Published accounts (Section 2: 100 Marks)

Published accounts can be a 60-mark (no balance sheet) or 100-mark question. Theory questions have been awarded a large percentage of the marks.

S.Russell plc has an authorised capital of €800,000 divided into 600,000 ordinary shares at €1 each and €200,000 5% preference shares at €1 each. The following trial balance was extracted from its books at 31/12/2017.

The following information is relevant:

(i) Stock 31/12/2017 is €87,000.

(ii) The patent was acquired on 1/1/2013 for €63,000. It is being amortised over nine years in equal instalments. The amortisation is to be included in cost of sales.

(iii) Provide for debenture interest due, investment interest due, auditor’s fees €8,500, directors’ fees €45,000 and corporation tax €55,000.

(iv) Depreciation is to be provided for on buildings at a rate of 2% straight line, and is to be allocated 30% to distribution costs and 70% to administration expenses. There was no purchase or sale of buildings during the year. Vehicles are to be depreciated at a rate of 20% of cost.

(v) During the year land adjacent to the company’s premises, which had cost €65,000, was sold for €152,000. At the end of the year the company re-valued its buildings to €830,000. The company wishes to incorporate this value in this year’s accounts.

(vi) Included in administrative expenses is the receipt of

€16,000 for patent royalties.

You are required to:

(a) Prepare the published profit and loss account for the year ended 31/12/2017 and a balance sheet as at that date, in accordance with the Companies Acts and appropriate accounting standards.

1. Accounting policy note for tangible fixed assets and stock.

2. Operating profit.

Notes to the accounts:

1. Accounting policy for tangible fixed assets and stock The buildings were re-valued at the end of 2017 and have been included in the accounts at their re-valued amount. Vehicles are shown at cost. Depreciation is calculated in order to write off the value or cost of tangible fixed assets over their estimated economic life as follows: Buildings: 2% per annum – straight line Vehicles: 20% of cost.

Stocks: stocks are valued on a first-in, first-out basis at the lower of cost and net realisable value.

2. Operating profit

The operating profit is arrived at after charging: €

Depreciation on tangible fixed assets 81,200

Patent amortised 7,000

Directors’ remuneration 45,000

Auditors fees 8,500

3. Interest

Interest payable on debentures (repayable 2022/2023)

€17,500

4. Tangible fixed assets (b) (i) State how a company should deal with a contingent liability which is possible but unlikely.

When a contingent liability is possible but unlikely, it is not necessary to make provision in the accounts. However, a note should show the nature of the liability, an estimate of the amount and an opinion regarding the outcome

(ii) What is the purpose of an audit?

To enable an auditor, in keeping with the requirements of the Companies Acts, to report on the truth and fairness shown by:

• The balance sheet

• The profit or loss shown by the profit and loss account • Any other information required to be disclosed in the financial accounts.