The following trial balance as at 31 March 20X2 has been extracted from the cloud accounting software used by Fresco Co:
The following notes are relevant:
(1) The suspense account represents the corresponding credit for cash received for a fully subscribed rights issue of equity shares made on 1 January 20X2. The terms of the share issue were one new share for every five held at a price of 75 cents each The price of the company’s equity shares immediately before the issue was $1.20 each
(2) Non-current assets:
Fresco Co decided to revalue its freehold property on 1 April 20X1. The directors accepted the report of an independent surveyor who valued the freehold property at $36 million on that date. Fresco Co has not yet recorded the revaluation. The remaining life of the freehold property is eight years at the date of the revaluation. Fresco Co makes an annual transfer to retained profits to reflect the realisation of the revaluation surplus. In Fresco Co’s tax jurisdiction the revaluation does not give rise to a deferred tax liability.
On 1 April 20X1, Fresco Co acquired the right to use an item of plant under an agreement that meets the definition of a lease under IFRS 16 Leases. The rate of interest implicit in the lease agreement is 10% per annum. The lease payments in the trial balance represent an initial deposit of $2 million paid on 1 April 20X1 and the first annual rental of $6 million paid on 31 March 20X2. The lease agreement requires four further annual payments of $ó million on 31 March each year, starting 31 March 20X3. The present value of the future lease payments on inception of the lease is $23 million. The useful life of the plant is five years.
Plant and equipment (other than the leased plant) is depreciated at 20% per annum using the reducing balance method.
No depreciation has yet been charged on any non-current asset for the year ended 31 March 20X2. Depreciation is charged to cost of sales.
(3) In March 20X2, Fresco Co’s internal audit department discovered a fraud committed by the company’s credit controller who did not return from a foreign business trip. The outcome of the fraud is that $4 million of the company’s trade receivables have been stolen by the credit controller and are not recoverable. Of this amount, $1 million relates to the year ended 31 March 20X1 and the remainder to the current year. Fresco Co is not insured against this fraud.
(4) Fresco Co’s income tax calculation for the year ended 31 March 20X2 shows a tax refund of $2.4 million. The balance on current tax in the trial balance represents the under/over provision of the tax liability for the year ended 31 March 20X1. At 31 March 20X2, Fresco Co had taxable temporary differences of $12 million (requiring a deferred tax liability). The income tax rate of Fresco Co is 25%.
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