1. Berwick plc Berwick plc has produced the following trial balance as at 31 January 2020. Profit before tax Dividends paid Development expenditure capitalised Land and buildings Revalued Plant and machinery Cost Accumulated depreciation Motor vehicles Cost Accumulated depreciation Inventories and work in progress Trade receivables and trade payables Lease instalments and costs paid Prepayments and accruals Bank balance in hand and overdrawn Ordinary share capital - ordinary shares of £1 each Retained earnings Revaluation surplus Share premium account 188,000 70,000 1,500,000 650,000 see (1) above 10% straight line 20% reducing balance 250,000 370,000 420,000 85,000 12,000 49,000 3,594,000 £ 490,000 160,000 90,000 410,000 100,000 110,000 850,000 770,000 564,000 50,000 3,594,000 Additional information: (1) The company's land and buildings were revalued on 1 February 2019 at £1.5 million (land element £300,000). The remaining useful life of the buildings at that date was estimated at 40 years. The property originally cost £1 million on 1 February 2015 (land element £200,000) and was being depreciated over 50 years. (2) No adjustments have been made for the depreciation charges for the year ended 31 January 2020. Depreciation rates are as follows. Land and buildings Plant and machinery - Motor vehicles (3) On 1 February 2019, Berwick acquired an item of plant under a lease agreement that had an implicit finance cost of 10% per annum. They incurred initial direct costs of £5,000 in respect of the negotiation of the lease. The lease required an initial deposit of £20,000 paid on 1 February 2019 and the first annual rental of £60,000 paid on 31 January 2020. The lease agreement requires further annual payments of £60,000 on 31 January each year for the next four years and a final additional payment of £4,113 on 31 January 2024. The present value of the lease payments amounted to £250,000. The useful life of the plant is 5 years. The instalments paid and the direct costs incurred have been recorded in the trial balance. No other accounting entries have been made in respect of the lease. (4) Tax on profits for the year has been estimated at £135,000 and has yet to be provided for in the trial balance. (5) The development expenditure was incurred during the year and relates to a single product. Development will be completed in 2021. The company believes it has a reasonable expectation of future benefits but has been unable to demonstrate this. (6) One of Berwick plc's customers who owed £16,000 at 31 January 2020 went into liquidation on 2 February 2020. The liquidator has told creditors that they can expect to receive 30p in the £. (7) On 31 December 2019 Berwick plc made a 1 for 5 rights issue at £1.25. The issue was fully subscribed. The full amount received was debited to cash and credited to retained earnings, as the bookkeeper was not sure how to post it.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Prepare the statement of changes in equity for the year ended 31 January 2020
1. Berwick plc
Berwick plc has produced the following trial balance as at 31 January 2020.
£
Profit before tax
Dividends paid
Development expenditure capitalised
Land and buildings
Revalued
Plant and machinery
Cost
Accumulated depreciation
Motor vehicles
Cost
Accumulated depreciation
Inventories and work in progress
Trade receivables and trade payables
Lease instalments and costs paid
Prepayments and accruals
Bank balance in hand and overdrawn
Ordinary share capital - ordinary shares of £1 each
Retained earnings
Revaluation surplus
Share premium account
188,000
70,000
1,500,000
650,000
250,000
10% straight line
20% reducing balance
370,000
420,000
85,000
12,000
49,000
3,594,000
£
490,000
160,000
90,000
410,000
100,000
110,000
850,000
770,000
564,000
50,000
3,594,000
Additional information:
(1) The company's land and buildings were revalued on 1 February 2019 at £1.5 million (land
element £300,000). The remaining useful life of the buildings at that date was estimated at 40
years. The property originally cost £1 million on 1 February 2015 (land element £200,000) and
was being depreciated over 50 years.
(2) No adjustments have been made for the depreciation charges for the year ended
31 January 2020. Depreciation rates are as follows.
Land and buildings
see (1) above
Plant and machinery
Motor vehicles
(3) On 1 February 2019, Berwick acquired an item of plant under a lease agreement that had an
implicit finance cost of 10% per annum. They incurred initial direct costs of £5,000 in respect of
the negotiation of the lease.
The lease required an initial deposit of £20,000 paid on 1 February 2019 and the first annual
rental of £60,000 paid on 31 January 2020.
The lease agreement requires further annual payments of £60,000 on 31 January each year
for the next four years and a final additional payment of £4,113 on 31 January 2024.
The present value of the lease payments amounted to £250,000. The useful life of the plant is 5
years. The instalments paid and the direct costs incurred have been recorded in the trial
balance. No other accounting entries have been made in respect of the lease.
(4) Tax on profits for the year has been estimated at £135,000 and has yet to be provided for in the
trial balance.
(5) The development expenditure was incurred during the year and relates to a single product.
Development will be completed in 2021. The company believes it has a reasonable expectation
of future benefits but has been unable to demonstrate this.
(6) One of Berwick plc's customers who owed £16,000 at 31 January 2020 went into liquidation on
2 February 2020. The liquidator has told creditors that they can expect to receive 30p in the £.
(7) On 31 December 2019 Berwick plc made a 1 for 5 rights issue at £1.25. The issue was fully
subscribed. The full amount received was debited to cash and credited to retained earnings, as
the bookkeeper was not sure how to post it.
Transcribed Image Text:1. Berwick plc Berwick plc has produced the following trial balance as at 31 January 2020. £ Profit before tax Dividends paid Development expenditure capitalised Land and buildings Revalued Plant and machinery Cost Accumulated depreciation Motor vehicles Cost Accumulated depreciation Inventories and work in progress Trade receivables and trade payables Lease instalments and costs paid Prepayments and accruals Bank balance in hand and overdrawn Ordinary share capital - ordinary shares of £1 each Retained earnings Revaluation surplus Share premium account 188,000 70,000 1,500,000 650,000 250,000 10% straight line 20% reducing balance 370,000 420,000 85,000 12,000 49,000 3,594,000 £ 490,000 160,000 90,000 410,000 100,000 110,000 850,000 770,000 564,000 50,000 3,594,000 Additional information: (1) The company's land and buildings were revalued on 1 February 2019 at £1.5 million (land element £300,000). The remaining useful life of the buildings at that date was estimated at 40 years. The property originally cost £1 million on 1 February 2015 (land element £200,000) and was being depreciated over 50 years. (2) No adjustments have been made for the depreciation charges for the year ended 31 January 2020. Depreciation rates are as follows. Land and buildings see (1) above Plant and machinery Motor vehicles (3) On 1 February 2019, Berwick acquired an item of plant under a lease agreement that had an implicit finance cost of 10% per annum. They incurred initial direct costs of £5,000 in respect of the negotiation of the lease. The lease required an initial deposit of £20,000 paid on 1 February 2019 and the first annual rental of £60,000 paid on 31 January 2020. The lease agreement requires further annual payments of £60,000 on 31 January each year for the next four years and a final additional payment of £4,113 on 31 January 2024. The present value of the lease payments amounted to £250,000. The useful life of the plant is 5 years. The instalments paid and the direct costs incurred have been recorded in the trial balance. No other accounting entries have been made in respect of the lease. (4) Tax on profits for the year has been estimated at £135,000 and has yet to be provided for in the trial balance. (5) The development expenditure was incurred during the year and relates to a single product. Development will be completed in 2021. The company believes it has a reasonable expectation of future benefits but has been unable to demonstrate this. (6) One of Berwick plc's customers who owed £16,000 at 31 January 2020 went into liquidation on 2 February 2020. The liquidator has told creditors that they can expect to receive 30p in the £. (7) On 31 December 2019 Berwick plc made a 1 for 5 rights issue at £1.25. The issue was fully subscribed. The full amount received was debited to cash and credited to retained earnings, as the bookkeeper was not sure how to post it.
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