1.

Adeje Ltd Statement of Financial Position as at 30 June 2009

£ £
NON CURRENT ASSETS
Property, Plant and Equipment £ 2,175,050
Intangible assets £ 55,000

CURRENT ASSETS
Inventories £ 44,500
Trade and other receivables £ 42,000
£ 86,500

TOTAL ASSETS £ 2,316,550

EQUITY
Ordinary share capital £ 1,250,000
Irredeemable Preference share capital £ 60,000
Share premium account £ 400,000
Treasury shares -£ 400,000
Retained earnings £ 874,300
£ 2,184,300

CURRENT LIABILITIES
Trade and other payables £ 58,000
Taxation £ 41,000
Provisions £ 15,000
Bank overdrafts £ 18,250
£ 132,250

TOTAL EQUITY AND LIABILITIES £ 2,316,550

Adeje Ltd Statement of Changes in Equity for year ended 30 June 2009.
Share Share Retained Total
Capital Premium Earnings
Opening balance £1,250,000 £400,000 £982,000 £2,632,000
Changes in accounting policy £2,000 £2,000
Restated opening balance £984,000 £984,000
Issue of share capital - £0
Dividends -£21,250 -£21,250
Dividends -£1,800 -£1,800
Total comprehensive income -£86,650 -£86,650
Balance at the end of the period £1,250,000 £400,000 £874,300 £2,524,300
Workings:
(1) - Goods Inventory
Year end inventory:
As per ledger £42,000
Goods omitted £2,500 Increases profit by 2500
Actual year end inv £44,500

(2) - Legal claim

DR Expense (SPL) £15,000

CR Provision (SFP) £15,000

Dr Trade Receivables £10,000

CR Expense account (SPL) £10,000

(3) - Research and Development

Should be:
Research should be: DR Expense (SPL) £ 40,000
CR Cash £ 40,000

Development costs DR Expense (SPL) £ 25,000

CR Cash £ 25,000

DR Intangible Asset £ 55,000

CR Cash £ 55,000

Record lease payment DR Expense £ 4,000

CR Cash £ 4,000

(5) - Depreciation

Buildings and Land Land Cost £ 700,000

Building Cost £ 1,800,000

Annual Depreciation £ 54,000 (1800000 x 3%)

Depreciation 30.06.2008 £ 486,000

Building & Land Carrying Cost £ 1,960,000 (2500000-486000-54000)

Plant & Machinery Cost £ 350,000

Annual Deprecation £ 37,950 (350000-97000) x 15%

Depreciation 30.06.2008 £ 97,000

P&M Carrying Cost £ 215,050 (350000-37950-97000)

(6) - Irredeemable preference shares

Initial recognition

DR Cash £60,000

CR Equity £60,000

Dividends (60000 x 6% x 6months)

DR Finance cost P&L £1,800

CR Cash £1,800
(7) - Shares

Treasury shares: £ 400,000

Should be
DR Treasury shares £ 400,000
CR Cash £ 400,000

Was
DR Share premium £ 200,000
DR Share capital £ 200,000
CR Cash £ 400,000

Correction
DR Treasury shares £ 400,000
CR Share premium £ 200,000
CR Share capital £ 200,000

Profit before tax £ 118,000

Inventory -£ 2,000
Inventory £ 2,500
Legal claim -£ 5,000
R&D -£ 65,000
L&B Dep -£ 54,000
P&M Dep -£ 37,950
Dividends £ 1,800
Lease -£ 4,000
Profit before tax -£ 45,650
Tax -£ 41,000
Profit after tax -£ 86,650
 (8) - Inventory valuation

Closing inventory WA £ 37,000 Was

Closing inventory FIFO £ 39,000 Should have been Cost of sales is less by 2000
Therefore profit greater by 2000
Difference £ 2,000

1.2

(4) – Lease

DR Expense £4000

CR Cash £4000

(7) – Ordinary shares

DR Treasury Shares £400,000

CR Cash £400,000

1.3

IAS 16 says PPE should be recognised where it is probable that future economic benefits will flow to
the entity and where this cost can be measure reliably. This applies the qualitative characteristic of
faithful representation. This means that economic substance of a transaction should be recorded
over strict legal form.

The characteristic of relevance is affected by its nature and materiality. The nature of PPE is dictated
by IAS 16 by defined that PPE are ‘tangible items that are held for use in the production or supply of
goods or services, for rental to others, or for administrative purposes; and are expected to be used
during more than one period’. This also ensure comparability as the same nature of items are
included in the amount reflected in the financial statements.

Assets should be initially recognised at cost, and include all amount incurred to acquire the asset as
well as any amounts which can be directly attributable to bringing the asset to the current location
and condition necessary for it to be capable of operating in the way intended by management. This
ensures comparability as companies are able to compare the information from the current period to
pervious periods or information relating to different entities as assets are recognised in the same
way, with the same costs represented. Where no cash is given, the fair value of consideration must
be recognised. The price must also be discounted if the payment is to be made over time .

By outlining the nature and measurement of PPE this means that information is clear, concise and
consistent and easy to interpret for any person with a reasonable knowledge of business and
economics which means that the characteristic of understandability is applied.