The following trial balance relates to Alpaca plc at 30 September 2019:
|
£000 |
£000 |
Land
and Buildings – at valuation 1/10/ 2018 |
130,000 |
|
Plant
at cost |
128,000 |
|
Accumulated
depreciation of plant at 1/10/ 2018 |
|
32,000 |
Investment
property – at valuation 1/10/2018 |
26,500 |
|
Investment
income |
|
2,200 |
Cost
of sales |
89,200 |
|
Distribution
costs |
11,000 |
|
Administrative
expenses |
12,500 |
|
Loan
interest paid |
6,400 |
|
Inventory
at 30 September 2019 |
39,900 |
|
Corporation
tax over-provided for 2018 |
|
400 |
Trade
receivables/ trade payables |
33,100 |
34,700 |
Revenue |
|
180,400 |
Equity
shares of 50p each fully paid |
|
60,000 |
Retained
earnings |
|
55,700 |
8%
loan note (redeemable 2025) |
|
80,000 |
Revaluation
reserve (arising from land and buildings) |
|
14,000 |
Deferred
tax |
|
11,200 |
Bank |
|
6,000 |
|
476,600 |
476,600 |
The following notes are relevant:
1) Alpaca
plc has a policy of revaluing its land and buildings at each year end. The
valuation in the trial balance includes a land element of £30 million. The
estimated remaining life of the building at that date (1 October 2018) was 20
years. On 30 September 2019, a professional valuer valued the buildings at £92
million, with no change in the value of the land. Depreciation of buildings is
charged on a straight-line basis and is allocated 60% to cost of sales and 20%
each to distribution costs and administrative expenses.
2) During the year, Alpaca plc manufactured an item of plant that it is using as part of its own operating capacity. The details of its cost, which is included in cost of sales in the trial balance, are:
|
£000 |
Direct materials cost |
6,000 |
Direct labour cost |
4,000 |
Installation and testing costs |
8,000 |
Directly attributable overheads |
6,000 |
General and administrative overheads |
4,500 |
The manufacture of the plant was completed on 31 March 2019 and the plant was brought into immediate use, but its cost has not yet been capitalised.
3) All plant is depreciated at 20% per annum (time apportioned where relevant) using the reducing balance method and charged to cost of sales.
4) On 1 October 2018, Alpaca plc acquired plant and machinery which had a cost of £50 million. The company traded in (part-exchanged) an old item of plant for a value of £15 million and paid cash of £35 million. The cash transaction has been accounted for in the trial balance above, but the trade-in has not yet been recorded. The plant traded in had been bought on 1 April 2016 at a cost of £31,250,000.
5) The investment property is let at commercial rates to tenants who are not connected to the company in any way. Alpaca plc adopts the fair value model in its accounting treatment of the asset. At 30 September 2019, the property had a value of £28 million.
6) The Corporation tax account in the trial balance represents the over-provision of the previous year’s estimate. The estimated Corporation tax liability for the year ended 30 September 2019 is £8.7 million. At 30 September 2019 there were £40 million of taxable temporary differences. The Corporation tax rate is 25%
Required:
PART A
a) Prepare for Alpaca plc, a Statement of Profit or Loss for the year ended 30 September 2019 and
b) A Statement of Financial Position as at 30 September
(Note: A Statement of Changes in Equity is NOT required)
c) A schedule of movements in property, plant and equipment for the year ended 30 September 2019
d) The following ratios have been extracted from industry averages:
Current ratio |
1.55 |
Quick ratio |
0.90 |
Inventory days |
85 days |
Receivable days |
40 days |
Payable days |
45 days |
Calculate the relevant ratios for Alpaca plc and comment on the liquidity position of the company and its management of working capital.
PART B
Prepare
a report for the CEO of Alpaca plc that explains, with reference to appropriate
accounting standards, your treatment of the changes in property, plant and
equipment for the year ended 30 September 2019.
Students succeed in their courses by connecting and communicating with an expert until they receive help on their questions
Consult our trusted tutors.