Question 1
The following Trial Balance has been extracted from the books of O’Keane Ltd for the
year ended 31 December 2018
DR CR
Buildings at cost 7,800,000
Accumulated depreciation 1 January 2018 780,000
Plant and Machinery at cost 3,450,000
Accumulated depreciation 1 January 2018 345,000
Land at cost 3,500,000
8% Debenture Loan 2028 4,000,000
Trade receivables 3,922,000
Trade payables 2,892,000
Bank balance 633,000
Ordinary Share Capital 5,000,000
Retained earnings, 1 January 2018 4,097,000
Sales revenue 14,380,000
Opening inventory 1 January 2018 3,560,000
Purchases 5,712,000
Selling and distribution expenses 744,000
Rent and Rates 350,000
General and administration expenses 1,931,000
Provision for bad debts 300,000
Sundry expenditure 192,000
31,794,000 31,794,000
Question 2
IAS 2
IAS 16
Revaluation
&
Depreciation
The following information is also available:
1. Land and buildings were purchased for €11.3 million on 1 January 2013 with a useful life of 50 years.
Land and buildings were revalued at 1 January 2018 at €15 million, €4.2 million related to land and the
remaining amount related to buildings. The buildings estimated useful life has not changed and from 1
January 2018, there are 45 years of useful economic life remaining.
The directors want to include the revaluation in the financial statements for the year ended 31 December
2018 and have decided to use the elimination method to account for accumulated depreciation on
revalued buildings. No entries have been made in the accounts to reflect this revaluation.
2. Plant and machinery are depreciated at 10% per annum using a straight-line basis. All depreciation on
plant and machinery is included in cost of sales.
3. The closing inventory as at 31 December 2018 is valued at cost of €6,250,000. The net realisable value
of this inventory is valued at €6,175,000.
4. In June 2018, O’Keane Ltd was approved for a grant which relates to investment in plant and machinery in the
company. The company wishes to account for the grant using the deferred income method. Details of the grant
and related costs are as follows:
Grant
€’000
Cost
€’000
Notes
Plant and machinery cost 2,000 5,000 Assume 10 years useful life with nil residual
value. Full year depreciation is charged in year
1.
IAS 20 and
IAS 16
IAS 20
IFRS 15
Output method
All the plant and machinery was purchased in late November 2018. The grant was received in
December 2018 however the supplier invoices for the plant and machinery purchased were only
received and paid during January 2019. No entries related to the grant or the purchase of equipment
have been booked
5. During the year, O’Keane Limited undertook a construction contract for the first time, details of
which are as follows:
§ A price of €1,250,000 was agreed with the client.
§ The contract will take three years to complete.
§ At 31 December 2018, costs had been incurred of €192,000 which have been included in
sundry contract expenditure in the trial balance, this amount is made up as follows:
€
Allocation of general administration costs 32,000
Direct material costs 80,000
Direct labour costs 55,000
Depreciation of plant and machinery being 25,000
used on the project.
§ It is estimated that future costs to complete the contract are €240,000
§ The client has been sent invoices totalling €100,000, which have been recorded within
receivables and revenue, but no cash has been received to date. The customer has a
good record of paying invoices and there are no doubts over the recoverability of the
debt.
§ The company will use the input basis to determine the stage of completion.
6. The directors have estimated the tax charge for the year at €150,000 but no entries have been made to
reflect this in the accounts. Loan interest must be accrued for as at 31 December 2018.
Required:
a) Prepare the following financial statements for O’Keane Ltd. In accordance with the requirements of
international financial reporting standards:
(i) Statement of comprehensive income for the year ended 31 December 2018;
(ii) Statement of changes in equity for the year ended 31 December 2018;
(iii) Statement of financial position as at 31 December 2018.
(40 marks)
b) The stated purpose of IAS 8 Accounting policies, Changes in Accounting Estimates and Errors is “to
enhance the relevance and reliability of an entity’s financial statements, and the comparability of those
financial statements over time and with the financial statements of other entities”. Discuss how the
standard achieves this purpose.
(10 marks)
IAS 37
IAS 1