Alcuin, Langwith and Halifax are firms involved in the production and sale of high-quality technical equipment for universities; the following are draft financial statements: Notes to the accounts: 1. On 31* March 2021 Langwith entered into a four-year lease contract for a new machine used in the production with a contract requiring the payment of £14,930 per annum in arrears. This does not appear in the accounts above. The interest rate implicit in the lease is 7.5% and Statement of financial position as at 31st March 2021 Langwith uses the actuarial method to allocate interest for finance Alcuin Langwith Halifax leases. The Langwith's depreciation policy for these assets applies the straight-line method over four years and there is not thought to be a residual value of the asset at the end of this period. 2. Alcuin Ltd acquired two million of the ordinary shares of Langwith Ltd on 29th November 2014 when the retained earnings of Langwith Ltd were £1,000,000. 3. Alcuin Ltd acquired 75% of the ordinary shares of Halifax Ltd on 7 September 2016 when the retained earnings of Halifax Ltd were £500,000; Alcuin use the proportionate share ('partial') method of valuing the non-controlling interest in Halifax. 4. During the year goods with an original cost of £400,000 were sold by £000 £000 £000 Assets Non-current assets Property, Plant and Equipment (note 1) 10,500 5,500 2,500 Investment in Langwith (note 2) 5,000 Investment in Halifax (note 3) Current assets Total assets 3,000 1,500 1,000 500 20,000 6,500 3,000 Alcuin to Langwith for £600,000. Half of these goods are in Langwith's Equity and liabilities Equity Ordinary share capital (£1) Retained earnings inventory at the year end. 5. On 1s October 2020, Halifax sold units with a total sales price of £500,000 to a single large customer. Included in the contract was a two-year service warranty covering all required repairs during this time. The normal selling price of the same merchandise would be £400,000 10,000 2,000 1,000 7,000 3,750 750 without the warranty. As of 31s March 2021, Halifax recognised £425,000 of revenue, included in the above accounts. Non-current liabilities 2,000 Current liabilities 1,000 750 1,250 Total equity and liabilities 20,000 6,500 3,000 Required: The accountant who posted the sale in note 5 is now worried that they treated this incorrectly. They come to you asking for help. Prepare a brief note for them both showing the correct treatment, explaining why the correct treatment is consistent with International Financial Reporting Standards. Statement of profit and loss for the accounting period ending 31st March 2021 Alcuin Langwith Halifax £00 £000 £000 5,000 (3,250) 1,750 2,000 (1,900) Revenue 10,000 Cost of sales Gross profit Investment income (from Langwith) (7,000) 3,000 100 1,000 Administration costs (250) (700) 3,300 (750) Profit before tax Tax Profit after tax 1,500 (650) (2,000) 1,300 (300) 1,200 (1,000) (650) Dividends Profit after tax and dividends 1.300 200 (650)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Alcuin, Langwith and Halifax are firms involved in the production and sale of
high-quality technical equipment for universities; the following are draft
Notes to the accounts:
1. On 31st March 2021 Langwith entered into a four-year lease contract for
a new machine used in the production with a contract requiring the
payment of £14,930 per annum in arrears. This does not appear in the
accounts above. The interest rate implicit in the lease is 7.5% and
Langwith uses the actuarial method to allocate interest for finance
financial statements:
Statement of financial position as at 31st March 2021
Alcuin
Langwith
Halifax
leases.
The Langwith's depreciation policy for these assets applies
the straight-line method over four years and there is not thought to be a
residual value of the asset at the end of this period.
2. Alcuin Ltd acquired two million of the ordinary shares of Langwith Ltd on
29th November 2014 when the retained earnings of Langwith Ltd were
£000
£000
£000
Assets
wwww
Non-current assets
£1,000,000.
3. Alcuin Ltd acquired 75% of the ordinary shares of Halifax Ltd on 7th
September 2016 when the retained earnings of Halifax Ltd were
£500,000; Alcuin use the proportionate share ('partial') method of
valuing the non-controlling interest in Halifax.
4. -During the year goods with an original cost of £400,000 were sold by
Alcuin to Langwith for £600,000. Half of these goods are in Langwith's
inventory at the year end.
5. On 1st October 2020, Halifax sold units with a total sales price of
£500,000 to a single large customer. Included in the contract was a
two-year service warranty covering all required repairs during this time.
The normal selling price of the same merchandise would be £400,000
Property, Plant and Equipment (note 1)
10,500
5,500
2,500
Investment in Langwith (note 2)
5,000
Investment in Halifax (note 3)
3,000
Current assets
1,500
1,000
500
Total assets
20,000
6,500
3,000
Equity and liabilities
Equity
Ordinary share capital (£1)
Retained earnings
10,000
2,000
1,000
7,000
3,750
750
without the warranty. As of 31st March 2021, Halifax recognised
£425,000 of revenue, included in the above accounts.
Non-current liabilities
2,000
Current liabilities
1,000
750
1,250
Total equity and liabilities
20,000
6,500
3,000
Required:
The accountant who posted the sale in note 5 is now worried that they treated
this incorrectly. They come to you asking for help. Prepare a brief note for
them both showing the correct treatment, explaining why the correct treatment
is consistent with International Financial Reporting Standards.
Statement of profit and loss for the accounting period ending 31st March 2021
Alcuin
Langwith
Halifax
£000
£000
£000
Revenue
10,000
5,000
2,000
Cost of sales
Gross profit
Investment income (from Langwith)
(7,000)
3,000
1,000
(3,250)
(1,900)
1,750
100
(700)
3,300
(250)
1,500
(750)
(650)
Administration costs
Profit before tax
(2,000)
1,300
(300)
1,200
Тах
Profit after tax
(650)
Dividends
(1,000)
Profit after tax and dividends
1,300
200
(650)
Transcribed Image Text:Alcuin, Langwith and Halifax are firms involved in the production and sale of high-quality technical equipment for universities; the following are draft Notes to the accounts: 1. On 31st March 2021 Langwith entered into a four-year lease contract for a new machine used in the production with a contract requiring the payment of £14,930 per annum in arrears. This does not appear in the accounts above. The interest rate implicit in the lease is 7.5% and Langwith uses the actuarial method to allocate interest for finance financial statements: Statement of financial position as at 31st March 2021 Alcuin Langwith Halifax leases. The Langwith's depreciation policy for these assets applies the straight-line method over four years and there is not thought to be a residual value of the asset at the end of this period. 2. Alcuin Ltd acquired two million of the ordinary shares of Langwith Ltd on 29th November 2014 when the retained earnings of Langwith Ltd were £000 £000 £000 Assets wwww Non-current assets £1,000,000. 3. Alcuin Ltd acquired 75% of the ordinary shares of Halifax Ltd on 7th September 2016 when the retained earnings of Halifax Ltd were £500,000; Alcuin use the proportionate share ('partial') method of valuing the non-controlling interest in Halifax. 4. -During the year goods with an original cost of £400,000 were sold by Alcuin to Langwith for £600,000. Half of these goods are in Langwith's inventory at the year end. 5. On 1st October 2020, Halifax sold units with a total sales price of £500,000 to a single large customer. Included in the contract was a two-year service warranty covering all required repairs during this time. The normal selling price of the same merchandise would be £400,000 Property, Plant and Equipment (note 1) 10,500 5,500 2,500 Investment in Langwith (note 2) 5,000 Investment in Halifax (note 3) 3,000 Current assets 1,500 1,000 500 Total assets 20,000 6,500 3,000 Equity and liabilities Equity Ordinary share capital (£1) Retained earnings 10,000 2,000 1,000 7,000 3,750 750 without the warranty. As of 31st March 2021, Halifax recognised £425,000 of revenue, included in the above accounts. Non-current liabilities 2,000 Current liabilities 1,000 750 1,250 Total equity and liabilities 20,000 6,500 3,000 Required: The accountant who posted the sale in note 5 is now worried that they treated this incorrectly. They come to you asking for help. Prepare a brief note for them both showing the correct treatment, explaining why the correct treatment is consistent with International Financial Reporting Standards. Statement of profit and loss for the accounting period ending 31st March 2021 Alcuin Langwith Halifax £000 £000 £000 Revenue 10,000 5,000 2,000 Cost of sales Gross profit Investment income (from Langwith) (7,000) 3,000 1,000 (3,250) (1,900) 1,750 100 (700) 3,300 (250) 1,500 (750) (650) Administration costs Profit before tax (2,000) 1,300 (300) 1,200 Тах Profit after tax (650) Dividends (1,000) Profit after tax and dividends 1,300 200 (650)
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