Three unrelated companies, Tower plc (a public company), Book Ltd (a private company) and Holdings plc (a quoted investment company) have summarised balance sheets, as on 30 June 1985, as set out below with relevant additional information.
- Tower plc
|
£m |
£m |
||
|
Share capital |
2.0 |
Fixed assets |
3.3 |
|
Share premium account |
0.5 |
||
|
Revaluation reserves |
1.0 |
Net current assets |
2.7 |
|
Profit and loss account |
2.5 |
||
|
6.0 |
6.0 |
- A partial revaluation of fixed assets took place during the year with the following result:
|
£m |
|
|
Surplus on land |
0.65 |
|
Surplus on buildings |
0.35 |
|
Surplus on plant and machinery |
0.10 |
|
Deficit on fixtures and fittings |
(0.10) |
|
1.00 |
The directors consider that the value of the remaining fixed assets not revalued is equal to their net book amounts.
(2) Depreciation is provided at 2% on buildings, 15% on plant and machinery, and 20% on fixtures and fittings. All fixed assets are depreciated for the full year on the cost or revalued amounts.
(3) Fixed assets comprise:
|
£m |
|
|
Land |
1.2 |
|
Buildings |
0.8 |
|
Plant and machinery |
0.8 |
|
Fixtures and fittings |
0.3 |
|
Development costs |
0.2 |
|
3.3 |
- Book Ltd – Current Cost Balance Sheet
|
£000 |
£000 |
£000 |
||
|
45 |
Fixed assets |
50 |
||
|
Current cost reserve |
40 |
Investment in Worm Ltd |
40 |
|
|
Retained profit |
55 |
Current assets |
||
|
Stock |
10 |
|||
|
Long term work in progress |
30 |
|||
|
40 |
||||
|
Cash |
10 |
50 |
||
|
140 |
140 |
(1) No provision has yet been made for the losses of the subsidiary, Worm Ltd. It is estimated that the net assets of Worm Ltd in which Book Ltd has an interest of 60% are £50000.
- The current cost reserve comprises:
|
£000 |
|
|
CCA adjustments passed through profit and loss account |
13 |
|
Uplift of fixed assets to CCA values |
27 |
|
40 |
(3) Long term work in progress includes a profit element of £6000 calculated in accordance with SSAP 9.
(c) Holdings plc
|
£000 |
£000 |
£000 |
||
|
Share capital |
650 |
Fixed assets |
||
|
Share premium |
325 |
Tangible |
20 |
|
|
Reserves |
4 380 |
Investments |
5647 |
|
|
Current assets |
||||
|
Debtors |
98 |
|||
|
Investments |
2436 |
|||
|
Cash |
147 |
|||
|
2681 |
||||
|
Creditors falling due |
||||
|
within 1 year |
1793 |
888 |
||
|
6555 |
||||
|
Creditors falling due in |
||||
|
more than 1 year |
(936) |
|||
|
Provisions |
(264) |
|||
|
5355 |
5355 |
|||
|
Reserves consist of: |
||||
|
£000 |
||||
|
Unrealised capital losses |
(48) |
|||
|
Unrealised revenue profits |
140 |
|||
|
Unrealised revenue losses |
(17) |
|||
|
Realised capital profits |
2 890 |
|||
|
Realised capital losses |
(1 241) |
|||
|
Realised revenue profits |
2 666 |
|||
|
Realised revenue losses |
(10) |
|||
|
4380 |
Requirements
(a) State concisely, for each of the three types of company mentioned, the principles for calculating distributable profits under the Companies Act 1980 (now part of the Companies Act 1985).
(b) Calculate for each of the three companies the maximum legally distributable profits.
(c) Discuss the reasons why it is not normally commercially or practically desirable to make the maximum distribution.