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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:

 

$’000          

$’000

Equity shares of $1 each

 

50,000

Retained earnings as at
1 April 20X5

 

3,500

Draft profit before interest and tax
for year ended 31 March 20X6

 

30,000

6% convertible loan notes (note (i))

 

40,000

Leased property
(original life 25 years) – at cost (note (ii))   

75,000

 

Plant and equipment – at cost (note (ii))

72,100

 

Accumulated amortization/depreciation
at 1 April 20X5: leased property

 

15,000

Plant and equipment

 

28,100

Trade receivables (note (iii))

28,000

 

Other current assets

9,300

 

Current liabilities

 

17,700

Deferred tax (note (iv))

 

3,200

Interest payment (note (i))

2,400

 

Current tax (note (iv)

700

 

 

––––––––

––––––––

 

187,500

187,500

 

––––––––

––––––––

The following notes are relevant:

 

  1. Triage Co issued 400,000 units of $100 6% convertible loan notes on 1 April 20X5. Interest is payable annually in arrears on 31 March each year. The loans can be converted to equity shares on the basis of 20 shares for each $100 loan note on 31 March 20X8 or redeemed at par for cash on the same date. An equivalent loan without the conversion rights would have required an interest rate of 8%.

The present value of $1 receivable at the end of each year, based on discount rates of 6% and 8%, are:

  

 

      6%

    8%

End of year 1  

     0·94

   0·93

2

     0·89

  0·86

3

     0·84

  0·79

 

 

2. Non-current assets:

The directors decided to revalue the leased property at $66·3m on 1 October 20X5. Triage Co does not make an annual transfer from the revaluation surplus to retained earnings to reflect the realization of the revaluation gain; however, the revaluation will give rise to a deferred tax liability at the company’s tax rate of 20%.

The leased property is depreciated on a straight-line basis and plant and equipment at 15% per annum using the reducing balance method.

No depreciation has yet been charged on any non-current assets for the year ended 31 March 20X6.

 

 

3. In September 20X5, the directors of Triage Co discovered a fraud. In total, $700,000 which had been included as receivables in the above trial balance had been stolen by an employee. $450,000 of this related to the year ended 31 March 20X5, the rest to the current year. The directors are hopeful that 50% of the losses can be recovered from the company’s insurers.

 

4. A provision of $2·7m is required for current income tax on the profit of the year to 31 March 20X6. The balance on current tax in the trial balance is the under/over provision of tax for the previous year. In addition to the temporary differences relating to the information in note (ii), at 31 March 20X6, the carrying amounts of Triage Co’s net assets are $12m more than their tax base.

Requirements:

  1. Prepare a schedule of adjustments required to the draft profit before interest and tax (in the above trialbalance) to give the profit or loss of Triage Co for the year ended 31 March 20X6 as a result of the information in notes (i) to (iv) above.
  2. Prepare the statement of financial position of Triage Co as at 31 March 20X6.
  3. The issue of convertible loan notes can potentially dilute the basic earnings per share (EPS).

Calculate the diluted earnings per share for Triage Co for the year ended 31 March 20X6 (there is no need to calculate the basic EPS).

 

Note: A statement of changes in equity and the notes to the statement of financial position are not required.

The following mark allocation is provided as guidance for this question:

  1. 5 marks
  2. 12 marks
  3. 3 marks
Marks: 20

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