The University of Birmingham College of Social Sciences The Birmingham Business School Department of Accounting and Finance Accounting

Theory (07 !"#$% Collins &td ' (evision of )istorical Cost Accounting *rinciples

Collins Ltd began trading on 1 January 2009 with an issued and fully paid share capital of 100,000 in cash. On that date, the co pany bought with che!ues drawn on the business ban" account a 20 year lease on business pre ises for 20,000 together with plant and achinery for #0,000. $he plant and achinery has a useful life of 10 years and %ero residual &alue.

'uring the financial year ending (1 'ece ber 2009, purchases were 10,000 per onth, paid one onth in arrears, and re&enues were 2#,000 per onth settled two onths in arrears. Other operating e)penses were *,#00 per onth paid in cash at the end of each onth.

$he co pany uses straight line depreciation for its non+current assets. ,s at (1 'ece ber 2009, closing in&entory had a cost of 20,000 and a net realisable &alue of 1*,#00. ,s at (1 'ece ber 2009, the re aining 19 year period on the business pre ises lease had a fair &alue of 21,000 while the plant and achinery had a &alue in use of -(,000 and a net realisable &alue of 29,000. Of the closing trade recei&ables, it was esti ated that #. were bad or doubtful. /e!uired0 1a2 ,n inco e state ent for the year ending (1 'ece ber 2009 and a balance sheet as at that date using pure historical cost accounting3 1b2 ,n inco e state ent for the year ending (1 'ece ber 2009 and a balance sheet as at that date using reco&erable historical cost accounting3 1c2 ,n inco e state ent for the year ending (1 'ece ber 2009 and a balance sheet as at that date using odified reco&erable historical cost accounting3 1d2 , cash flow state ent for the year ending (1 'ece ber 20093 1e2 , state ent reconciling the net operating cash inflow for the year to each of the inco e nu bers calculated in 1a2, 1b2 and 1c2 abo&e.