ACCA · Question 32 · Preparation of Single Entity Financial Statements

Section C

GreenGrid operates renewable energy infrastructure. You are preparing the financial statements for the year ended 31 December 20X5.

Draft Trial Balance Extracts at 31 December 20X5:
Revenue: $45,000,000 (Credit)
Cost of Sales: $22,000,000 (Debit)
Operating Expenses: $8,000,000 (Debit)
Solar Farms (Carrying amount 1 Jan 20X5): $60,000,000 (Debit)
Convertible Loan Note (Issued 1 Jan 20X5): $10,000,000 (Credit)
Interest paid on Loan Note: $400,000 (Debit)
Tax paid during year: $200,000 (Debit)
Deferred Tax Liability (1 Jan 20X5): $1,500,000 (Credit)

Additional Information:

1. Solar Farms: GreenGrid uses the revaluation model. On 31 December 20X5, an independent valuer assessed the solar farms at $65,000,000. The farms have a remaining useful life of 20 years from 1 Jan 20X5. Depreciation for the year has not yet been charged to Cost of Sales.
2. Convertible Loan Note: Issued on 1 Jan 20X5 at par ($10m). It pays a coupon of 4% annually. The market rate for a similar bond without conversion rights is 8%. The equity component of $1,030,000 has already been correctly recorded in equity, and the liability component was initially recorded at $8,970,000. The $400,000 interest paid has been deducted from the liability balance in the trial balance.
3. Taxation: The current tax estimate for the year is $1,200,000. The deferred tax liability at 31 December 20X5 is calculated to be $1,800,000. The tax paid in the trial balance relates to an under-provision from the previous year.

Required:
(a) Prepare the Statement of Profit or Loss and Other Comprehensive Income for GreenGrid for the year ended 31 December 20X5. (12 marks)
(b) Calculate the following ratios for 20X5 and provide a brief commentary (max 3 sentences) on GreenGrid's profitability:
i. Operating Profit Margin
ii. Return on Capital Employed (Assume total Capital Employed is $75,000,000 for this calculation).
(8 marks)