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Question 1

Caliban Ltd is a retailer of electric cars, which it also services and repairs. The following trial
balance has been extracted from Caliban Ltd’s cloud-based accounting system as at 31
December 2022.

Note £ £
Revenue (1), (2) 2,500,600
Purchases 1,760,700
Administrative expenses 659,200
Inventories at 31 December 2021 126,500
Trade receivables 66,600
Land and buildings (3)
Cost (land £300,000) 802,500
Accumulated depreciation at 31 December 2021 255,800
Plant and equipment (3)
Cost 206,900
Accumulated depreciation at 31 December 2021 82,400
Retained earnings at 31 December 2021 295,180
Ordinary share capital (£1 shares) 600,000
Trade payables 64,800
Financial asset (zero coupon bond) (4) 181,440
Bank account (5) 5,060
3,803,840 3,803,840

Notes:

(1) In October 2022 Caliban Ltd ran a promotional deal for a specific model of electric car.
The cars were sold for £24,640 each, which included, for two years, a monthly contribution of
£50 towards costs of charging the car, using public electric vehicle (EV) charging points, via a
dedicated app. The car would usually sell for £26,800, without any such contribution so, with
the contribution towards charging, the value of the package would be £28,000.

Caliban Ltd sold 10 cars under this deal and the first monthly contributions to the app were
made on 1 November 2022. Caliban Ltd debited the sales proceeds of £246,400 relating to
the 10 cars to cash and credited revenue with the same figure. Caliban Ltd accounted
correctly for the contributions to the app by debiting cost of sales and crediting cash with
£1,000, representing two months’ worth of contributions.

(2) The UK government requires vehicles over the age of three years to be tested annually to
check they are roadworthy. Caliban Ltd was recently approved to test such vehicles and
installed a dedicated test lane in its workshop, including the latest control software. On 1
August 2022, as installation was complete, Caliban Ltd received a £12,000 government grant
to help finance the test lane, which cost £30,000. The grant was debited to cash and credited

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to revenue. Caliban Ltd’s accounting policy is to use the netting off method for government
grants.

(3) With the exception of the test lane in Note (2) above, which was included in the cost of
plant and equipment at its purchase price of £30,000, there were no additions or disposals of
property, plant and equipment during the year ended 31 December 2022. Depreciation for
the year ended 31 December 2022 has not yet been recognised. Depreciation on plant and
equipment is calculated using a reducing balance of 20%. Buildings are depreciated on a
straight-line basis over 30 years. All depreciation charges are recognised in cost of sales.

(4) On 1 January 2022 Caliban Ltd purchased a zero-coupon bond, with a nominal value of
£196,000, for £181,440. In addition, a fee of £5,000 was paid to the broker, which was
debited to administrative expenses and credited to cash.

The bond is quoted in an active market and Caliban Ltd plans to hold it to its redemption on
31 December 2024. Redemption is at a premium of 7% on the nominal value and the bond
has an effective interest rate of 4% pa.

(5) Caliban Ltd’s bank statement for December 2022 showed interest on the overdraft of
£430. This was not accrued for at the year end.

(6) An income tax refund of £12,600 is due for the year ended 31 December 2022 and this
has been appropriately estimated.

(7) Caliban Ltd frequently takes customers’ old cars in part-exchange for sales of new cars.
As part of its commitment to sustainability, where possible, Caliban Ltd refurbishes these
cars and resells them via a third party.

Two such cars were held on 31 December 2022 but had not been included in year-end
inventories. Prior to adjusting for these cars, year-end inventories were stated at £98,500.
Details of these two cars were as follows.

Price given to Estimated resale Estimated Estimated

customer in value (after refurbishment selling costs
part-exchange refurbishment) costs
£ £ £ £
Car 1 8,500 10,200 2,250 500
Car 2 2,500 3,300 500 100
Total 11,000 13,500 2,750 600

Requirements

1. Prepare the following for Caliban Ltd, in a form suitable for publication in its financial
statements for the year ended 31 December 2022:
(a) a statement of profit or loss; and

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 (b) a statement of financial position.
(24 marks)

2. Describe the differences between IFRS® Standards and UK GAAP in respect of the
financial reporting treatment of revenue. (3 marks)

3. Explain the going concern concept and the potential impacts on an entity’s financial
statements if the going concern concept cannot be adopted. (4 marks)

Total: 31 marks

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Question 2

Tybalt Ltd uses hemp fibre to manufacture a sustainable insulation material. Set out below
are the outstanding issues in relation to the preparation of Tybalt Ltd‘s financial statements
for the year ended 31 December 2022.

(1) On 1 July 2022 Tybalt Ltd sold its 80% holding in one of its subsidiaries, Lear Ltd, which
has in issue 100,000 £1 ordinary shares. The sales proceeds of £180,600 were debited to
cash and credited to investment income in the statement of profit or loss. The original cost of
investment of £310,000 remains in non-current asset investments in Tybalt Ltd’s statement of
financial position as at 31 December 2022.

The shares were acquired several years ago when Lear Ltd’s retained earnings were
£126,800. There were no differences between the carrying amount and fair value of the net
assets of Lear Ltd at the acquisition date. Tybalt Ltd recognised the non-controlling interest
on this acquisition using the proportionate method. By 31 December 2021 Tybalt Ltd had
recognised cumulative goodwill impairment losses of £50,000 in respect of its investment in
Lear Ltd in its consolidated financial statements.

Lear Ltd’s statement of profit or loss for the year ended 31 December 2022 shows a loss for
the year of £12,800. The loss accrued evenly over the year. Lear Ltd’s retained earnings on
31 December 2021 were £56,800.

The disposal of Lear Ltd constitutes a discontinued operation in accordance with IFRS 5,
Non-current Assets Held for Sale and Discontinued Operations.

(2) Tybalt Ltd reviewed its property, plant and equipment and discovered the following:

• On 31 December 2022 a building was found to be impaired. The building cost £205,500 on
1 January 2015. On 1 January 2018 the building was revalued to £270,000. Tybalt Ltd
makes annual transfers between the revaluation surplus and retained earnings. On 31
December 2022, the building was estimated to have a value in use of £130,000. Its fair
value at this date was estimated at £155,000 less disposal costs of £11,000. The building
has a 30-year useful life, which has never changed. For the year ended 31 December
2022 the depreciation charge on the building was correctly calculated and recognised
along with the transfer between the revaluation surplus and retained earnings. No
accounting entries have yet been made with regard to the impairment.

• On 1 January 2022 the useful lives of assets were reviewed and a machine which
originally had an estimated useful life of five years was considered to have a useful life of
seven years. This machine was purchased for £210,000 on 1 January 2019. The
depreciation charge on this machine for the year ended 31 December 2022 has not yet
been calculated.

All property, plant and equipment is depreciated over its estimated useful life on a straight-
line basis.

(3) On 5 January 2023 there was a fire in one of the warehouses in which the hemp fibre is
stored. Due to a high-tech sprinkler system, there was no damage to the building but the

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hemp was worthless. The hemp was included in inventories on 31 December 2022 at its cost
of £98,600.

Requirements

1. Explain the required IFRS® Standards financial reporting treatment of Issues (1) to (3)
above in Tybalt Ltd’s single entity or consolidated financial statements (as appropriate)
for the year ended 31 December 2022, preparing all relevant calculations. (23 marks)

2. Explain the impact on distributable profits of the revaluation and subsequent impairment
of the building in Issue (2). (3 marks)
Total: 26 marks

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Question 3

Question 3.1

Othello plc is preparing its financial statements for the year ended 31 December 2022. The
following information has been extracted from its statement of financial position as at 31
December 2022.

2022 2021
£ £
Non-current assets
Property, plant and equipment 456,900 405,600

Equity
Ordinary share capital (£1 shares) 440,000 300,000
Share premium account 100,000 75,000
Retained earnings 356,100 401,500

Non-current liabilities
Lease liabilities 170,000 200,000

Current liabilities
Lease liabilities 68,000 87,000

Additional information:

(1) Profit for the year ended 31 December 2022 was £105,600. The statement of profit or loss
included the following income and charges:

• Profit on sale of a machine £3,600

• Depreciation £99,800

(2) During the year ended 31 December 2022 Othello plc purchased property, plant and
equipment for cash. No additional leases were entered into. The machine sold during the
year (Note (1)) was sold for cash of £10,200.

(3) Othello plc made the following share issues during the year:

• On 1 April 2022, an issue at full market price.

• On 1 September 2022, a bonus issue of 40,000 shares out of retained earnings.

(4) On 1 July 2022 Othello plc paid an ordinary dividend.

Requirements

a. Insofar as the information is available, prepare an extract from Othello plc’s statement of
cash flows for the year ended 31 December 2022, showing:

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 • cash flows from investing activities; and
• cash flows from financing activities.
(8 marks)

b. Calculate Othello plc’s basic earnings per share for the year ended 31 December 2022
and explain the IFRS® Standards financial reporting treatment. (6 marks)

Question 3.2

You and Kabir are friends and are both trainee ICAEW Chartered Accountants. You work for
a firm of ICAEW Chartered Accountants, Hamlet LLP. Kabir has recently joined Prospero Ltd,
which is not a client of Hamlet LLP, as a financial assistant. Kabir reports to Henry, the
financial controller, who is an ICAEW Chartered Accountant. Last night, Kabir sent you the
following message via social media:

‘I just don’t know what to do…..I’ve been working on the annual financial statements with
Henry and I’ve found a lot of errors. I guess they could be genuine mistakes, as Henry
qualified over 20 years ago ….. However, all of them increase profit and I know that Henry
receives a profit-related bonus.

I did query some of the errors with Henry and his manner was rather threatening – he
reminded me that I haven’t yet passed my probationary period and that it is his decision as to
whether or not I am kept on.’

Requirement

Discuss the ethical issues arising in the above scenario for Kabir and Henry and advise Kabir
what action he should take. (6 marks)
Total: 20 marks

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Question 4

Gertrude plc has two subsidiaries: an 80% holding in Juliet Ltd, and a 70% holding in Viola
Ltd, both of which were acquired on 1 January 2018. Gertrude plc also has a 25% holding in
Portia Ltd.

The draft statements of financial position of Gertrude plc and its two subsidiaries at 31
December 2022 are shown below:

Gertrude plc Juliet Ltd Viola Ltd

£ £ £
ASSETS
Non-current assets
Property, plant and equipment 602,700 206,860 198,300
Goodwill – 19,500 –
Investments 332,500 – –
935,200 226,360 198,300
Current assets
Inventories 281,250 98,500 56,780
Trade and other receivables 302,640 66,280 82,350
Cash and cash equivalents 26,350 5,920 1,800
610,240 170,700 140,930

Total assets 1,545,440 397,060 339,230

EQUITY AND LIABILITIES

Equity
Ordinary share capital (£1 shares) 700,000 20,000 80,000
Share premium account 100,000 – –
Retained earnings 349,680 274,900 178,380
1,149,680 294,900 258,380

Current liabilities
Trade and other payables 289,760 76,560 68,250
Income tax 106,000 25,600 12,600
395,760 102,160 80,850

Total equity and liabilities 1,545,440 397,060 339,230

Notes:

(1) The consideration for the acquisition of Juliet Ltd was 50,000 of Gertrude plc’s ordinary
shares. On the date of acquisition the market value of Gertrude plc’s shares was £1.75 per

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share and Juliet Ltd’s retained earnings were £79,500. Gertrude plc chose to recognise the
non-controlling interest on this acquisition using the fair value method. The fair value of the
non-controlling interest in Juliet Ltd at acquisition was estimated at £20,000.

The fair values of Juliet Ltd’s identifiable assets acquired, and liabilities assumed at the
acquisition date were equal to their carrying amounts. At the date of acquisition Juliet Ltd’s
statement of financial position included goodwill of £26,000 which had arisen on the
acquisition of a sole trader. In 2021 an impairment of £6,500 was recognised by Juliet Ltd in
relation to this goodwill.

(2) The consideration for the acquisition of Viola Ltd was cash of £220,000, when the
retained earnings of Viola Ltd were £156,200. Gertrude plc chose to recognise the non-
controlling interest on this acquisition using the proportionate method.

The fair values of Viola Ltd’s identifiable assets acquired, and liabilities assumed at the
acquisition date were equal to their carrying amounts with the exception of a building. On that
date the building had a fair value £33,000 in excess of its carrying amount and a 30-year
remaining useful life.

(3) On 1 January 2020 Gertrude plc and three unrelated companies set up a company, Portia
Ltd. Each company subscribed for 25% of Portia Ltd’s 100,000 £1 ordinary shares at par. A
contractual agreement stipulated that unanimous consent is required for all decisions and
that the four subscribing companies are to share profits and losses equally. By 31 December
2022 Portia Ltd’s retained earnings were £103,400.

(4) In December 2022 Gertrude plc sold goods to Juliet Ltd for £18,600 and to Portia Ltd for
£11,520. Neither company had sold these goods on, nor settled the invoice from Gertrude
plc, by 31 December 2022. Gertrude plc sells all goods at a markup on cost of 20%.

(5) Gertrude plc has undertaken annual impairment reviews of goodwill. On 31 December
2022 an impairment loss of £10,000 was identified in respect of goodwill arising on the
acquisition of Juliet Ltd which needs to be recognised.

Requirement

Prepare the consolidated statement of financial position of Gertrude plc as at 31 December

2022.
Total: 23 marks

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