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Aberystwyth Business School





Time: THREE  hours

This paper consists of ONE question with multiple parts and you need to answer all. You need to use the template financial statements to answer this question and attach the workings booklet to support your answers.


Provide all workings and assumptions in the workings booklet provided and attach the booklet to the template financial statements. Make sure your ID number is included at the top of each template page.

Total of 100 marks available. 

This paper contributes 30% of the overall module mark.

Marks will be awarded for:


  1. Correct computations
  2. Identification of the correct treatment of transactions/events as per the current IAS/IFRS or other relevant standards
  3. Correct presentation in the template financial statements and where applicable, in notes to the financial statements.


Casio FX83ES/GT or FX85ES/GT calculators only may be used.

Question 1 – 100 marks


Milly Steel plc, is a well-established steel manufacturer, has the following trial balance as at 31 December 2018.

The following additional information is available:


  • The closing stock’s cost of production at 31 December 2018 was £3,500,000 but managers estimated its net realisable value to be £3,800,000 before taking into account part (ii) below.


  • During the annual stock take, the auditors discovered inventory that had rusted very badly and could only be scrapped for a value of £20,000. The cost of this inventory was £60,000.


Also included in the stock take, was a specialist piece of machinery that had cost £450,000 to manufacture and was to be sold for £480,000 in January 2019.  This customer is no longer trading but an alternative customer has been found who is willing to pay £440,000 and will take delivery in February 2019.


  • Yearly debenture interest is payable in equal amounts three times a year in arrears on

1 January, 1 May, and 1 August.

A capital repayment of £1,500,000 on the debenture loans is expected to be made on

1 May 2019.


On 31 December 2018, Milly Steel plc took on an additional debenture loan of £750,000.  No accounting transactions have been made for this transaction.


  • ‘Other costs’ comprise of:


Power, rates, maintenance, insurance 5,000,000


Production wages and salaries

Logistics wages and salaries



Directors’ remuneration 735,000
General expenses 4,170,000
Interest on bank overdraft and     other borrowing costs 20,000
Income on investments -900,000
Lease of premises (see note (v)) 2,100,000


  • Power, rates, maintenance and insurance are to be allocated in the ratio 2:2:1 between cost of sales, distribution costs and administrative expenses.


  • The directors’ remuneration is to be classified as an administrative expense.


  • General expenses are to be allocated in the ratio 3:2:1 between cost of sales, distribution costs and administrative expenses.


  • 2/3rd of the lease on premises relates to production and the other 1/3rd to administration.


  • The first annual lease of premises was made on 1 October 2018 in part (iv).


  • Depreciation charged are based on the value of depreciable assets present in the company on the last day of the financial year.


All land and buildings, and plant and machinery were purchased on 1 January 2013 and if appropriate a zero residual value is assumed.


    • Plant and machinery is depreciated on a straight-line basis over 10 years and depreciation is to be charged to cost of sales.


    • Land is not depreciated but buildings are depreciated over a useful life of 50 years on a straight-line basis and depreciation is charged to administration expenses.


  • Land and buildings consists of land at cost of £11,335,000 and buildings of £4,000,000 which have not been revalued since date of purchase.


On 1 January 2018, a building which had cost £1,500,000 was sold for £6,000,000 the money being received on 30 June 2018.  To date no accounting entries have been made for this transaction.


After the sale of the building, the directors realised the value of the rest of their estate was not reflecting its true market value.  A surveyor has since submitted a report which states that the new value of the land and buildings is £14,610,000 (£12,000,000 and £2,610,000 respectively for land and buildings) as at 1 January 2018.

  • During the year, the following movements in plant and machinery have occurred:


  • Equipment which cost £750,000 was sold on 1 November 2018 for a value of £600,000. It was agreed with the buyer of the equipment that 60% of the proceeds were to be paid immediately and the remaining 40% to be paid on 1 March 2019. The money was received as per the contract. To date no accounting entries have been made for the above transactions. If appropriate the profit or loss on the disposal of equipment is charged to cost of sales.


  • To update their manufacturing process a new production line, costing £600,000 was received and fully implemented on 1 October 2018. Full payment is to made on 28 February 2019 and as yet no accounting transactions have been recorded.  Prior to this production line being implemented, a new concrete floor was installed costing £70,000.  These costs have been fully paid and were included in ‘Power, rates, maintenance, insurance’ in part (iv) above.


  • The original production line is now redundant and not used. Therefore the directors have decided to sell it to an overseas company, at the production lines’ net book value during 2019.  The original production line cost £400,000.


  • It has been a difficult trading year owing to the uncertainty of Brexit. The directors  wish to revise the bad debt provision so it is 10% of the current value of  trade receivables as at 31 December 2018. Any relevant adjustments must be charged to administrative expenses.


  • On 1 December 2018 the company issued 5,000 new ordinary shares at a value of £20 per share, receiving the cash on this date. These transactions are yet to be recorded in the accounts.


  • A dividend payment of 10p per £5 ordinary share was approved BEFORE the new share issue in part (x) above. Cheques were issued and were as yet un-presented by 31 December 2018, there has been no recording of these transactions.


  • Included within long term investments are shares worth £2,500,000. To improve liquidity for the following year the directors have decided to sell these shares in January.  It is anticipated that there will be no loss or profit on this disposal.


  • The corporation tax charge was over estimated by £195,000 for the year ended 31.12.2017. It is estimated that the tax charge for the year ending 31.12.2018 will be £2,250,000.


REQUIRED: Using the IAS template provided and the workings booklet


  • Prepare for Milly Steel plc a Statement of Comprehensive Income, a Statement of Changes in Equity for the year ending 31 December 2018 and a Statement of Financial Position as at that date (as far as the information allows) in compliance with IFRS requirements.


  • You should complete any relevant notes to the financial statements, insofar as allowed by the information and as specifically required in the template.


Where relevant, you should identify and justify any accounting treatment you adopt in the workings booklet. Please use cross-references to fully link your workings and your numbers in the financial statements.


NOTE: Some of the headings in the provided IAS/IFRS template may not be applicable to the context and requirements of this question.


End of Paper

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