IFRS and IAS Standards Application

The provided document is an excerpt from a past assignment that involves the application of International Financial Reporting Standards (IFRS) 13 and International Accounting Standard (IAS) 40. The task requires students to apply these standards to a fictional company's financial statements, including current and non-current assets, liabilities, and equity. The student is expected to follow the format and layout of a typical annual report, with detailed calculations and explanations for each section. The assignment covers topics such as property, plant, and equipment (PP&E), investment properties, intangible assets, and non-current liabilities. The student must demonstrate an understanding of IFRS 13's requirements for measuring fair value and IAS 40's principles for accounting for investment properties. This assignment is likely part of a larger course on financial accounting or auditing that focuses on the application of IFRS and IAS standards.

FINANCE

Table of Contents
1. ADJUSTMENTS IN LINE WITH THE IFRS AND ACCOUNTING CONCEPTS.................1
Item 1...........................................................................................................................................1
Item 5...........................................................................................................................................1
Item 7...........................................................................................................................................2
Item 8...........................................................................................................................................2
Item 9...........................................................................................................................................3
Item 11.........................................................................................................................................3
2. PREPARATION OF FINANCIAL STATEMENTS FOR THE ROCHA PLC.........................3
1. Statement of income statement................................................................................................3
2. Statement of changes in equity................................................................................................4
3. Statement of financial position................................................................................................5
REFERENCES................................................................................................................................7

1. ADJUSTMENTS IN LINE WITH THE IFRS AND ACCOUNTING
CONCEPTS
Item 1
According to the provisions of IAS 40, investment property is recognized at fair value at
the end of every accounting period. It means that every year, property is revaluated at its fair
value and any changes in the fair value are recognized as profit or loss in the statement of
comprehensive income (IAS 40 Investment Property, 2016). IFRS 13 indicates that fair value is
the price, at which, the assets can be exchanged between two knowledgeable and willing parties
in arm’s length transaction without deducting any transaction cost. Thus, applying the rule, on 1st
April, 2016, investment property is valued at £830,000 which at the end of financial year, 2017
valued at £850,000. Thus, increase in value of the investment property by (£850,000-£830,000),
£20,000 will be recognized as profit in P&L account.
Journal entry
Profit on revaluation of investment property A/c Dr. £20,000
To profit and loss a/c £20,000
Item 5
Trade receivables are recognized differently in line with the provisions of IAS 39 and
IFRS 9. It is because, IAS 39 only recognize bad debts as a credit loss if there is sufficient
evidences available to believe in impairment loss. However, in contrast, IFRS 9 allows entity to
recognize expected reasonable impairment loss according to the historical experiences even no
loss event happened yet (Silvia, 2015). Thus, applying the principle of IFRS 9, it becomes clear a
debtors owing £20,000 will be considered as fully credit loss in the financial statement.
However, for the remaining debtors, allowance will be created @ 5% of (£101,800- £4800 -
£20,000 = £77,000) worth £3,850 for the expected future credit loss due to bad & doubtful debts.
Journal entries:
Bad debts a/c Dr. £20,000
To Trade receivables a/c £20,000
Allowances for receivables a/c Dr. £3,850
GTo Trade receivables a/c £3,850
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Profit & loss a/c Dr. £3,850
To Allowances for receivables a/c £3,850
Item 7
As per the provision of IAS 20, government grant must be recognised either as deferred
income or at the amount less assets’s carrying value in the financial statements. As per the
scenario, Rocha Plc uses deferred income method to record governmental grants in their
financial statements. Thus, following journal entries must be made in such respect, stated here as
under:
Correct entry for the receipts of the grants:
Bank a/c Dr. £40,000
To office equipments a/c £40,000
Wrong entry made for the receipts of the grants
Bank a/c Dr. £40,000
To Suspense a/c £40,000
Rectifying entry
Suspense a/c Dr. £40,000
To Office equipments a/c £40,000
Item 8
According to IFRS provisions, if an entity issue shares above par or nominal value than
amount exceeded over par value will be recognised in an additional contributed capital account,
called share premium account. However, sale proceed at aggregate par needs to be credited in
ordinary share capital account (Stent, Bradbury and Hooks, 2017). In the given case study,
accountant of the company has wrongly entered all the sale proceed in the ordinary share capital
account, thus, following entry must be passed to rectify the errors made, as follows:
Correct entry
Bank a/c Dr. £900,000
To ordinary share capital a/c £500,000
To share premium a/c £400,000
Wrong entry
Bank a/c Dr. £900,000
To ordinary share capital a/c £900,000
2

Rectify entry
Ordinary share capital a/c Dr. £400,000
To share premium a/c £400,000
Item 9
In this, company has issued bonus shares, in which, each ordinary shareholder received 1
ordinary share @ £1 each for every 5 shares held by them. This issue has been made from the
share premium account and no entry has been made in the accounts. Thus, company needs to
make following journal entries:
Share premium a/c Dr. £200,000
To ordinary share capital a/c £200,000
No of bonus share issue:
(500,000+500,000)/5*1 = 200,000 share
Bonus share capital = 200,000 shares @ 1 each = £200,000
Item 11
According to IAS 38, accounting for intangible assets, all the research expenses are
treated as expenditure in the profit and loss account. The provisions stated that research
expenditures whether pure or applied must be recognised in the financial statement as an
expense. However, development expenditures will be capitalized anxd amortized only after when
production begins (Bamber and McMeeking, 2016). Thus, research cost incurred comprising on
pure and applied research worth £35,000 (£20,000 + £15,000) will be charged in P&L account.
However, development cost of £65,000 regarding new product development will be classified as
intangible assets and amortized from the next year in which production will be started.
2. PREPARATION OF FINANCIAL STATEMENTS FOR THE ROCHA
PLC
1. Statement of income statement
Table 1 Statement of comprehensive income of Rocha Plc for the year ended 31st March 2017
Particulars Amount
Sales turnover 849,000
Less: Cost of goods sold
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Purchase 510,600
Add: Opening inventory 64,500
Less: Closing inventory 72000
Cost of goods sold 503,100
Gross profit 345,900
Add: Profit on sale of office equipments 400
Profit on revaluation of investment property (850000-830000) 20,000
Total revenue 366,300
Less: Operational expenditures
Administration expenditures 50,060
Distribution expenditures 51,680
Director's remuneration 25,000
Depreciation
Building @ 2% straight line 25000
Fixture and fittings @ 15% reducing balance 6441
Motor vehicles @ 25% straight line 18750
Office equipments @ 20% reducing balance for whole year 8000
Bad debts 20000
Allowance for trade receivables 3850
Research cost 35000
Total operational expenditures 243,781
Profit before interest & tax 122,519
Less: Accrued interest on debenture @ 8% 20000 20000
Profit before tax 102,519
Less: Corporation tax 35000 35000
Profit after tax 67,519
Interim dividend on preference shares 2,500
Final dividend to preference share @ 10% 5,000 7,500
Net profit attributable to equity shareholders 60,019
2. Statement of changes in equity
Table 2 Statement of changes in equity of Rocha Plc for the year ended 31st March 2017
Particulars
Share
capital
Retained
earnings
Share
premiu
m
Total
equity
Balance as on 1st July 2009 500000 65220 240000 805220
Changes in equity in current year
Adjustments for the current period
Issue of share capital 500000 500000
Current year's profitability 60019 60019
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Revaluation gain on investment property 0
Share premium on additional share issue 400000 400000
Bonus share issued 200000 -200000 0
Balance as on 1st July 2010 1200000 125239 440000 1765239
3. Statement of financial position
Table 3 Statement of financial position of Rocha Plc as on 31st March 2017
Particulars Amount
Current assets
Trade receivables 101800
Less: Allowance for receivables (4800+3850) 8650
Less: Bad debts 20000 73150
Bank 27500
Add: sale proceed from office equipments 12180
Less: Grant used for purchase of office equipments 40000 -320
Closing inventory 72000
Cash in hand 250
Total 145080
Non-current assets
Investment property 830000
Add: Increase 20000 850000
Office equipments 18400
Less: accumulated depreciation 6620
Less: Profit on sale of office equipments 400
12180
Less: sale proceed 12180
Add: New purchased office equipments 40000
Less: Grant received 40000
Less: depreciation for the current year 8000 32000
Building 1250000
Less: Accumulated depreciation (125000+25000) 150000 1100000
Fixtures and fittings 80000
Less: Accumulated depreciation (37060+6441) 43501 36499
Motor vehicle 75000
Less: Accumulated depreciation (45000+18750) 63750 11250
Intangible assets (Development cost) (100000-35000) 65000
Total 2094749
Total assets 2239829
Current liabilities
Trade payables 74590
Deferred revenue (Govt. grant) 40000
5

Interest on debentures payable 20000
Final dividend payable on preference shares 5,000
Tax payable 35000
Total 174590
Non-current liabilities
8% debenture 250000
Total 250000
Total liabilities 424590
Net assets 1815239
Financed by
Share capital
10% preferences share capital 50000
Share capital 500000
Add; share issue 500000
Add: Bonus shares 200000 1200000
Share premium 240000
Share premium (500000 shares @ 0.8) 400000
Less: Bonus shares ' 200000 440000
Retained earnings (65220+60019) 125,239 125,239
Total share capital 1815239
Total liabilities and shareholder equity 2239829
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REFERENCES
Bamber, M. and McMeeking, K., 2016. An examination of international accounting standard-
setting due process and the implications for legitimacy. The British Accounting Review.
48(1). pp.59-73.
Stent, W., Bradbury, M. E. and Hooks, J., 2017. Insights into accounting choice from the
adoption timing of International Financial Reporting Standards. Accounting & Finance.
57(S1). pp.255-276.
Online
IAS 40 Investment Property. 2016. [Online]. Available through:
https://www.google.co.in/search?
q=IFRS+13&oq=IFRS+13+&aqs=chrome..69i57j0l5.2888j0j9&sourceid=chrome&ie=U
TF-8. [Accessed on 3rd July 2017].
Silvia, M., 2015. How New Impairment Rules in IFRS 9 Affects. [Online]. Available through:
http://www.ifrsbox.com/ifrs-9-expected-credit-loss/. [Accessed on 3rd July 2017].
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