relevant calculations and setting out the required adjustments in the form of
journal entries.

Question - Folke Plc (IFRS 9)

On 1 April 2015 Folke plc purchased a zero coupon bond for £32,400. The bond
was quoted in an active market and had a nominal value of £35,000. Folke plc
paid broker’s fees of £893. The bond is redeemable on 31 March 2018 at a
premium of 7% and has an effective interest rate of 4% pa. The following entries
were made on 1 April 2015:

Requirements

Explain the required IFRS financial reporting treatment on the issue above and
preparing all relevant calculations.