Bf2269mu coursework 21 22

COURSEWORK ASSIGNMENT
Academic Year 2021/22
Module Code: BF2269MU
Module Name: International Financial Reporting
Module Leader: Geoff Heron
Coursework Title: BF2269MU Coursework Portfolio
Task Details/Description:
You are required to provide a coursework portfolio (submitted as one
document) which brings together 2 separate task elements as follows:
Req
no.
Task
Marks
Word Limit
Guide
1
Discuss and apply IFRS to a series of
transactions and prepare an adjustments
to profit schedule and a statement of
changes in equity.
50
800
2
Appraise the performance and position of
an entity in comparison to the sector
average.
50
1200
100
TOTAL 2000**
*
The word count split between tasks 1 & 2 is a guide only.
**
Word limits can be flexed by +10%
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 financial statements and their information needs.
4.
Prepare financial statements.
Presentation Requirements:
Word Count: See detail per task. Overall limit of 2000 words on the narrative
requirements (all calculations and financial statements do not count towards
word count).
Font Style: Arial or Calibri
Font Size: 11 or 12
Line Spacing: 1.5 lines
Submission Date & Time:
Sunday 28th November 2021
Assessment Weighting for the Module:
The coursework assignment makes up 30% of the overall module mark for
BF2269MU.
Assessment Criteria
Detailed Assessment criteria is provided in a separate document detailing
expectations for each task.
Generally it is expected that:
•
Tasks will be properly presented
•
Narrative tasks will address the issues identified and use relevant
IFRS Standards and refer to the IASB’s Conceptual Framework for
Financial Reporting.
•
Calculative elements will be well laid out and have clarity in the
answers provided.
TASK 1
The accounts team have been preparing the financial statements for Wail ltd
for the year ended 31 May 2021. The draft financial statements are shown
below:
Draft statement of profit or loss and other comprehensive income for
Wail ltd for the year ended 31 May 2021:
£
Revenue
2,281,250
Cost of sales
-941,875
Gross profit
1,339,375
Operating expenses
-858,000
Profit from operations
481,375
Finance costs
-6,000
Profit before tax
475,375
Taxation
-168,750
Profit for the year
306,625
Other comprehensive income
nil
Total comprehensive income
306,625
Draft statement of financial position for Wail ltd as at 31 May 2021:
£
£
ASSETS
Non-current assets
Property, plant and equipment
1,456,250
Intangible assets (note (i))
71,250
1,527,500
Current assets
Inventories
90,500
Trade and other receivables
94,500
Bank
17,250
202,250
1,729,750
EQUITY AND LIABILITIES
Equity
Ordinary share capital (£1)
260,000
Share premium
216,250
Retained earnings
876,875
1,353,125
Non-current liabilities
Bank loan
75,000
Current liabilities
Trade and other payables
161,625
Taxation
140,000
301,625
1,729,750
Additional information:
1.
Wail ltd purchased a brand from one of its competitors on 1 December
2020 for £71,250. Wail Ltd expect the brand to have a useful life of five
years and intends to sell it after five years. Wail ltd estimates that the
value of the brand will increase in value over the five years and so no
amortisation has been accounted for in the current year.
Wail Ltd’s policy is to charge depreciation/amortisation on a
proportionate basis.
2.
On 1 March 2021 Wail ltd received a government grant of £40,000 to
help finance the acquisition of a machine with a five-year useful life.
The machine was purchased on the same date for £90,000 and was
correctly recognised in property, plant and equipment on 1 March 2021.
No further adjustments have been made in respect of the plant. The
grant received of £40,000 was been credited to revenue.
The accounts team have subsequently discussed the grant and have
decided that Wail ltd’s accounting policy for government grants will be
to use the deferred income approach. However, no furtheradjustments
have been made to the draft financial statements in respect to the
accounting of the grant.
3.
In April 2021 a group of customers started a legal action against Wail
ltd, claiming £100,000 in damages, plus estimated costs of £15,000.
Wail ltd’s legal advisers assess the probability of the claim being
successful at around 30%. Wail ltd has recognised £34,500 in
operating expenses (being 30% of the total estimated cash outflow £115,000 x 30%).
4.
On 1 June 2020, Wail Ltd had 200,000 £1 shares in issue. On 1 June
2020 Wail ltd issued 25,000 £1 ordinary shares for cash of £2.40 each.
The full amount received was debited to cash and credited to ordinary
share capital (included in the draft financial statements).
On 1
February 2021, a 1 for 4 bonus issue of ordinary shares was made. No
accounting entries have been made for the bonus issue. Wail Ltd
wishes to utilise the share premium account as far as permitted under
statute. Wail ltd also paid a dividend on 1 March 2021 of 10p per share.
The full amount was paid and debited to operating expenses and
credited to cash.
Required:
(a) Justify and explain the appropriate accounting treatment that will be
required with respect to the matters in notes (1) to (4) in accordance with
relevant IFRS Standards and the IASB’s Conceptual Framework for
Financial Reporting. Your answer should provide double entry
adjustments where relevant and clear workings for any calculations.
(40 marks)
(b) Using your discussion and recommended adjustments in part (a):
(i) Calculate the adjusted profit for the year ended 31 May 2021.
(All workings must be clearly presented)
(ii) Prepare a statement of changes in equity for the year ended 31 May
2021.
(10 marks)
(Total: 50 marks)
TASK 2
Jotta & Co ltd (Jotta) began trading as a family run business 30 years ago
and operates a chain of do it yourself (DIY) stores. Jotta’s management
has not changed since it began, and its stores maintain a traditional DIY
store layout. Customers can purchase DIY items such as decorating,
plumbing and electrical equipment. Jotta sells its DIY items to both
wholesale and retail customers and has a higher proportion of wholesale
sales than the rest of the sector.
Extracts from the financial statements of Jotta for the year ended 31 May
2021 are shown below:
Statement of profit or loss extract
£
Revenue
28,101,500
Cost of sales
-19,273,795
Gross profit
8,827,705
Operating expenses
-7,550,062
Profit from operations
1,277,643
Statement of financial position extract
£
Total equity
9,713,698
Non-current liabilities
Bank loan
11,000,000
The following information is relevant:
(1) Jotta has faced increasing competition in recent years from other DIY
stores that have diversified their business and sell other products in
their stores including lighting and soft furnishings. In addition to this,
these stores have facilities that attract customers, such as coffee shops
(run by third parties).
(2) As a result of the increasing competition, the directors of Jotta have
recently decided to undertake some store refurbishment, rebranding and
website maintenance. Jotta ltd has taken out additional bank loans to
finance these activities in the current financial period.
(3) The company has recently subscribed to an agency that producessector
ratios. The agency has supplied the following ratios for the DIY sector for
the year ended 31 May 2021:
Gross profit margin
35.6%
Operating profit margin
6.3%
Return on capital employed (ROCE)
12.4%
Gearing (debt/equity)
50%
(4) Jotta owns some of its DIY stores. These stores are recognised within
property, plant and equipment at a cost of £13 million (land £5 million).
Accumulated depreciation of £2.4 million had been charged on the
buildings by 31 May 2020 (last year). Buildings are currentlydepreciated
on a straight-line basis over 50 years. Jotta accounts for its properties
using the cost model in IAS 16 Property, Plant and equipment and
includes depreciation on buildings within cost of sales.
Jotta had its properties professionally valued at the start of the year for
financing purposes at £15.3 million (land £7 million) as at 1 June 2020
and that they had an average remaining life of 40 years on this date. This
valuation had not been incorporated in Jotta’s financial statements.
Jotta has similar accounting policies to the rest of the sector except for
its properties. The agency has informed Jotta that the rest of the sector
use the revaluation model for its properties.
Required:
You have been asked to review the performance and position of Jotta
compared to the sector.
(a) Using the information in note (4) for properties, adjust the draft financial
statements of Jotta at 31 May 2021 assuming they had adopted a policy
of revaluation permitted in IAS 16 Property, Plant andEquipment.
(6 marks)
(b) Reproduce and complete the table below to include revised ratios after
the adjustments to the financial statements for Jotta in part (a). Please
show all workings clearly.
Without
With adjustment:
adjustment:
Gross profit margin
31.4%
Operating profit margin
4.5%
ROCE
6.2%
Gearing (debt/equity)
113.2%
(4 marks)
(c) Write a report to the Board of Jotta & Co that analyses the performance
and position of Jotta compared to the sector taking into account
information in the scenario and address the suitability of comparing Jotta
to sector averages.
(40 marks)
(Total: 50 marks)
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