Part A
The regulatory framework
Chapter 2 of the conceptual framework identifies the qualitative characteristics of financial information that are likely to be most useful to users in making decisions about the reporting entity. Relevance and Faithful representation are considered the fundamental qualitative characteristics of useful financial information. To improve the transparency and comparability of reported financial information, the European Union required European companies listed in the EU stock exchanged to prepare their financial statements in accordance with International Financial Reporting Standards (IFRS), starting from 1 January 2005 onwards.
The IASB states that the main purpose of its work is:
… to develop, in the public interest, a single set of high quality, understandable, enforceable and globally accepted financial reporting standards based on clearly articulated principles. These standards should require high quality, transparent and comparable information in financial statements and other financial reporting to help investors, other participants in the various capital markets of the world and other users of financial information make economic decisions.
Required:
Briefly explain the history and development of IFRS and discuss the extent to which its adoption has enhanced the relevance and reliability of the financial statements.
Word count: 750 words
(Total Part A: 60 marks)
Part B
International Accounting Standards 10:
Events after the reporting period
For a recently established company, Oakengates Ltd, the directors have provided you with a draft copy of the financial statements for its first year-end: 30th June 2020.
The financial statements have yet to be authorised for issue by the directors. It is anticipated that the financial statements will be “signed-off” by the 15th August 2020.
Oakengates Ltd
Statement of Financial Position (extract)
2020
Draft
£
Non-current assets
Property, plant and equipment 150,525
Current assets
Inventory 25,875
Trade receivables 28,750
Bank 4,600
Prepayments 2,300
61,525
Total assets 212,050
Equity
Share capital 16,500
Share premium 750
Retained earnings 86,525
103,775
Non-current liabilities
10% loan 63,250
Current liabilities
Trade payables 30,650
Accruals 8,050
Bank overdraft 6,325
45,025
Total equity and liabilities 212,050
Oakengates Ltd
Statement of Profit or Loss
2020
Draft
£
Revenue 345,000
Cost of sales ( 293,422 )
Gross profit 51,578
Administration expenses ( 4,686 )
Distribution costs ( 25,042 )
Profit before interest and tax 21,850
Finance charges ( 7,475 )
Profit before tax 14,375
Taxation ( 3,625 )
Profit for the year 10,750
The directors have provided you with some additional information that may be relevant to the preparation of the final version.
Inventory of £650 held at 30th June 2020 was sold to a customer on the 10th July 2020 for £500.
On the weekend of 4th July 2020, a flood occurred in part of the upstairs kitchen and destroyed some of the inventory in the research department below. The items of inventory had a cost value of £625.
A property that the business owned was sold shortly after the year end for £190,000, realising a profit of £45,000.
A customer of Oakengates Ltd was been declared bankrupt on the 14th July 2020 owing £1,225. It is unlikely that any of the monies owing will be recovered. Any resulting expense should be charged to administrative expenses.
The company directors wish to propose a final dividend of 12p per share. The announcement was made on the 4th August 2020.
When a verification of the items included in property, plant and equipment was made at the year end, it was discovered that two valuable laptops, used in the warehouse, had been stolen. The carrying value of these assets were £1,968. Any resulting expense should be charged to distribution costs.
Required:
For each of the additional information:
State the accounting treatment in line with IAS 10
Provide the double entry that would be necessary to record these transactions
(20 marks)
Prepare the updated version of the financial statements for the year to 30th June 2020, including your adjustments prepared above.
You should use a format suitable for publication, including relevant disclosure notes required by IAS 10, Events after the reporting period.
(20 marks)
