BF2269MU - International Financial Reporting Standards (IFRS) & Financial Statements - Financial Assignment Help

Assignment Task -   

             
 

Module Learning Outcomes Assessed: 

1. Apply the Conceptual Framework for Financial Reporting and International Financial Reporting Standards (IFRS) to enable an accurate assessment of accounting issues and be able to offer a solution, with justification to financial reporting issues. Be able to articulate these complex issues in varied formats including those commonly used in professional communication - letters, emails reports etc. 

2. Develop the ability to use professional judgement on subjective areas of the financial statements in readiness for placement and final year studies. 

3. Critically assess the impact of judgement on financial statements and other reports taking into consideration the different perspectives of the users of the financialstatements and their information needs. 

4. Prepare financial statements. 

 

Assessment Criteria 

For each task you will be required to provide answers (and assumptions and workings 

where applicable) to the questions set. Please refer to the requirements for guidance on the calculations and written analysis that is required for each task. In particular requirement 2 will require feedback (via a report) to the Finance Director on company performance and position. As such, you are required to produce a professional document, incorporating clear business English and an appropriate format is required. 

 

TASK 1 

The following trial balance has been extracted from the records of Flora Plc (Flora) as at 31 May 2020: 

£'000 £'000 

103,50 

Revenue 

Inventories 16,150 Trade and other receivables 17,800 

Trade and other payables 14,900 Bank overdraft 2,900 Cost of sales 72,840 Administrative expenses 14,750 Distribution costs 7,970 Finance costs 1,890 Property, plant and equipment (note (i)) 44,600 Ordinary share capital (£1) 5,000 Share premium 12,000 8% Loan notes 18,000 6% Bank loan 10,000 Dividend 900 Retained earnings 10,600 

176,90 

The following information is also relevant: 

176,900 

(i) Flora received a £10 million 6% loan from a bank on 1 December 2019. The funds which were used towards the construction of a new property have been correctly capitalised as part of the property, plant & equipment above. Six months interest has been paid and is included within finance costs in the trial balance. Construction of the property was incomplete at the financial year end and is expected to be completed in September 2020.

 

Flora decided to revalue an item of property on 1 June 2019 for the first time. The carrying amount of the asset at this date was £4.3 million (included in property, plant and equipment above). The directors accepted the report of an independentsurveyorwho valued the property at £5.1 million on that date. The remaining life of this property is 20 years at the date of the revaluation. It is Flora’s policy to make an annual transfer to retained profits in respect of the excess depreciation arising from the revaluation surplus. No adjustments have been made relating to this property during the year. 

 Apart from the notes above, all other assets have been correctly accounted for and included in property, plant & equipment in the trial balance. No further adjustments are required in respect of these. 

(ii) Development costs of £9 million were incurred evenly between 1 June 2019 and 28 February 2020 (on a pro-rata basis) and have been included in cost of sales. IAS 38 development criteria were met on 1 September 2019. The project was completed and the product was launched on 28 February 2020. The product is expected to generate revenue over the next five years.  

(iii) Flora sold and delivered goods to a major customer on 1 December 2019. Under the terms of the agreement, Flora will receive payment of £3 million on 30 November 2020. Flora has recorded £3 million in revenue and trade receivables at 31 May 2020. The costs of this sale have been accounted for correctly in the financial statements for the year ended 31 May 2020. Market rates of interest available to this particular customer are 7%. 

(iv) An inventory count was performed at the year-end and has been included in the trial balance at cost. Included in this count is some inventory that was damaged. This inventory originally cost £800,000. Following the damage it is expected that the inventory will be sold for £900,000 but will need to be repaired before it can be sold at a cost of £230,000

 

TASK 2 

Flora wants to expand and diversify its activities and is considering the acquisition of another entity to help do this. Following extensive research, Flora has identified two potential acquisition targets Nevea and Autz. Both companies operate in the same industry and have the same financial year end. Nevea primarily sells to retail stores whereas Autz sells to internet retailers. Both Nevea and Autz can be purchased at approximately the same amount.  

Extracts of the financial statements of Nevea and Autz for the year ended 31 May 2020 are shown below: 

Extract from the statements of profit or loss 

Nevea Autz 

£’000 £’000 

Revenue 23,975 15,375 

Cost of sales 10,662 9,775 

Gross profit 13,313 5,600 

Operating expenses 7,538 3,346 

Profit from operations 5,775 2,254 

Finance costs 288 480 

Profit before tax 5,487 1,774 

Extract from the statements of financial position 

Nevea Autz 

£’000 £’000 

Property, plant & equipment 11,700 14,945 

Investments Nil 5,440 

Inventory 1,640 874 

Receivables 3,700 720 

Cash at bank 840 487 

Equity 10,575 12,766 

Non-current liabilities (loan) 4,200 8,000 

Current liabilities 3,800 1,700

 

The following information is relevant: 

(i) Nevea has an established, loyal customer base whereas Autz sells to numerous customers on a less regular basis and sometimes on a one off basis. 

(ii) Nevea accounts for its property using the cost model per IAS 16 Property, Plant & Equipment, whereas Autz uses the revaluation model. 

(iii) Nevea disposed of property during the year resulting in a loss on disposal of £1.2 million (included in the profit or loss extracts above). 

(iv) Included within Autz’s non-current liabilities is a £3 million loan note that is due to be repaid in July 2021. 

 

REQUIRED: 

(a) Calculate the following ratios for both companies: 

Return on capital employed 

Asset turnover 

Gross profit margin 

Operating profit margin  

Current ratio 

Quick ratio 

Inventory turnover period (days) 

 Receivables collection period (days) 

 Gearing 

 Interest c

 

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