Running Head: FINANCIAL ACCOUNTING

Financial Accounting

Assignment

Name.

Institution.

Date.
 FINANCIAL ACCOUNTING 2

Question One

a) Statement of Profit and Loss as at 31st Mar. 2020

Fern Plc Supplies
Statement of Profit and Loss
As at 31ST March 2020.

£ £

Revenue(2,180,000+0.8∗8,000) 2,186,400

Less Cost of Sales

Opening Inventory 86,440
Less Purchases (990,000)
Less Closing Inv. (723,320)
Cost of Sales (1,626,880)
Gross Profit 3,813,280
Less Expense:

Admn expenses (340,500+ 40,000) 380,500

Distribution costs 17,400

Tax provision 2,000
Depreciation;

Buildings(5 %∗1,450,000) 72,500

Machinery( 670,000∗10 % ) 67,000

Accruals 389
Total Expenses (539,789)
Net profit before interest and dividends paid 3,273,491
Less: Interest Paid (7,000)

Less: Dividends Paid(25,000+30,000) (55,000)

Retained earnings c/d(3,211,491−429,960) 2,781,531

 FINANCIAL ACCOUNTING 3

b) Statement of financial position

Fern plc supplies

Statement of financial position

As at 31ST March 2020

Non-Current assets Cost Less: Dep. NBV

Land 1,200,000 - 1,200,000

Buildings 1,450,000 (72,500) 1,377,500

Plant and Mach. 880,000 (67,000) 813,000

3,390,500

Current Assets

Inventories 72,320

Receivables (170,620−40,000) 130,620

Cash and cash equivalents 1,600

204,540

Total Assets 3,595,040

Financed by: Equity and Liabilities

Equity

Ordinary shares 1,000,000

Share premiums 250,000

Retained earnings 2,781,531

4,031,531
 FINANCIAL ACCOUNTING 4

Non-Current Liabilities

4% Bank Loan
350,000

Current Liabilities

Trade payables 290,600

Accruals 389

Tax liability 130,000

Net realizable gain (1,207,480)

Total Equity and Liabilities 3,595,040

c) Statement of changes in Equity

Fern plc Supplies

Statement of changes in equity
As at 31ST March 2020

Share capital Retained Earnings Revaluation Total

£ £ £ £

Opening Balance 1,000,000 429,960 - 1,429,960

Net profit for the year - 3,211,491 - 3,211,491

Bonus Issued 1,500,000 - - 1,500,000

Dividends Paid - (30,000) - (30,000)

Bal as at 31st Mar 2,500,000 3,611,451 0 6,111,451

FINANCIAL ACCOUNTING 5
 FINANCIAL ACCOUNTING 6

Question Two.

a) Preparing a consolidated balance sheet for Pagoda Group as at 31st Mar. 2020.

Pagoda Group
Consolidated Balance Sheet
As at 31ST March 2020
£

Non-Current Assets
Property Plant and Equipment (1,768,900+60,000) 1,828,900
Goodwill 10,000
1,838,900
Current Assets
Inventories (258,000+362,000+ 420,000)
1,040,000
Receivables(500,000+63,500+65,100−220,00) 408,600
Cash(2,000+25,000+30,000) 57,000
1,505,600
Total Assets 3,344,500
Equity and Liabilities
Share capital 1,200,000
Retained Earnings¿) 950,000
Non-controlling Assets(20 %∗1,675,000) 335,000
2,485,000

Non-Current Liabilities 300,000

Current Liabilities 339,500+220,000 559,500
859,500
Total Equity and Liabilities 3,344,500
 FINANCIAL ACCOUNTING 7

b) The entries required in the consolidated statement of financial position are the trade
receivables. Since Scenic had a total of £ 220,000 worth goods, this value was added back to
the payables as the company itself considered Pagoda as its creditor. However, the value was
subtracted in the trade receivable as Pagoda Company, the parent company considered
Scenic as a debtor which despite, selling only half of the amount, the whole amount had not
been paid as at 3st March 2020.
c) Valuation of goodwill should be calculated based on acquisition. Goodwill should be
calculated as;
Fair value of consideration transferred + Noncontrolling interest at acquasition−net asset at acquasition .
To acquire Scenic Company, for the fair value of consideration, we take Pagoda’s investment
for the company that is 620,000. We then add any non-controlling interest at acquisition. We
take Scenic shares, 600,000 shares multiplied by 20% which equals to;
20 %∗600,000
120,000
We then deduct Scenic’s net assets during acquisition which amounted to 600,000.
Goodwill acquired becomes;
¿ 620,000+120,000−600,000

¿ £ 140,000
 FINANCIAL ACCOUNTING 8

Question Three

a) Entries
Year Opening Balance Annual Payments DF Payments
1 25,000 38,000 0.9091 57,273.3
2 27,500 38,000 0.8264 54,129.2
3 30,250 38,000 0.7513 51,276.2

Journal Entries
Jan 1st 2019
Dr. machinery 1 £ 162,678.7
Cr. Cash £ 38,000
Cr. Lease liability £ 124,678.70
December 31st 2019
Dr. Depreciation Expense £ 20,624
Cr. Accumulated Depreciation £ 20,624

Dr. Interest Expense £ 3,800

Cr. Interest Payable £ 3,800

b) Entries
Price of machinery 500,000
Less costs of reinforcing (2,000)
Inspection of machine (410)
Delivery charges (250)
Wages (12,000)
Depreciation (Straight line basis) (75,000)
Net earnings for the machinery 410,340

Sellers invoice price 450,000

 FINANCIAL ACCOUNTING 9

Retable increase (39,660)

c) Leasing machinery 1 is almost always more expensive than purchasing it. The 3-year lease
on the machine is worth £ 162,678.7 at a standard rate of £ 38,000per month, this will cost
the company a total of £ 114,000. That is:
¿ 38,000∗3
¿ £ 114,000.
If the company had bought it outright, it would have paid only £ 410,340.