Alcuin, Langwith and Halifax are firms involved in the production and sale of high-quality technical equipment for universities; the following are draft financial statements: Notes to the accounts: 1. On 31* March 2021 Langwith entered into a four-year lease contract for a new machine used in the production with a contract requiring the payment of £14,930 per annum in arrears. This does not appear in the accounts above. The interest rate implicit in the lease is 7.5% and Statement of financial position as at 31st March 2021 Langwith uses the actuarial method to allocate interest for finance Alcuin Langwith Halifax leases. The Langwith's depreciation policy for these assets applies the straight-line method over four years and there is not thought to be a residual value of the asset at the end of this period. 2. Alcuin Ltd acquired two million of the ordinary shares of Langwith Ltd on 29th November 2014 when the retained earnings of Langwith Ltd were £1,000,000. 3. Alcuin Ltd acquired 75% of the ordinary shares of Halifax Ltd on 7 September 2016 when the retained earnings of Halifax Ltd were £500,000; Alcuin use the proportionate share ('partial') method of valuing the non-controlling interest in Halifax. 4. During the year goods with an original cost of £400,000 were sold by £000 £000 £000 Assets Non-current assets Property, Plant and Equipment (note 1) 10,500 5,500 2,500 Investment in Langwith (note 2) 5,000 Investment in Halifax (note 3) Current assets Total assets 3,000 1,500 1,000 500 20,000 6,500 3,000 Alcuin to Langwith for £600,000. Half of these goods are in Langwith's Equity and liabilities Equity Ordinary share capital (£1) Retained earnings inventory at the year end. 5. On 1s October 2020, Halifax sold units with a total sales price of £500,000 to a single large customer. Included in the contract was a two-year service warranty covering all required repairs during this time. The normal selling price of the same merchandise would be £400,000 10,000 2,000 1,000 7,000 3,750 750 without the warranty. As of 31s March 2021, Halifax recognised £425,000 of revenue, included in the above accounts. Non-current liabilities 2,000 Current liabilities 1,000 750 1,250 Total equity and liabilities 20,000 6,500 3,000 Required: The accountant who posted the sale in note 5 is now worried that they treated this incorrectly. They come to you asking for help. Prepare a brief note for them both showing the correct treatment, explaining why the correct treatment is consistent with International Financial Reporting Standards. Statement of profit and loss for the accounting period ending 31st March 2021 Alcuin Langwith Halifax £00 £000 £000 5,000 (3,250) 1,750 2,000 (1,900) Revenue 10,000 Cost of sales Gross profit Investment income (from Langwith) (7,000) 3,000 100 1,000 Administration costs (250) (700) 3,300 (750) Profit before tax Tax Profit after tax 1,500 (650) (2,000) 1,300 (300) 1,200 (1,000) (650) Dividends Profit after tax and dividends 1.300 200 (650)