Question 1

The following draft trial balance has been produced for Ladram plc for the year to 30 April 2020.

You are given the following information:

i) Depreciation for the year has not been provided. The depreciation policy is as follows:

Plant and equipment     25% reducing balance, charged to cost of sales

Buildings                     2% straight-line, charged to administrative expenses

Motor vehicles             Straight line over a 6-year life, charged to distribution costs

ii) The directors of Ladram plc have decided to adopt a policy of revaluing all its buildings to reflect current fair values.  The fair value of the buildings is determined by an independent surveyor to be £2,625,000 as at 30 April 2020.  The revaluation does not give rise to a deferred tax liability.

iii) Intangible assets, representing a customer list acquired in the year to 30 April 2019, are being amortised straight-line over their remaining life of 5 years. Amortisation is to be charged to administrative expenses.

iv) Corporation tax for the year to 30 April 2020 is to be provided at £220,000, and the deferred tax liability should be decreased by £28,000.

v) At 30 April 2020 Ladram plc disposed of an item of plant for £33,000.  The disposed plant had a cost of £131,000 and a carrying value of £56,000. The only entry made into the accounts were the disposal proceeds recorded in the cash at bank account with the corresponding entry into the suspense account.

vi) At 30 April 2020 the company adopted a new accounting policy regarding the measurement of inventories. If the new policy had been applied last year, the company’s inventory at 30 April 2019 would have been £350,000 higher than the amount originally calculated.  This new policy has not been updated in the account balances above.

vii) Inventory at 30 April 2020 is £1,200,000 reflecting the new valuation policy.

YOU ARE REQUIRED TO:

Prepare in a format suitable for publication for Ladram plc:

a) A Statement of profit or loss and other comprehensive income for the year ended 30 April 2020;

b) A Statement of changes in equity for the year ended 30 April 2020;

c) A Statement of financial position at 30 April 2020.

All calculations should be to the nearest £000

d) Discuss the requirements of IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” in relation to Ladram plc’s new accounting policy in relation to the measurement of inventories. Explain why these requirements are necessary.