Question (1)
a) Financial assets may be classified and reported in four different categories. Identify each category and clarify the conditions that should be met for inclusion in each of them and the accounting treatment of investments in each category. (8 marks)
The assets held by Venture plc include the following investments:

• Shares in a company, not quoted on the stock exchange, acquired in 2005 for £427,500. The costs included transactions cost of £300. These shares were valued on 30th June 2008at £512,200 and on 30th June 2009 at £539,800. £ 14,200 was received as dividend from these investments in April 2009.(Ex-3.1)

• Shares in a company, not quoted on the stock exchange, acquired in 2005 for £427,500. These shares were valued on 30th June 2007 at £512,200 and on 30th June 2008 at £539,800. £ 14,200 was received as dividend from these investments in April 2008. (Dec08)

• 400,000 Ordinary shares in Alpha Ltd, acquired at 320p each. Cost of acquisition amounted to £4,000. These shares were valued on 31st March 2008 at £1.4 million and on 31st March 2009 at £1.6 million. A dividend of £140,000 was received in January 2009.(jul09)

• Wonder-drug plc seeks your advice on how it should account for each of its following financial instruments, in their financial statements for the year ended 31st March 2010 >

300,000 Ordinary shares of £1 each were bought in Alpha ltd, on 1st January 2008 for £347,400. The fair value of these shares were estimated as
31-Mar-08
31-Mar-09
£371,000
£358,500

Shown on right. A third of these share were sold for £127,500 on 1st July 2009.The remaining share were valued at £242,800 on 31st March 2010.A dividend received from this company in October 2009.(apr10)

(b) i) 3% Bonds of £500,000 acquired on 1st July 2008 for £485,000.In Addition, Transaction costs amounted to £3,000. Interest is received on these bonds annually in arrears on 30th June. The terms of this bond are that they will be redeemed at 20% premium on 30th June 2010. Venture plc is able to obtain finance at 10% per annum. Venture plc has a positive intent and demonstrated ability to hold these bonds until maturity.(Ex-3.1)

ii) 3% Bonds of £500,000 acquired on 1st July 2007 for £485,000. Transaction costs amounted to £3,000. Interest is received on these bonds annually in arrears on 30th June. The terms of this bond are that they will be redeemed at 20% premium on 30th June 2010. Venture plc is able to obtain finance at 10% per annum. Venture plc has a positive intent and demonstrated ability to hold these bonds until maturity.(dec08)

iii) £600,000 4% Loan Notes redeemable at 10% premium on 31st March 2012 had been acquired for £497,500 on 1st April 2007. In addition £3,286 was paid as expenses related to the acquisition. These have been designated as held to maturity. (Jul09)

iv) On 1st April 2009 Wonder-drug plc raised £500,000 on issuing at par 3% Loan notes, although the market rate of interest at the time was 8% per annum. The terms of issue were that at the option of the holder these loan notes can be either redeemed on 31st March 2012 at 10% premium or converted on that date into ordinary shares in the company on the basis is six shares of £1 each for every £10 Loan Note.(apr10)

c) -i) Thirty thousand ordinary shares in a quoted company acquired for 412c per share on 17th July 2008. Transaction costs amounted to £2,400. These shares were quoted on 30th June 2009 at 467c each. Dividend of £12,500 was received in May 2009. Venture plc wishes to hold this investment at fair value through profit and loss.(ex3.1)

ii) Thirty thousand ordinary shares in a quoted company acquired for 412p per share on 17th July 2007. Transaction costs amounted to £2,400. These shares were quoted on 30th June 2008 at 467p each. Dividend of £12,500 was received in May 2008. Venture plc wishes to hold this investment at fair value through profit and loss.(dec08)

iii) £600,000 4% Loan Notes redeemable at 10% premium on 31st March 2012 had been acquired for £497,500 on 1st April 2007. In addition £3,286 was paid as expenses related to the acquisition. These have been designated as held to maturity. (jul09)

31-Mar-08 £412,500 31-Mar-09 £496,200
31-Mar-10
£542,400
Iv) 500,000 shares of 50p each were bought in Beta plc, a quoted company, for £378,200 on 1st January 2007. In addition transaction costs amounted to £3,200 At acquisition these shares were irrevocably designated as held at fair value through profit and loss. These Shares were quoted as on the right .A dividend of £28,000 was received in January 2010.(apr10) Required: Show with full explanation, how the transactions stated above that will be reported on the Statement of Comprehensive Income for the year ended 30th June 2009 and the Balance sheet as at that date.

II) Show how the transactions stated above will be reported on the Income Statement for the year ended 30th June 2008 and the Balance sheet as at that date .(dec08) iii) How will these be reported in the financial statements for the year ended 31st March 2009. (jul09) iv) How will these be reported in the financial statements for the year ended 31st March 2010.(apr10)