FINANCIAL REPORTING

BS 320 AND BF 220

Prince Daniels Tutorials

QUESTION

The following trial balance has been extracted from the accounting records of Stephen plc at
31 March 2014, before the preparation of financial statements.
K K

Sales revenue 3,720,535

Cost of sales 1,681,165
Administrative expenses 563,548
Distribution costs 262,989
Research and development 249,000
Directors remuneration 300,000
Interest paid 13,500
Goodwill 150,000
Freehold land - at 2009 valuation 250,000
Buildings - at 2009 valuation 480,000
Plant and machinery – at cost 375,000
Accumulated depreciation at 1 April 2013:

- Buildings 80,000
- Plant and machinery 135,000
Inventory at 31 March 2014 143,365
Bank 47,674
Short-term investments 35,000
Trade receivables and payables 93,925 105,665
Bank loans 250,000
Investment properties (fair value at 1st April 2013) 435,000
Provision for liabilities at 1st April 2013 165,000
Suspense account 98,000

Allowance for receivables 2,980

Interim dividends paid (Ordinary shares) 5,000
Corporation tax 1,559
Ordinary share capital (K1 shares) 100,000
Share premium account 175,000
Revaluation reserve 140,000
Retained earnings at 31 March 2013 _________ 310,545
5,184,725 5,184,725
 In addition to the trial balance you are provided with the following information all of
which is considered to be material:

1. Research and development expenditure comprises:

K99 000 – Applied research with a local university into the possible use of hydraulic
fracturing as an alternative and cost efficient source of energy. Tests proved inconclusive.

K150 000 – Developing a new product that Stephen plc expects to generate economic
benefits for a seven year period commencing in October 2014.
2. On 16 April 2014 a customer went into liquidation owing Stephen plc K 38 000. The
money owed is included in trade receivables at 31 March 2014; however the company
does not now expect to recover any of this debt. In addition an allowance for receivables
of 3% of remaining trade receivables is required.
3. Stephen plc has an industry-wide reputation for providing an excellent after-sales service,
which helps generate a huge amount of repeat business with key customer groups. To
ensure that this continues, during the year ended 31 March 2014 Charlton spent K150,
000 on a customer service training course for all staff. This amount has been capitalised
and is included in the trial balance as goodwill. The managing director would like to
amortise goodwill in equal amounts over ten years.

4. Land and buildings are re-valued regularly in accordance with the requirements of IAS
16 Property, Plant and Equipment. During the year to 31 March 2014 land was re-valued
at K265, 000 and buildings at K425, 000. This re-valuation is not reflected in the trial
balance.

5. Freehold land is considered to have an infinite useful life. Buildings are depreciated on a
straight line basis (using their year-end value) over their estimated useful economic lives.
At 1 April 2013 the remaining useful economic life of buildings was estimated to be 25
years. No depreciation has been charged on buildings for the year ended 31 March 2014.

6. Plant and machinery is depreciated using the reducing balance method at 20% per
annum. The company charges a full year of depreciation in the year of acquisition and
none in the year of disposal. No depreciation has been charged on plant and machinery
for the year ended 31 March 2014.
7. The investment properties were purchased eight years ago and have a remaining useful
economic life of 32 years. At 31 March 2014 the properties were valued at K420, 000 by
a local firm of chartered surveyors.

8. At a board meeting on 15 April 2013, it was proposed that the final dividend for ordinary
shareholders would be 15 ngwee per share.

Required:

In a format that is required for publication and in accordance with the provisions of IAS
1 Presentation of Financial Statements, prepare

a) A statement of comprehensive income for Stephen plc for the year ended 31 March 2014.

b) A statement of financial position for Stephen plc at 31 March 2014.

Note:
Financial statements must be in a format that is suitable for publication
You must clearly show all calculations and workings
Disclosure notes are not required