After preparing a draft statement of profit or loss (before interest and tax) for the year ended 31 March 20X6 (before any adjustments which may be required by notes (i) to (iv) below), the summarised trial balance of Triage Co as at 31 March 20X6 is:
(a) Triage Co – Schedule of adjustments to profit for the year ended 31 March 20X6
The $450,000 fraud loss in the previous year is a prior period adjustment (reported in the statement of changes in equity). The possible insurance claim is a contingent asset and should be ignored.
(b) Triage Co – Statement of financial position as at 31 March 20X6
(c) Diluted earnings per share (w (v))
Workings (monetary figures in brackets in $’000)
(i) 6% convertible loan notes
The convertible loan notes are a compound financial instrument having a debt and an equity component which must both be quantified and accounted for separately:
The finance cost will be $3,023,000 (37,792 x 8%) and the carrying amount of the loan notes at 31 March 20X6 will be $38,415,000 (37,792 + (3,023 – 2,400)).
(ii) Non-current assets
Leased property
The gain on revaluation and carrying amount of the leased property is:
Annual amortisation is $3m (75,000/25 years); therefore the accumulated amortisation at 1 April 20X5 of $15m represents five years’ amortisation. At the date of revaluation (1 October 20X5), there will be a remaining life of 19·5 years.
Of the revaluation gain, $6·24m (80%) is credited to the revaluation surplus and $1·56m (20%) is credited to deferred tax.
Plant and equipment
(iii) Deferred tax
(iv) Retained earnings
(v) The maximum additional shares on conversion is 8 million (40,000 x 20/100), giving total shares of 58 million. The loan interest ‘saved’ is $2·418m (3,023 (from (w (i)) above x 80% (i.e. after tax)), giving adjusted earnings of $16·745m (14,327 + 2,418).
