1. Financial statements from a trial balance suitable for publication Soriano Plc designs management and accounting software for small and medium-sized companies. The trial balance of the company in respect of its financial year ended 31st December 2013 is as follows: £m £m Cash & cash equivalents 59 Cost of sales 109 Dividends 95 Revenue 1,832 Finance expenses 17 Finance income 4 Intangible assets: Class A 2,038 Intangible assets: Class B 216 Inventories 5 Liabilities 770 Other reserves – 1st Jan 2013 79 Property, plant & equipment 145 Revaluation reserve - 1st Jan 2013 30 Retained earnings - 1st Jan 2013 639 Share capital - 1st Jan 2013 13 Share premium account - 1 Jan 2013 487 Special reserve 155 Selling & administrative expenses 1,050 Trade & other receivables 275 4,009 4,009 The following information is relevant and relates to matters not yet fully dealt with when the above trial balance was extracted: 1. IAS 36 Impairment of Assets In accordance with the Standard, the Company reviewed its non-current assets for impairment. Apart from class A intangible assets mentioned in note 2, the Company does not consider that any of its non-current assets are impaired. 2. Intangible assets – class A Class A intangible assets are carried by the company under the revaluation model. The Company considered that in the current year, these had impaired by £38m. Three years ago, the Company had revalued Class A Intangibles upwards by £30m. Question 1 continued on page 2… Question 1 continued… 3. Intangible assets – class B Class B - intangible non-current assets relate to computer software and technology acquired by the Company. Cost Amortization £m £m At 1st January 2013 380 -174 Addition 10 ___ At 31st December 2013 at cost 390 === The Company amortizes such intangible assets on a straight line basis on cost, over its useful economic life. It is estimated that that the computer software and technology brought forward at the start of the financial year had a balance of ten economic years. The addition was made on 1st July 2013 and is estimated to have an economic life of five years. 4. Property, plant and equipment Land & Motor Total Buildings Equipment Vehicles £m £m £m £m At 1st January 2013: Cost 303 100 145 58 Depreciation provision -158 -10 -105 -43 Net book values at 1st Jan 2013: 145 90 40 15 Applicable depreciation rates are as follows · Equipment: 25% p.a. on net book values · Motor vehicles: 40% p.a. on net book values The Company’s land and buildings were professionally valued during the financial year. The appointed chartered surveyors were of the opinion that the property values could be up-lifted by £10m. The directors agreed to reflect this increased value in the financial statements. The depreciation charge for the year in respect of land and buildings is £2m. 5. Sale of operations in Taiwan At the beginning of the Company’s financial year, agreement was concluded on the sale of its software operation in Taiwan. The net proceeds were £39m and included under total revenues. (Ignore taxation) Question 1 continued on page 3… Question 1 continued… 6. Termination of non-core business On 30th July 2013, the company finalized the cessation of its games software operations. Financial information in respect of this operation included in the above trial balance is as follows: · Revenues - £100m · Cost of sales - £60m · Selling and administrative expenses - £55m, including cessation costs of £5m. 7. Lease termination In respect of the cessation of operations mentioned in Note 6 above, the Company vacated a building that was surplus to requirements. This office was rented under an operating lease and still had a year to run. This lease is non-cancellable and cannot be sub-let. The annual rental charge for this building is £2m. 8. Software defect The Company sells a project planning software program. In some operating systems, it was discovered that this software may cause the user’s computer to ‘freeze’. A new version of this software is in the process of development and when tested, will be available for free to all customers who bought the earlier version. The Company estimates that if minor support is required for all customers who purchased the faulty software, the cost to it would be £10m. If major support is required, the cost to it would be £40m. The Company estimates that 85% of its customers will not be affected by this software glitch, 5% would require major support and 10%, minor support. 9. Liabilities This is made up as follows: £m Current tax liabilities -16 Deferred tax liabilities (Long-term) 41 Borrowings 19 Borrowings (Long-term) 461 Retirement benefit obligations (Long-term) 12 Trade and other payables 253 ___ Trial balance 770 === Question 1 continued on page 4… Question 1 continued 10. Taxation Provision is to be made for current tax liabilities of £78m. The debit balance of £16m included in liabilities (Note 9) is an over-payment of the 2012 liabilities. 11. Deferred income Revenue includes software licenses granted by the Company. In respect of the current financial year, £393m of such software license income expiring in the next financial accounting period has not been adjusted from revenue. 12. Dividends £m 2012 Final dividends paid 55 2013 Interim dividends paid 40 2013 Proposed final dividends 40 (For approval at AGM on 10th January 2014) Required: Prepare in a format suitable for publication, in so far as the available information permits, and in accordance with all relevant International Accounting Standards: (a) The Statement of Comprehensive Income of Soriano Plc for year ended 31st December 2013 (b) The Statement of Changes in Equity of Soriano Plc for the year ended 31st December 2013 (c) The Statement of Financial Position of Soriano Plc as at 31st December 2013
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