Reference no: EM132466461

Question - The balances listed below were extracts from the records of Hydan Co. on 31 December 2017:

	£000
Revenue	53,065
Purchases	30,028
PPE (carrying amount at 31 December 2016)	37,400
Administrative expenses	2,871
Rent received	1,200
Investment (unlisted)	3,000
Investment income	80
Inventory at 1 January, 2017	2,468
Trade receivables	3,492
Trade payables	3,470
Research and Development recognised as Intangible Assets	10,000
Cash in hand	41
Bank overdraft	482
Ordinary shares (£10 each)	15,000
Retained earnings at 1 January, 2017	16,003

Note -

1) Inventory was valued at £2,917,000 at the close of business.

2) Non-current assets- tangible:

Details of the other property, plant and equipment at 31 December 2016 are:

	£'000	£'000
Land at cost		20,000
Buildings at cost	25,000
Less accumulated depreciation at 31 December 2016	(10,000)	15,000
Plant at cost	4,800
Less accumulated depreciation at 31 December 2016	(2,400)
		2,400
		37,400

On the 30th June, 2017, Hydan Ltd. had an open market basis valuation of its PPE. Land was valued at £21 million; Before revaluation, the buildings are depreciated on a straight line basis with 40 years expected useful life. After revaluation, buildings were valued at£16 million with 20 years of remaining expected useful life. Before revaluation the plants were depreciated on a straight line basis with expected useful life of 20 years. The plants were valued at £2.5 million. After revaluation, plants are depreciated with a reducing balance bases at the rate of 20%. The directors wish these new values to be incorporated into the financial statements.

3) On 1 January 2015, Hydan Ltd. bought a plant for £200,000 (included in the trial balance). It has an expected useful life of 20 years and a nil residual value. On 30 June, 2017, Hydcn Ltd. decides to sell the plant and starts actions to locate a buyer. The plant is in short supply, so Hyden Ltd. is confident that the plant will be sold fairly quickly. Its market value at 30 June 2017 is £160,000 and it will cost £5,000 agency cost. The plant has not been sold at the year end.

4) The board has decided to pay dividends as 5p/share.

5) The revenue includes an amount of £250,000 for a sale made on credit 3'h January 2018.

6) Hydan experiences large number of credit sales transactions with terms of net 30 days. According to past experience, it believes that 0.005 of its credit sales will be uncollectible. Therefore provision for bad debt is necessary to be accounted for.

7) Non-current assets-intangible

a) In addition to the capitalised development expenditure (of £10,000,000), further research and development costs were incurred on a new project which commenced on I January 2017. The research stage of the new project lasted until 31 March, 2017 and incurred £105,000 of costs, from that date the project incurred development costs of £35,000 per month. On 1st July, 2017 the directors are confident that the project would be successful and yield a profit well in excess of its costs. The project is still in development at 31 December, 2017,

b) Capitalised development expenditure is amortised at 10% per annum using the straight-line method. All expensed research and development is charged to cost of sales.

No depreciation/amortisation has yet been charged on any non-current asset for the year ended 31 December 2017. All depreciation/amortisation is charged to cost of sales.

Requirement -

a. Show relevant journal entries for all the transactions whenever adjustment is needed.

b. Draft the statement of comprehensive income of Hydan Ltd. for the year ended 31st December.

c. Draft the statement of financial position of Hydan Ltd. for the year ended 31st December, 2017.

d. Explain the purpose of depreciation according to its definition, and the factors affecting the assessment of useful life according to IAS 16 Property, Plant and Equipment.

e. Distinguish between the cost model and the revaluation model for the measurement of property, plant and equipment subsequent to its initial recognition. Discuss the different impact of the two models on the financial statements.