The trial balance for Snow Co at 31 December 2020 was as follows:
TRIAL BALANCE AT 31 DECEMBER 2020
Revenue
Cost of sales
Distribution costs
Administrative expenses
Bank interest
Dividend
Convertible loan note (coupon) paid on 31 December 2020
Lease rental paid on 31 December 2020
Land and buildings (including land $12mln) at cost
Owned plant and equipment at cost
Right-of-use asset - leased plant at initial carrying amount
Accumulated depreciation at 31 December 2019:
* Buildings
* Owned plant and equipment
$'000
$'000
Notes #
227 800
168 468
13 500
16 500
900
2 000
320
9 200
60 000
65 700
35 000
(iii)
(i)
(i)
(i)
(i)
10 000
17 700
* Leased plant
Inventories at 31 December 2020
Trade receivables
Bank
Insurance provision
4% convertible loan notes
Lease liability at 1 January 2020
Equity shares of $0.50 each
Share premium
Trade payables
Proceeds of share issue
Retained earnings at 31 December 2019
7 000
26 600
42 500
440 688
Notes:
i. Non-current assets
Snow Co decided to revalue its land and buildings for the first time on 1 January 2020.
A qualified valuer determined the relevant revalued amounts to be:
$ million
16
• for the land
38.4
• for the building
The building`s remaining life at the date of the revaluation was
16
years.
The revaluation has not yet been reflected in the trial balance figures. Snow Co does not make
a transfer from the revalation surplus to retained earnings in respect of the realisation of the
revalluation surplus. Ignore deferred tax.
The right-of-use asset relates to leased plant was aquired on 1 January 2019 under a five-year
agreement which meets the defenition of a lease under IFRS 16 Leases . The carrying amount of the
leased plant in the trial balance is equal to the present value of the future lease payments at the
lease inception date. The rentals are $9.2 million per annum payable on 31 December each year.
The rate of interest implicit in the lease is 10% per annum.
The useful life of the leased plant was 7 years.
Owned plant and equipment is depreciated at 12.5% per annum using the reducing balance method.
No depreciation has yet benn charged on any non-current asset for the year ended 31 December
2020. All depreciation is charged to cost of sales.
5 300
150
8 000
29 300
45 800
3 200
22 670
43 968
19 800
440 688
(ii)
(iii)
(i)
(iv)
ii. On 1 January 2020, Snow Co received a renewal quote of $40,000 from the company`s property
insurer. The directors were surprised at how much it had increased and believed is would be less
expensive for the company to 'self-insure'. Accordingly, they charged $400,000 to administrative
expenses and credited the same amount to the insurance provision. During the year, the company
incurred $250,000 of expenses relating to previously insured property damage which it has debited
to the provision.
iii. On 1 January 2020 Snow Co issued 80,000 $100 4% convertible loan notes. Interest is payable
annually in arrears on 31 December each year. The loan note is redeemable at par on 31 December
2023 or can be converted to equity shares on the basis of 2 shares for each $100 loan note from
1 January 2021.
An equivalent loan without the conversion rights would have required an interest rate of 6%.
The present value of $1 receivable at the end of each year, based on discount rates of 4% and 6%, are:
4%
6%
End of year 1
0,962
0,943
End of year 2
0,925
0,890
End of year 3
0,889
0,840
iv. On 1 July 2020 Snow Co performed a 2 for 10 right issue at $2.40 per share. The market value of Snow
Co share at 1 July was $3.00 per share. The proceeds have been recorded as 'proceeds of share issue'.
v. Income tax for the year to 31 December 2020 is estimated at $2,351,280.
Required
1. Prepare the statement of profit or loss and other comprehensive income for Snow Co for the year
ended 31 December 2020.
2. Prepare the statement of changes in equity for Snow Co for the year ended to 31 December 2020.
3. Prepare the statement of financial position for Snow Co as at 31 December 2020.
4. Calculate the basic EPS for Snow Co for the year ended 31 December 2020.
5. The issue of convertible loan notes can potentially dilute the basic earnings per share (EPS).
Calculate the diluted EPS for Snow Co for the year ended 31 December 2020.
marks
9
7
28
8
8
Notes to the financial statements are not required, but all workings must be clearly shown.
60
Diluted EPS
SNOW STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2020
$'000
Revenue
227 800
Cost of sales (W1)
183 868
Gross profit
43 932
Distribution cost (W1)
13 500
Administrative expenses (W1)
16 350
Finance costs (W1)
4 285
Profit before tax
9 797
Income tax
2 351
PROFIT FOR THE YEAR
7 446
Other comprehensive income
Gain on land and building revaluation
4 400
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
11 846
1,5
1,5
1,5
marks
0,5
1,5
0,5
1,5
2,5
0,5
0,5
1
0,5
9
0,5
1
SNOW STATEMENT OF CHANGES IN EQUITY FOR
THE YEAR ENDED 31 DECEMBER 2020
Share
capital
$'000
45 800
9 160
Balance at 1 January 2020
Issue of share capital
Dividenvds
Other component
Total comprehensive income for the year
Balance at 31 December 2020
Share
premuim
$'000
3 200
34 808
Retained
earnings
$'000
19 800
-
Revaluation
surplus
$'000
Other
component
Total
$'000
68 800
43 968
2 000
425
11 846
123 039
2 000
425
54 960
7 446
25 246
38 008
4 400
4 400
425
SNOW STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2020
Non-current assest
$000
PPE (W2)
94 000
Right of use asset (W2)
21 000
115 000
Current assets
Inventories
26 600
Trade receivable
42 500
69 100
Total Assets
184 100
Equity
Share capital (W6)
54 960
Share premium (W6)
38 008
Retained earnings
25 246
Other component of equity (W5)
425
Revaluation surplus (W2)
4 400
123 039
Non-current liability
4% convertable loan notes (W5)
7 710
Non-current lease liability (W3)
16 133
23 843
Current liabilities
Trade payables
22 670
Bank overdraft
5 300
Current lease liability
6 897
Income tax payable
9
2
0,5
0,5
1,5
1,5
1,5
1
0,5
3
2
0,5
0,5
2
2 351
37 218
184 100
ИСТИНА
Total Equity & Liabilities
проверка
1,5
2
0,5
1
1
1
7
0,5
за отсутствие строки Provision
1,5
28
1,5
W1 Expenses, $`000
Per question
Dep`n expenses (W2)
Insurance provision reversal
Lease interest
4% convertible loan note
Total
CoGS
168 468
15 400
W2 PPE, $'000
Cost
Acc. dep`n
CA b/d
Revaluation
Dep'n exp for year
CA c/d
Land
12000
1,5
Distr
13 500
Administ
16 500
-
183 868
12000
4000
16000
1,5
W3 Lease liability
Balance 01.01.20
Interest 10%
Installment paid
Balance 31.12.20
Current lease liability
Non-current lease liability
0,5
-
$'000
29 300
2 930
9 200
23 030
6 897
16 133
13 500
Build
48 000
10 000
38000
400
2400
36 000
3,5
0,5
1
0,5
1
1
2,5
Finance
900
2
1
1
1
1
150
16 350
2 930
455
4 285
Owned plant
65 700
17 700
48000
Leased plant
35 000
7 000
28000
6000
42 000
7 000
21 000
2
Total
160 700
34 700
126 000
4400
15 400
115 000
2
2
1,5
2
3,5
W4 Insurance provision
Dr Provision
Cr Administrative expenses
$'000
W5 Loan notes
PV of principal @6%
PV interest flows
Debt component
Equity component (8000 - 7575)
Debt component at 01.01.20
Effective Interest
Cash coupon paid
Liability component at 31.12.20
$'000
6 720
855
7 575
425
7 575
455
320
7 710
W6 Share issue
DR Proceeds of share issue
CR Equity shares
CR Share premium
150
150
-
$'000
43 968
1
1
2
1
1
$'000
9 160
34 808
1
1
marks
EPS
Earnings, $000
Weighted average number of shares
Date, narrative
01.01.2020, Balance b/d
01.07.2020 Rights issue 2:10
TERP
10 at $3.00
2 at $2.40
Basic EPS
Dilution EPS
Earnings
Basic
Intetest saving net of tax (8000*4%*(1-0,24))
Adjusted earnings
Number of shares
Basic
On conversion
Diluted EPS
9 797
Number
91 600 000
18 320 000
109 920 000
Period
6/12
6/12
2,90
30
4,8
34,8
Rights fraction
3/2,90
Weighted
average
47 379 310
3
1
2
54 960 000
102 339 310
1
0,5
0,5
9,57
cents
2
8
9 797 478
243 200
10 040 678
0,5
2
102 339 310
160 000
102 499 310
0,5
2
9,80
cents
3
8