BF 220 TEST ONE PRACTICE

The following trial balance has been extracted from the accounting records of Comrade plc at
31 March 2022, before the preparation of financial statements.

K’ 000 K’ 000
Sales Revenue 221,500
Cost of sales 14,556
Freehold land at 2010 revaluation 90,500
Buildings at cost 75,600
Buildings-Accumulated depreciation 45,360
Administrative expenses 15,400
Distribution expenses 11,200
Research and development 42,500
Inventories as at 31 March 2014 7,865
Interest 1,310
Retained earnings 23,457
Trade Receivables and payables 59,045 8,720
Bank 58,100
Treasury Bills 116,812
8% bank loan repayable 2021 26,200
Corporation tax 2,300
Provision for liabilities as at 1 April 2021 62,500
Revaluation Reserve 25,000
Share capital (K 1 each) 70,370
Share premium 7,481
______ ______
402,888 402,888

The following information is also available

i. Research and development expenditure for the year to 31 March 2022 comprises the
following:

• K 15,000,000 spent on a joint project with a university investigating the potential use of a
certain chemical to reduce pollution levels in mine areas

PRINCE DANIELS 2023

 • K 22,500,000 spent on developing a new high speed hard drive which, in the opinion of
Comrade Ltd, has an assured and profitable market. Work has been suspended pending the
development of a new glue suitable for the construction of the disk drives

• K 5,000,000 on the development of new computer software that will enable the company to
operate an Inventory control system that will greatly reduce the costs associated with holding
excessive amounts of inventory. Comrade Ltd expects the system to come into operation on
1 June 2022.

ii. The inventories at the close of business on 31 March 2022 include inventory items that cost
K 4,480,000 but according to new information that has just been received, Comrade Ltd will
only be able to sell these inventory items for K 2,380,000 after incurring selling costs of K280,
000.
iii. Buildings are depreciated at 25% on a reducing balance basis. The company uses the
revaluation model for its property, plant and equipment. After a review of the value of the
buildings at the year end, it was determined that they had a value of K30, 000, 000. The
buildings were used solely for rental purposes and capital appreciation for 8 months of the
year, after which they were used as offices for the company.

iv. Freehold land is considered to have an infinite useful life. Land is re-valued regularly in
accordance with the requirements of IAS 16 Property, Plant and Equipment. Comrade Ltd
acquired land for K 65,500,000 10 years ago. This land was revalued at K 90,500,000 on
31March 2010 and during 2022 land was re-valued at K 52,500,000 and.

v. Interest on the bank loan for the last six months of the year has not been included in the trail
balance
vi. Since April 2012 Comrade Ltd has been involved in a legal dispute with one of its customers,
Kimmi Ltd for failure to supply goods on agreed time. Although the outcome of the dispute
is unknown, Comrade’s lawyer’s advice suggests that Comrade Ltd will have to pay
compensation to Kimmi Ltd. At 31 March 2021 legal advice estimated that compensation
would amount to K 62,500,000. The case is due to be heard in June 2022 and at 31 March
2022 the most up to date legal advice suggested that Comrade Ltd will instead have to pay
compensation of around K 55,000,000.

vii. The corporation tax balance in the trial balance relates to an unpaid balance for 2021.
Corporation tax for the year ended 31 March 2022 is estimated to be 35% of taxable profit.
Required
Prepare the statement of profit or loss and other comprehensive income, statement of financial
position and statement of changes in equity for Comrade Plc for the year ended 31st March
2022.

PRINCE DANIELS 2023