Financial Statement

Coursework Brief: Answer ALL the questions in sections A, B, and C.

Section A
On 31st December 2020, MALNOU Plc had the following balances in its accounts:
£000 £000
Vehicles at cost 900
Vehicles – Accumulated depreciation at 01.01.2020. 150
Freehold land and buildings (Land cost 4,640) 14,640
Freehold buildings – Accumulated depreciation at 01.01.2020.
1,125
Fixtures and fittings at cost 5,250
Fixtures and fittings- Accumulated depreciation at 01.01.2020.
2,250
Allowance for doubtful debts at 01.01.2020. 186
Revenues 75,000
Trade receivable 5,400
Inventory at 01.01.2020 6,000
Cash and bank 1,500
Retained earnings at 01.01.2020. 4,845
Debentures 3,000
Revaluation reserve 90
Trade payable 1,845
Ordinary shares 600
Share premium 75
Interest expense 270
Purchases 52,000
Development cost 506
Operating expenses (General and Administrative Expenses)
2,700

The following transactions are yet to be recorded.

1- On the 5th of December 2020, MALNOU Plc paid £145,000 to its suppliers and collected £300,000 from its credit customers.

2- On the 15th of December 2020, MALNOU Plc made a rights issue of 1 share for every 4 shares held at issuing (market) value of £0.50 per share and this was taken up in full. The nominal value is £0.30 per share.

3- On the 20th of December 2020, Building bought in 2010 for a cost of
£400,000 was sold for £420,000 cash. However, this transaction has not been recorded yet. This building was already revaluated to £450,000 in January 2015 with no change in its estimated useful life.

4- The Debenture was received in full on the 1st of May 2020 and the interest rate is 10% per annum.

5- On the 30th of December 2020, MALNOU Plc paid the last dividend of
£0.02 per share.

6- The annual rent is £48,000 and pays quarterly in arrears. The last payment made covered the quarter ending 30 September 2020.

7- Trade receivables include a balance of £100,000 owing by a customer having severe financial difficulties and the company decided to write this debt off.

8- The allowance for doubtful debts is estimated to be 3% of the remaining trade receivables.

9- Development cost includes £200,000 spent in developing a new product. However, the board of directors has decided that it is not feasible to complete the development of this new product.

10- Corporation tax of £80,000 has been estimated in respect of the profit for the year and this amount is yet to be provided for.

11- The company applies the following depreciation policies:
a) Fixture and fitting 10% straight-line method.
b) Motor vehicles 6% reducing-balance method.
c) Buildings Straight-line method over 50 years.
d) The company policy is to provide a full year’s depreciation in the year of purchase of the asset, and none in the year of sale. In addition, depreciation is allocated to General and Administrative (Operating) Expenses.

12- The cost of closing inventory is £2,500,000. However, included in this amount 600 units costing £50 per unit and having some minor damage. However, MALNOU Plc will re-package them at a cost of £2 per unit and therefore they can be sold for £32 per unit.

Required:

(A) Prepare the income statement for the year ended 31/12/2020 and a statement of financial position as of that date. (Show all calculations)
[40 marks]

(B) For the financial year ended on 31 December 2020, MALEK ltd achieved a profit for the year of £15 million. MALEK ltd depreciation policy is to provide depreciation at the rate of 10% per annum using the straight-line- method. There is no residual value. The company policy is a full year’s depreciation is provided in the year of purchase of the asset and none in the year of sale. However, after the preparation of the financial statements, MALEK ltd later found that

1. Purchases include £1.5 million paid to acquire new equipment to be used in the production.

2. Operating expenses already include £25,000 paid immediately in respect of a contract with a supplier to provide painting services from 1st August 2020 – 30st November 2020.

3. Operating expenses include a Land revaluation loss of £50,000 as its current market value is £270,000. The land was previously evaluated in 2015 from £250,000 to £320,000.

4. Revenues include £30,000 collected immediately on 1st of October 2020 for selling a product delivered and accepted by the customer on 15th of December 2020.

5. Revenue includes £2 million received as proceeds from the sale of equipment no longer used. This has been already recorded under the cash account and no other entries have been made. The equipment was originally bought in May 2018 for £1.5m.

Required:
Discuss whether you agree or disagree with how MALEK ltd treated these transactions and show the implication on profits. You should support your answer with calculations.

[10 marks]
(C) Discuss how to account for Goodwill under the International Accounting Standards. [up to 200 words]

[5 marks]

Section B
Based on your study of fundamentals of Financial Accounting, assume that you have been asked by a prospective investor to collect data (both financial and non-financial) about Ted Baker Plc GROUP for the years 2018 and 2019. These data can be found on Ted Baker’s 2018 and 2019 which are given under assignment brief.
Using the data collected, you are then required to prepare a report. The report must include:
1) Calculations of the following ratios, for both 2018 and 2019.
a. Return on capital employed.
b. Gross profit margin.
c. Operating profit margin.
d. Current ratio
e. Quick ratio.
f. Inventory holding period.
g. Receivables collection period.
h. Payables payment period.
i. Gearing ratio.
j. Interest coverage ratio.
[10 marks]

2) A critical discussion of the financial performance of Ted Baker PLC. [up to 500 words].
[10 marks]

Word Limit: The relevant word count includes items such as cover page, executive summary, title page, table of contents, tables, figures, in-text citations, and section headings if used. The relevant word count excludes your list of references and any appendices at the end of your coursework submission.
You should always include the word count (from Microsoft Word, not Turnitin), at the end of your coursework submission, before your list of references.
Title/Cover Page: You must include a title/ cover page that includes: your Student ID, Module Code, Assignment Title, Word Count. This assignment will be marked anonymously, please ensure that your name does not appear on any part of your assignment. For more information on Financial Statement check on this: https://en.wikipedia.org/wiki/Financial_statement

What Is Ethical Judgment?

 

 

 

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