Paper Details
Cold Heart plc, which has a turnover of £100 million and pre-tax profit of £10 million, has its financial statements drawn up on 30 June each year and at 30 June 20X2 the company’s accountant is considering the items specified below.
1. The directors have decided that the change in trading prospects evident during the year means that the goodwill shown at 30 June 20X1 at £200,000 has no value at 30 June 20X2.
2. Research and development expenditure of £7 million has been incurred in the year, and has been written off due to the project being abandoned.
3. Unrealized revaluation surplus of £10 million that arose on the revaluation of the company’s buildings during the year.
4. A provision for bad debts of £15 million on the collapse of the company’s main customer during the year.
5. A loss of £1 million arising from the closure of the company’s retailing activities.
You are required to classify each of the above items into one of the following categories, explaining the reasons for the classification:
a. Material item that requires separate disclosure on the face of the financial statements;
b. Transfer direct to reserves;
c. Discontinued operations.
