Vroom plc is a specialist sports car manufacturer. The company's accounting year-end is 31 March, and the directors authorise the financial statements in June.
At 31 March 2011, the trial balance for Vroom plc was: £ million £ million
Revenue 54
Cost of Sales 21
Distribution costs and administration expenses 7
Research and development costs for the year 10
Loss through fraud 3
Loss on sale of division B 6
Interest paid on bank loan 2
Dividends paid in the year 2
Tangible non-current assets held at 31 March 2011:
Land 30
Buildings 50
Plant and equipment 70
Accumulated depreciation at 31 March 2011:
Buildings 5
Plant and equipment 30
Deferred development b/f at 1 April 2010 20
Inventories at 31 March 2011 5
Trade receivables and payables 13 8
Cash and bank 1 3
Ordinary shares @ 50 pence each 40
Share premium 10
Revaluation reserve at 1 April 2010 13
Retained profits 27
8% Bank loan (acquired in 2006; repayable in 2016) 50
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240 240
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At 1 April 2010, Vroom plc had 2 operating divisions. Division A manufactures high-spec sports cars. Division B, which Vroom sold in
December 2010, produced beach buggies.
The results for Division B - included in the trial balance above - are:
£ million
Revenue 9
Cost of Sales 8
Distribution costs and administration expenses 3
Interest payable 1
Income tax credit 1
Vroom shows all required details regarding discontinued operations in its income statement.
The following additional information applies to Division A only.
(i) Relevant accounting policies for Division A are:
• Land and buildings are revalued at the end of the accounting year.
• Deferred development costs are amortised on a straight-line basis over the expected life of the product. Any research & development expenses are included in cost of sales.
(ii) The deferred development costs of £20 million all relate to a new carburettor which the company began producing in April 2010. The carburettor has an expected commercial life of 5 years.
(iii) Of the £10 million research and development costs incurred in the year:
• £8 million was used on research projects involving alternative fuels;
• £2 million was used in developing an improved air bag, and in the view of the directors, qualifies for capitalisation.
(iv) In December 2010, Vroom's directors discovered a £3 million fraud which was committed before 1 April 2010. The company does not expect to recover any of this stolen money.
(v) At the end of March 2011, Vroom issued a recall of one consignment of cars because of a manufacturing fault. The company estimates that the cost of this recall over the next 12 months will be £2.5 million.
(vi) At the end of April 2011, Vroom was informed that a customer who owed the company £1.5 million at 31 March 2011 was in liquidation. No previous provision has been made regarding this customer.
(vii) Estimated Income tax for Division A for the year ended 31 March 2011 is £2 million.
(viii) Current values of the properties held by the company at 31 March 2011 are:
£m
Land 32
Buildings 48
These revaluations have not yet been included in the company's accounts.
(ix) Included in the trial balance are 20 million ordinary shares which Vroom issued in May 2010 for £1 each. At the end of May 2011, the directors proposed a final dividend for the year ended 31 March 2011 of 2 pence per share.
Required:
(a) Prepare for Vroom plc:
• a Comprehensive Income Statement for the year ended 31 March 2011
• a Statement of Changes in Equity for the year ended 31 March 2011
• a Statement of Financial Position as at 31 March 2011
(b) IFRS 5 Assets Held for Sale and Discontinued Operations requires companies to disclose results for both continuing and discontinued operations.
Using the income statement you have prepared, explain how the information about continuing and discontinued operations improves the relevance of information for shareholders.