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business-reporting-july-2010-exam-paper

I do not require you to consider tax or deferred tax

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I do not require you to consider tax, or deferred tax, implications at this stage. Gary Requirement Respond to the engagement manager’s instructions. (25 marks)
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© The Institute of Chartered Accountants in England and Wales 2010 15 of 16 Exhibit 1 – Background information prepared by Claire Chalker PGA makes and installs two types of garage doors: Manually operated wooden doors – the “Monty”. The list price of the Monty was increased by 5% at 1 October 2009 to £840 each, including installation. An electrically operated set of metal doors with a motor – the “Gold”. The list price of the Gold was increased by 5% at 1 October 2009 to £2,520 each, including installation. Nearly all doors are made to order. Each of the two types of door is made on a separate production line at PGA’s factory in the South of England. Production equipment is specialised and highly specific to each of the separate production processes. PGA makes about 70% of its sales of both products in Germany and France where it has a network of sales offices. All selling prices are set at 1 October each year. Prices for overseas markets are fixed in euro at this time, at the equivalent of £ sterling prices. The company has had a difficult trading year so far, due to the general economic downturn. The trading performance in the year ending 30 September 2010 is thus expected to be weaker than in the previous year. In previous years, approximately equal quantities of Gold and Monty doors have been sold. However, sales of the Gold have suffered particularly badly this year, as customers appear unwilling to spend large sums on their garage doors in the recession. Sales of Gold doors are not expected to increase in the foreseeable future. Customers are either individual householders or small building companies. Discounts may be given to building companies for large orders but PGA sales staff have stated that door prices to individual customers are never discounted. Exhibit 2 – Financial data and notes prepared by Claire Chalker Management Accounts – income statements Notes Draft 9 months to 30 June 2010 9 months to 30 June 2009 Year ended 30 Sept 2009 £’000 £’000 £’000 Revenue: Monty Gold 1 7,500 14,000 9,600 28,800 10,400 31,200 Cost of sales: Monty Gold 2 (6,700) (15,500) (7,800) (23,400) (9,200) (27,600) Gross profit/(loss) (700) 7,200 4,800 Fixed administrative and distribution costs (1,200) (1,200) (1,600) Exceptional item Staff bonus scheme 3 (450) - - Profit/(loss) before tax (2,350) 6,000 3,200 Income tax expense - (1,680) (900) Profit/(loss) for the period (2,350) 4,320 2,300
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© The Institute of Chartered Accountants in England and Wales 2010 16 of 16 Management Accounts – Extracts from statements of financial position Notes At 30 June 2010 At 30 June 2009 At 30 Sept 2009 £’000 £’000 £’000 Current assets Inventories 4 3,500 3,500 1,200 Trade receivables 4 2,400 4,300 1,000 Notes 1 Revenue Inventory records show the number of doors sold as: 9 months to 30 June 2010 9 months to 30 June 2009 Year ended 30 Sept 2009 Monty 9,000 12,000 13,000 Gold 6,000 12,000 13,000 Sales volumes in the final quarter of the year ending 30 September 2010 are expected to be the same as the final quarter of the year ended 30 September 2009 for both the Monty and the Gold.
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