ACCA Practice Question 2009

2 The following trial balance relates to Sandown at 30 September 2009:
$’000 $’000
Revenue (note (i)) 380,000
Cost of sales 246,800
Distribution costs 17,400
Administrative expenses (note (ii)) 50,500
Loan interest paid (note (iii)) 1,000
Investment income 1,300
Profit on sale of investments (note (iv)) 2,200
Current tax (note (v)) 2,100
Freehold proper ty – at cost 1 October 2000 (note (vi)) 63,000
Plant and equipment – at cost (note (vi)) 42,200
Brand – at cost 1 October 2005 (note (vi)) 30,000
Accumulated depreciation – 1 October 2008 – building 8,000
– plant and equipment 19,700
Accumulated amortisation – 1 October 2008 – brand 9,000
Available-for-sale investments (note (iv)) 26,500
Inventory at 30 September 2009 38,000
Trade receivables 44,500
Bank 8,000
Trade payables 42,900
Equity shares of 20 cents each 50,000
Equity option 2,000
Other reserve (note (iv)) 5,000
5% convertible loan note 2012 (note (iii)) 18,440
Retained earnings at 1 October 2008 26,060
Deferred tax (note (v)) 5,400
––––––––– –––––––––
570,000 570,000
––––––––– –––––––––
The following notes are relevant:
(i) Sandown’s revenue includes $16 million for goods sold to Pending on 1 October 2008. The terms of the sale
are that Sandown will incur ongoing service and support costs of $1·2 million per annum for three years after
the sale. Sandown normally makes a gross profit of 40% on such servicing and support work. Ignore the time
value of money.
(ii) Administrative expenses include an equity dividend of 4·8 cents per share paid during the year.
(iii) The 5% convertible loan note was issued for proceeds of $20 million on 1 October 2007. It has an effective
interest rate of 8% due to the value of its conversion option.
(iv) During the year Sandown sold an available-for-sale investment for $11 million. At the date of sale it had a
carrying amount of $8·8 million and had originally cost $7 million. Sandown has recorded the disposal of the
investment. The remaining available-for-sale investments (the $26·5 million in the trial balance) have a fair value
of $29 million at 30 September 2009. The other reserve in the trial balance represents the net increase in the
value of the available-for-sale investments as at 1 October 2008. Ignore deferred tax on these transactions.
(v) The balance on current tax represents the under/over provision of the tax liability for the year ended 30 September
2008. The directors have estimated the provision for income tax for the year ended 30 September 2009 at
$16·2 million. At 30 September 2009 the carrying amounts of Sandown’s net assets were $13 million in excess
of their tax base. The income tax rate of Sandown is 30%.
(vi) Non-current assets:
The freehold property has a land element of $13 million. The building element is being depreciated on a
straight-line basis.
Plant and equipment is depreciated at 40% per annum using the reducing balance method.
4
Sandown’s brand in the trial balance relates to a product line that received bad publicity during the year which
led to falling sales revenues. An impairment review was conducted on 1 April 2009 which concluded that, based
on estimated future sales, the brand had a value in use of $12 million and a remaining life of only three years.
However, on the same date as the impairment review, Sandown received an offer to purchase the brand for
$15 million. Prior to the impairment review, it was being depreciated using the straight-line method over a
10-year life.
No depreciation/amortisation has yet been charged on any non-current asset for the year ended 30 September
2009. Depreciation, amortisation and impairment charges are all charged to cost of sales.
Required:
(a) Prepare the statement of comprehensive income for Sandown for the year ended 30 September 2009.
(13 marks)
(b) Prepare the statement of financial position of Sandown as at 30 September 2009. (12 marks)
Notes to the financial statements are not required.
A statement of changes in equity is not required.
(25 marks)
5 [P.T.O.

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2 The following trial balance relates to Sandown at 30 September 2009:

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