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Transition Limited Illustrative financial statements © UK Training (Worldwide) Limited Illustrative Financial Statements This document represents information that is used during the presentation of the seminar: Implementing FRS 102 – The New UK GAAP It is subject to copyright law and should not be reproduced by any unauthorised person for their own use, selling on to a third person or for presentation to other people. UK Training (Worldwide) Limited 17 Duke Street Formby L37 4AN e-mail:[email protected] Telephone: 01704 878988 Facsimile: 01704 832124 www.uktraining.info
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Page 1: Illustrative Financial Statements - FRS 102frs102.net/.../05/PFRS-Illustrative-Financial-Statements-MAY15.pdf · Illustrative financial statements ... Note the model accounts do not

Transition Limited Illustrative financial statements

© UK Training (Worldwide) Limited

Illustrative Financial Statements

This document represents information that is used during the presentation of the seminar:

Implementing FRS 102 – The New UK GAAP It is subject to copyright law and should not be reproduced by any unauthorised person for their own use, selling on to a third person or for presentation to other people. UK Training (Worldwide) Limited 17 Duke Street Formby L37 4AN

e-mail:[email protected]

Telephone: 01704 878988 Facsimile: 01704 832124

www.uktraining.info

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Transition Limited Illustrative financial statements

© UK Training (Worldwide) Limited

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Transition Limited Illustrative financial statements

© UK Training (Worldwide) Limited

These illustrative financial statements have been prepared to illustrate the key presentational and transitional disclosure issues on moving from existing UK GAAP to FRS 102. The original accounting formats are prepared under UK GAAP and are for the year ended 31 December 2014 but in practice you could use earlier accounts on which to base your planning. Note the model accounts do not include directors’ report or audit report since they are not directly covered by FRS 102. There are implications for the directors in that they should seek to ensure that the directors reports is not inconsistent with the financial statements prepared under FRS 102. Similarly the auditor is required by Companies Act 2006 to report on whether the financial statements are consistent with the accounts. On a similar basis, where a note to the financial statements is required by the Companies Act but not FRS 102, it is not included in full e.g. staff cost, directors’ emoluments, audit fees etc. The reason that some items are not going to change on the adoption of FRS 102 will be:

(a) Because they are required under the Companies Act and not accounting standards (included in green ink) or

(b) Because FRS 102 is the same as old UK GAAP. The conventions used in these illustrative financial statements are as follows:

(a) We have used FRS 102 terminology throughout for the financial statements, and predominantly for items within the financial statements. For example, we refer to income statement and statement of other comprehensive income rather than profit and loss account and statement of total recognised gains and losses. We refer to inventories and property, plant and equipment rather than stocks and work in progress and tangible fixed assets. It is important to remember, however, that the basic structure of the financial statements is driven by the Companies Act formats;

(b) Where disclosure or other item is no longer required by FRS 102 it is struck through like this;

(c) New items are included in red type. Note that notes 37 -39 included under this category are only required in the year of transition.

(d) Guidance notes are included within text boxes or as narrative notes in blue type. Note that these are not intended to be comprehensive or model accounts. In particular

(a) Not all items which could be included are covered. The financial statements do not include a defined benefit pension scheme nor share-based payments.

(b) Nor are all detailed disclosures, whether required by the Act or FRS 102 necessarily disclosed. In particular the disclosures relating to financial instruments are not dealt with.

It is recommended that the first actual FRS 102 accounts are prepared using proprietary model accounts and accounts disclosure checklists.

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Transition Limited Illustrative financial statements

© UK Training (Worldwide) Limited

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Transition Limited Financial statements for the year ended 31 December 2014

© UK Training (Worldwide) Limited 1

CONTENTS PAGE

Profit and loss account Income Statement 2 Statement of total recognised gains and losses Statement of other comprehensive income 3

Balance sheet Statement of financial position 4

Statement of changes in equity 5 Cash flow statements Statement of cash flows 6

Notes to the accounts 8

Company registration number: 122345577

The page numbers and note numbers are for training / illustration purposes only, as in practice many would drop out, as indicated in the text.

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Transition Limited Income Statement Profit and loss account for the year ended 31 December 2014

© UK Training (Worldwide) Limited 2

Continuing operations Discontinued

operations

Total Total

Acquisitions

Note

2014

2014

2014

2014

2013 £ £ £ £ £ TURNOVER 2 Cost of sales (including va lue adjustments) GROSS PROFIT Dis tribution costs(including va lue adjustments) Administrative expenses

Bad debt OPERATING PROFIT (LOSS) 5 Profi t (loss) on sale of fixed assets Cost of fundamental reorganisation/restructuring Profi t (loss) on sale or termination of an operation

Profi t (loss) on ordinary activities before interest Interest receivable and similar income

Interest payable and similar charges Value adjustments on financial assets and current asset investments

Other finance income

9

PROFIT (LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION Tax on profit on ordinary activities

10

PROFIT (LOSS) FOR THE FINANCIAL YEAR

The notes on pages 8 to 27 form part of these financial statements.

FRS 102 does not require acquisitions

FRS 3 requires exceptional items to be included in the relevant line item apart from super exceptional items. FRS 102 does not use the

term exceptional items and there are therefore no super-exceptional items.

FRS 102 does, however, allow additional lines if relevant to an understanding e.g. the bad debts item highlighted above

The use of operating profit is not required by FRS 102. If it is used it

must be used appropriately

FRS 102 requires disclosure of the tax on

discontinued operations. FRS 3 does not

Section 5

FRS 102 requires fair value adjustments on investment properties and some financial instruments to be recognised in profit and loss account. The amendments included in red are new format headings introduced

by the EU Accounting Directive

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Transition Limited Statement of other comprehensive income Statement of total recognised gains and losses for the year ended 31

December 2014

© UK Training (Worldwide) Limited 3

2014 £

2013 £

Profit (loss) for the financial year

Unrealised surplus (deficit) on revaluation of freehold properties

Unrealised surplus on revaluation of investment properties

Tax expense (note 10)

Total recognised gains (losses) relating to the year/period

Prior year adjustment (as explained in note _____)

Total gains and losses recognised since last financial

statements

NOTE OF HISTORICAL COST PROFITS AND LOSSES 2014

£ 2013

£

Reported profit on ordinary activities before taxation

Realisation of property revaluation gains (losses) of previous years

Difference between a historical cost depreciation charge and the actual depreciation charge of the year calculated on the revalued amount

Historical cost profit on ordinary activities before taxation

Historical cost profit for the year retained after taxation, minority interests, extraordinary items and dividends

Under FRS 102, prior year adjustments are reflected in the Statement of Changes in Equity,

not at the foot of the STRGL / SOCI

Section 5

There is no requirement for a reconciliation of historical cost profits or losses

FRS 102 allows a single statement approach

Under FRS 102 deferred tax is provided on these gains which continue to be shown in the Statement of Other Comprehensive Income

Gains on investment properties are recognised in the income statement under FRS 102. The gains may be recognised under other operating income or an appropriate heading. Deferred tax has to be

provided.

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Transition Limited Statement of financial position Balance sheet as at 31 December 2014

© UK Training (Worldwide) Limited 4

Company registration number: 122345527

2014 2013 Note £ £ £

FIXED ASSETS Intangible assets See FRS 102 Sections 18 & 19 11 Tangible assets Property, plant and equipment See FRS 102

Section 17

12

Investment property See FRS 102 Section 16 13 Investments Financial assets See FRS 102 Sections 11 and 12 14

CURRENT ASSETS

Stocks Inventories FRS 102 Section 13 15 Debtors FRS 102 Section 11 16 (including £ due in more than 1 year, 2013 £ )

Investments Financial assets FRS 102 Sections 11 and 12 17 Cash at bank and in hand FRS 102 Sections 11

CREDITORS Amounts fall ing due within one year FRS 102 Sections 11,12

and 22

18

NET CURRENT ASSETS (LIABILITIES)

TOTAL ASSETS LESS CURRENT LIABILITIES

CREDITORS Amounts fall ing due after more than one year FRS 102 Sections 11, 12 and 22

19

PROVISIONS FOR LIABILITIES FRS 102 Section 21 21

NET ASSETS

CAPITAL AND RESERVES

Called up share capital FRS 102 Section 22 22 Share premium account FRS 102 Section 22 23 Revaluation reserve FRS 102 Section 22 24

Profit and loss account FRS 102 Section 22 25

SHAREHOLDERS’ FUNDS 26

These financial statements were approved and authorised for issue by the Board on 17

th July 2015

Signed on behalf of the board of directors Harry Potter - Director HARRY POTTER

17

th July 2015

The notes on pages 8 to 27 form part of these financial statements.

In most cases FRS 102 considers it sufficient to include this

information in the notes (4.4A)

FRS 102 Section 4

Currently it is considered that the individual asset / liability headings under FRS 102 may not be used and those under CA 2006 should be. This may change following the implementation of the Accounting Directive which is expected by 1 January 2016

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Transition Limited Statement of changes in equity for the year ended 31 December 2014

© UK Training (Worldwide) Limited 5

Share Capital Share Premium

Revaluation Reserve

Retained earnings

Total

Balance at 1 January 2013 as previously reported

Prior period adjustment – change in accounting policy

Prior period adjustment –

correction of material error

As restated

Share issue during the year Profit for the year Other comprehensive income

for the year

Transfers Dividends

Balance at 31 December 2013 Prior period adjustment –

change in accounting policy

Prior period adjustment – correction of material error

As restated

Share issue during the year Profit for the year Other comprehensive income

for the year

Transfers Dividends

Balance at 31 December 2014

Included in retained earnings is £x (2013 £X) of profits which are not available for distribution as they are unrealised

Section 6

The Statement of changes in equity (SOCE) is introduced by FRS 102 and replaces the reconciliation of the movement in shareholders’ funds required by FRS 3. Unlike that reconciliation which could be included within

the notes the SOCE is a primary statement.

Under FRS 3 prior period adjustments would have been

shown at the foot of the STRGL, as well as in the

reconciliation of shareholders’ funds

FRS 102 does not give a format for the SOCE. It would be acceptable to show a single figure for net comprehensive income

Comparative figures are required and the convention under IFRS where there is a columnar presentation such as the SOCE to present the

information in tabular form as illustrated here.

FRS 102 6.4 permits the inclusion of a single statement of income and retained earnings where the only changes in equity are profit or loss, payment of dividends, corrections of prior period material errors and changes in accounting

policy. Where any of the highlighted items appear a statement of income and retained earnings is not permitted.

Under FRS 102, revaluation of investment property and listed investments will appear in

profit for the year and hence on retained earnings.

An entity is permitted to transfer to revaluation reserve (using Statement of changes in equity) to emphasise that such gains are not realised.

Alternatively a note could be included to explain (see foot of table.)

FRS 102 Section 22 requires the issue of shares to be recognised at fair value of the cash or other resources received or receivable, net of direct costs of issue less any related income tax benefit.

FRS 19 had no concept of tax being recognised in equity.

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Transition Limited Statement of cash flows Cash flow statement for the year ended 31 December 2014

© UK Training (Worldwide) Limited 6

Note 2014

£

2013

£ Reconciliation of operating profit to net cash inflow from operating activities

Operating profit Depreciation charges Increase in stocks

Increase in debtors Increase in creditors

Net cash inflow from operating activities

CASH FLOW STATEMENT

Net cash inflow from operating activities Returns on investments and servicing of finance

30

Taxation

Capital expenditure 30

Equity dividends paid

Net cash inflow before use of l iquid resources and financing

Management of l iquid resources 30

Financing 30

Increase in cash

Reconciliation of net cash flow to movement in net debt 2014 2013

Increase in cash in the period Cash repaying debenture Cash paid to increase liquid resources

Change in net debt Net debt at 20

Net debt at 20

Section 7

FRS 1 requires a reconciliation of net cash flow to movement in net debt. This may be given, as here adjacent to the cash flow statement or in the notes.

FRS 102 does not require a reconciliation of cash to net debt. Indeed net debt is not considered in FRS 102. However in Staff Education Note 1 it was noted that a project undertaken by the Financial Reporting Lab of the FRC found that a majority of

investors use a net debt reconciliation or reconciliation of net cash flows to net debt when one is presented. The Lab encouraged companies to consider how this might be relevant to their own circumstances and fi so enhance their reporting to meet investor

needs.

The easiest way to show the revisions to the cash flow statement is to produce a separate statement under FRS 1 on this page and one under FRS 102 on the adjacent page.

Note also that the notes to the Cashflow statement required by FRS 1 and included here

at notes 34 and 35 are not required by FRS 102.

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Transition Limited Statement of cash flows Cash flow statement for the year ended 31 December 2014

© UK Training (Worldwide) Limited 7

Cash flows from operating activities

Profit for the financial year

Adjustments for: Depreciation of property plant and equipment Amortisation of intangible assets Profit on disposal of property, plant and equipment

Interest paid Taxation Decrease (increase) in trade and other receivables

Decrease (increase) in inventories Increase (decrease) in trade payables

Cash from operations Interest paid Income taxes paid

Net cash generated from operating activities

Cash flows from investing activities Proceeds from sale of equipment Purchases of property, plant and equipment

Purchase of intangible assets Interest received

Net cash from investing activities Cash flows from financing activities

Issue of ordinary share capital Repayment of borrowings Dividends paid

Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year

Cash and cash equivalents at the end of the year

Components of cash and cash equivalents Cash

Overdraft Cash equivalents

This example cash flow statements is based on the illustrative example in Staff Education Note 1 using the indirect method. Note it starts with profit for the year which is defined as “the

total of the income less expenses, excluding the components of other comprehensive income” and not operating profit. Hence

there are more adjustments than under FRS 1.

Note the treatment of the three highlighted items interest paid, interest received and taxation.

(a) FRS 102 gives a choice for interest paid or received to be included in cash from operations or in financing and investing respectively. In this example we have

include interest paid in operations and interest received in investing.

(b) Taxation has to be allocated to the relevant headings, although FRS 102 indicates that it will primarily be

related to operations. (c) The illustration assumes that the profit and loss

charge and cash payments are the same and therefore no adjustment is required for non-cash movements

(d) The illustration differentiates between cash from operations and +net cash generated from operating

activities for comparison with FRS 1.

This is the only note to the cash flow statement required by FRS 102 Section 7 and could appear elsewhere. If cash is held by the entity but is not available for use that should also be

disclosed.

Overdrafts may be included within cash and cash equivalents where repayable on demand and play an integral part of the entity’s cash

managements (FRS 102 7.2)

Cash equivalents are short term, highly liquid investments that are readily convertible into known amounts of cash and

are subject to an insignificant credit risk

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Transition Limited Notes to the financial statements for the year ended 31 December 2014

© UK Training (Worldwide) Limited 8

1 STATUTORY INFORMATION

Transition Limited is a company domiciled in England and Wales, registration number 122345577. The registered office is Hogwarts Castle, Somewhere, County, HW1 1GF.

FRS 102 3.24 requires disclosure of the legal form of the entity, its country of incorporation and the address of its registered offices (or principal place of business if different from the registered office.

FRS 102 also requires disclosure of the nature of the operations and its principal activities unless disclosed in a business review or similar document. Companies (other than small companies) are required to include such disclosure in the directors’ strategic report.

2 COMPLIANCE WITH ACCOUNTING STANDARDS The accounts have been prepared in accordance with applicable accounting standards FRS 102. There were no

material departures from those that standards. FRS 102 3.4 requires an unreserved statement of compliance with the standard in the notes. This could be incorporated within the accounting policies note, or as here as a separate note.

3 ACCOUNTING POLICIES

Basis of preparation of financial statements The principal accounting policies adopted in the preparation of the financial statements are set out below and have remained unchanged from the previous year/period, and also have been consistently applied within the same

accounts. In the year of transition, this paragraph will need to be replaced with an explanation of the transition. The highlighted

text is based on the il lustrative text in Staff Education Note 13. These financial statements for the year ended 31 December 2015 are the first financial statements that comply with FRS 102. The date of transition is 1 January 2014.

The transition to FRS 102 has resulted in a small number of changes in accounting policies to those used previously. The nature of these changes and their impact on opening equity and profit for the comparative period are explained

in notes and below. The financial statements have been prepared under the historical cost convention as modified by the revaluation of

certain fixed assets. The presentation currency is £ sterling. FRS 102 3.23 (d) requires disclosure of the presentation currency as defined in Section 30. This is defined as “The currency in which the financial statements are presented.” It can be argued that the use of the £ sign for each column,

note etc. fulfi ls that requirement, or it can be included as a separate note as here. The accounting policy notes which follow are those included under previous GAAP. On transition the policies will be under FRS 102. The annotations in red in this section illustrate areas where change may be necessary. This is not an

exhaustive list of accounting policies or potential changes but for illustration purposes only. Goodwill and intangibles

Goodwill is capitalised and has an indefinite l ife. It is not being amortised but is subject to annual impairment review. To date no goodwill has been written off.

FRS 102 requires initial recognition at cost, and then gives an accounting polic y choice of the cost model or the revaluation model.

This wording is not given in the Staff Education Note but appears sensible

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Transition Limited Notes to the financial statements for the year ended 31 December 2014

© UK Training (Worldwide) Limited 9

FRS 102 requires goodwill to have a finite l ife. In the absence of a readily ascertainable useful l ife, useful l ife must not exceed 5 years.

Since FRS 102 will result in the inclusion of more intangibles separate from goodwill, there may be a requirement for more detailed accounting policy notes to cover inter alia, useful l ives .

Research and development Expenditure on research and development is written off against profits in the year in which it is incurred.

SSAP 13 requires research expenditure to be written off and gives a choice in relation to the recognition of development expenditure as an intangible provided certain criteria are met. FRS 102 continues to permits such

capitalisation. IFRS for SME does not. IFRS requires it! There is a transitional exemption in 35.10 (n) permitting the use of costs recognised under SSAP 13 as its deemed cost at the date of transition. If used, this exemption should be referred to in the accounting policy.

There may be other internally generated intangibles which may be capitalised under FRS 102 18.8-10A Property, plant and equipment Tangible fixed assets - depreciation and amortisation

Depreciation has been computed to write off the cost of tangible fixed assets over their expected useful l i ves using the following rates:

Freehold land No depreciation Freehold buildings - 2% per annum of cost Leasehold property - equal instalments over the period of the lease

Plant and machinery - % per annum of cost/net book value Fixtures and fittings - % per annum of cost/net book value Motor vehicles % per annum of cost/net book value

Other than for entities taking the option to use the revaluation model, FRS 102 is not expected to change depreciation policies.

Note however that residual value is reassessed at the end of each accounting period, unlike under FRS 15. This may impact on the amount of depreciation charged. Where an entity takes advantage of the exemptions in FRS 102 35.10 to include fair value or previous revaluations as

deemed cost, this will need to be reflected in the accounting policy note. Leasing

Tangible fixed assets Property, plant and equipment acquired under finance leases or hire purchase contracts are capitalised and depreciated in the same manner as other tangible fixed assets. The related obligations, net of future finance charges, are included in creditors.

Rentals payable under operating leases are charged to the profit and loss account on a straight l ine basis over the period of the lease.

The benefits of lease incentives are recognised in profit and loss account over the shorter of the lease period and the period to the next rent review at which rent is expected to be reset to market rates.

In general, it is expected that few lease classifications under SSAP 19 will be treated differently under FRS 102, but lease agreements should be checked to confirm. The accounting treatment under FRS 102 is the same as under SSAP 19.

FRS 102 requires lease incentives to be recognised over the term of the lease.

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Transition Limited Notes to the financial statements for the year ended 31 December 2014

© UK Training (Worldwide) Limited 10

If the entity takes advantage of either of the exemptions in FRS 102 section 35, this should be recognised in the accounting policy notes. The exemptions relate to:

(a) lease incentives – the option to continue to treat incentives received on l eases entered into before the date

of transition; (b) arrangements containing a lease – the option to determine whether an arrangement contains a lease at the

date of transition, rather than at the date of commencement of the lease.

Investment property

Investment property is carried at market value fair value. Revaluation surpluses are recognised in the Statement of Total Recognised Gains and Losses income statement. Deferred taxation is not provided on these gains as there is no current intention to dispose of them at the rate expected to apply when the property is sold.

FRS 102 requires valuation at fair value, unless fair value cannot be obtained without undue cost or effort, gains to be recognised in profit and loss and deferred tax to be provided.

Where fair value cannot be achieved without undue cost or effort investment property should be accounted for as property, plant and equipment.

Where the entity takes advantage of the transitional exemptions in 35.10 (c) or (d) relating to use of fair valu e or revaluation should be included in the accounting policy note. Stocks (and work in progress) Inventories

Stocks (and work in progress) Inventories have been valued at the lower of cost and net realisable value estimated sell ing price less costs to sell . In respect of work in progress and finished goods, cost includes a relevant proportion of

overheads according to the stage of manufacture/completion. FRS 102 is unlikely to see a change in accounting policies from those adopted under SSAP 9, other than the changes in terminology.

Note that construction contract work in progress is now dealt with in FRS 102 Section 23 : Revenue rather than in the Inventories section, but again the accounting policy is unlikely to change.

Income recognition Income is recognised when goods have been delivered to customers such that risks and rewards of ownership have

transferred to them. The general view amongst commentators is that FRS 102 is unlikely to result in changes to income recognition accounting policies, provided, of course that the entity’s policies complied with previous GAAP e.g. FRS 5 and UITF 40

(see for example Staff Education Note 7.) One area which may give rise to change is the explicit requirement in FRS 102 23.5 that where payment is deferred under a financing transaction the fair value of the consideration is measured at the fair value of all future receipts

determined using an imputed rate of interest, although even here FRS 5.38 requires that where the time effect of money is material the amount of the revenue recognised in the period should be the present value of the cash inflows expected to be received. In other words such revenues should have been discounted under FRS 5.

Deferred taxation Deferred taxation is provided on the liability method to take account of timing differences between the treatment of

certain items for accounts purposes and their treatment for tax purposes.

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Transition Limited Notes to the financial statements for the year ended 31 December 2014

© UK Training (Worldwide) Limited 11

Tax deferred or accelerated is accounted for in respect of all material timing differences except on the revaluation of freehold property and investment property unless, by the balance sheet date, the reporting entity has:

(a) entered into a binding agreement to sell the revalued assets; and (b) recognised the gains and losses expected to arise on sale.

FRS 102 removes the current exemptions in FRS 19 Deferred tax assets and liabilities are discounted to reflect the time value of money.

FRS 102 prohibits discounting of deferred tax. Foreign exchange

Transactions denominated in foreign currencies are translated into sterling and recorded at the rate of exchange ruling at the date of the transaction.

Balances at the year-end denominated in a foreign currency are translated into sterling at the rate of exchange ruling at the balance sheet date. FRS 102 allows the use of a presentation currency as well as a functional currency. The functional currency, which is

“The currency of the primary economic environment in which the entity operates ”. It is expected that few entities will choose a different currency than the functional currency, but if an entity does so,

then the accounting policy will need to be adapted. One area where the current accounting policy may need to change under FRS 102 is that SSAP 20 allowed an entity to translate purchases in foreign currencies at the rate of exchange specified in a matching forward contract. This is not

permitted by FRS 102 which requires purchases to be translated using the spot exchange rate on the date of the transaction. There is an example in Staff Education Note 13 il lustrating this and the related treatment of the derivative financial instrument.

Pension costs The company operates a defined contribution scheme for the benefit of its employees. Contributions payable are

recognised in profit and loss account when due. FRS 102 potentially changes the treatment of defined benefit schemes which are multi -employer or group schemes, and where such changes apply, this should be reflected in the accounting policies.

Financial instruments

It is quite possible that an entity does not already have an accounting policy for financial instruments. Even if it does it is probable that it will need to be amended to reflect the changes required by FRS 102 Sections 11 and 12. Staff Education Notes 2 and 13 give i l lustrations of the practic al implications on transition.

4 TURNOVER The company’s turnover represents the value, excluding value added tax, of goods and services supplied to customers

during the year/period. The analysis of turnover by activity and geographical area is as follows:

The segmental reporting requirements of SSAP 25 have been dropped. Where an entity is required to give segmental reporting information, for example under the AIM rules, FRS 102 cross refers to IFRS 8 which should be followed.

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Transition Limited Notes to the financial statements for the year ended 31 December 2014

© UK Training (Worldwide) Limited 12

5 OPERATING PROFIT (LOSS) BEFORE TAX

2014 £

2013 £

Operating Profit before tax is stated after charging:

Directors' remuneration Pensions of directors and past directors (see note 29)

Compensation to directors or past directors in respect of loss of office

Auditors' remuneration

Depreciation and amortisation of owned assets Depreciation of assets held under finance leases and hire purchase. Contracts

Loss on sale of tangible fixed assets

Research and development Operating leases - plant and machinery Operating leases - other assets Net gains / losses on foreign currency translations

Exceptional items:- [List] Other l ine items considered relevant

and after crediting:

Profit on sale of tangible fixed assets

6 AUDITORS’ REMUNERATION

The disclosures are required under CA 2006 and are not repeated here as they are not impacted by FRS 102.

7 DIRECTORS' REMUNERATION

The disclosures are required under CA 2006 and are not repeated here as they are not impacted by FRS 102.

8 STAFF COSTS

The disclosures are required under CA 2006 and are not repeated here as they are not impacted by FRS 102. 9 INTEREST PAYABLE AND SIMILAR CHARGES

2014 £

2013 £

Interest payable - bank loans and overdrafts - all other loans Finance charges payable - finance leases and hire purchase

contracts Lease payments recognised as an expense

Since FRS 102 does not require the disclosure of operating profit, the disclosures in this section which are primarily required by the Companies Act will probably

be cross referred to profit before tax.

FRS 102 requires disclosure of aggregate key management remuneration, in addition to any disclosure of directors’ or similar remuneration required by CA 2006. Where the only members of key management are the

directors a statement to that effect will suffice. Where there are no directors’ emoluments or similar disclosures, this information will probably be given in the related parties note.

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Transition Limited Notes to the financial statements for the year ended 31 December 2014

© UK Training (Worldwide) Limited 13

10 TAX ON PROFIT (LOSS) ON ORDINARY ACTIVITIES

(a) Analysis of charge in period

2014 £

2013 £

Current tax:

UK Corporation tax on profits of the period

Adjustments in respect of previous periods

Foreign tax

Total current tax (note (10)(b))

Deferred tax:

Origination and reversal of timing differences

Effect of increased tax rate on opening liability Increase in discount

Total deferred tax (note 18)

Tax expense (income) arising from a change in accounting policies (see FRS 102 29.26 (f))

Tax on profit on ordinary activities

The effect of the exceptional item at note 3 is as follows:

(b) Factors affecting tax charge for period

The detailed disclosure requirements of paragraph 64 of FRS 19 relating to the circumstances affecting current and future years are not included in FRS 102. FRS 102 requires disclosure of: (a) The aggregate current and deferred tax relating to items that are recognised as items of other

comprehensive income;

(b) The reconciliation between: i. The tax expense (income) included in profit or loss; and

ii. The profit or loss on ordinary activities before tax multiplied by the applicable tax rate;

(c) The amount of the net reversal of deferred tax assets and deferred tax l iabilities expected to occur during the period beginning after the reporting period together with a brief explanation for the expected reversal;

(d) An explanation of the changes in the applicable tax rates compared with the previous reporting period

Discounting is not permitted by FRS 102.

FRS 102 29.10

FRS 3 includes a specific requirement for disclosure of the tax effects of exceptional items,

Since FRS 102 does not have a requirement to disclose exceptional items it cannot require disclosure of tax effects. It may however be

considered relevant to disclose the tax effects of any additional line items included because of

their significance.

Potentially the biggest presentational change in the area of taxation relates to the requirement in FRS 102 29.26 and 27 to disclose the

major components of tax expense (i.e. in profit or loss and other comprehensive income), with separate disclosure of the aggregate

current and deferred tax relating to items that are recognised in other comprehensive income or equity.

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(e) The amount of deferred tax l iabilities and deferred tax assets at the end of the reporting period for each type of timing difference and the amount of unused tax credits; and

(f) The expiry date, if any, of timing differences , unused tax losses and unused tax credits. The tax assessed for the period is lower than the standard rate of corporation tax in the UK (%). The

differences are explained below:

2014 £

2013 £

Profit on ordinary activities before tax

Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of % (20 : %)

Effects of: Expenses not deductible for tax purposes (primarily goodwill amortisation)

Capital allowances for period in excess of depreciation

Util isation of tax losses Rollover relief on profit on disposal of property

Higher tax rates on overseas earnings

Adjustments to tax charge in respect of previous periods

Current Ttax charge for period (note 10 (a))

(c) Factors that may affect future tax charges

The reconciliation of the tax charge under FRS 19 is the current tax charge, under FRS 102 it is the total tax charge included in profit and loss i.e. it excludes tax in

other comprehensive income and equity.

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11 INTANGIBLE FIXED ASSETS

Patents

£ Goodwill

£ Total

£

£ Cost:

At 1 January 2014

Additions Disposals

At 31 December 2014

Amortisation:

At 1 January 2014 Charge for the year Impairment

Eliminated on disposals

At 31 December 2014

Net book value:

At 31 December 2014

At 31 December 2013

FRS 102 requires disclosure of the description, carrying amount and remaining amortisation period of any individual intangible asset that is material to the entity’s financial statements. Under Section 27, an impairment review is only required when there is an indicator of impairment. Under FRS 10 and

11 an impairment review was required where the life of an intangible asset was > 20 years, and in the first year after a business combination. The treatment under section 27 is the same as under FRS 11 i.e. compare the carrying amount with the recoverable amount, which is defined as the higher of value in use and fair value less costs to sell.

There are additional disclosure requirements where intangible assets are accounted for under the revaluation

method. These disclosures are:

(a) Date; (b) Whether an independent valuer was involved;

(c) The methods and significant assumptions ; and (d) For each revalued class of intangible assets, the carrying amount that would have been recognised had the

asset been included under the cost model.

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12 TANGIBLE FIXED ASSETS PROPERTY PLANT AND EQUIPMENT

Land and bui ldings

£

Plant and machinery

£

Fixtures and

fi ttings £

Motor

vehicles £

Tota l £

Cost (* or va luation):

At 1 January 2014

Additions

Disposals

At 31 December 2014

Depreciation:

At 1 January 2014

Charge for the year Impairment

El iminated on disposals

At 31 December 2014

Net book va lue:

At 31 December 2014

At 31 December 2013

£

The net book value of land

and buildings at 31 December 2014 comprised:

Freehold

Long leasehold

Short leasehold

The cost of depreciable assets included in land and buildings at 31 December 2014 was £

Included in the total net book value of tangible fixed assets held at 31 December 2014 was £ in respect of assets held under finance leases and hire purchase contracts.

FRS 102 gives an accounting policy choice of the cost or revaluation model. What is capitalised, and depreciation policies and useful l ives are unlikely to be significantly different from those under FRS 15.

Where the revaluation model is used, the only requirement is to keep the valuations sufficiently up to date such that the carrying value is not material ly different from fair value. There is no requirement for independent or qualified

valuers. Section 17 is perceived to be less onerous than FRS 15 which required a full valuation every 5 years and an interim valuation at the end of year.

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Residual value is assessed at the end of each reporting period. Under FRS 15 this was initially assessed and not revised.

Under Section 27, an impairment review is only required when there is an indicator of impairment. Under FR S 11 an impairment review was required where no depreciation was charged on the grounds that it would be immaterial or

where the life of a tangible asset was > 50 years. The treatment under section 27 is the same as under FRS 11 i.e. compare the carrying amount with the recoverable amount, which is defined as the higher of value in use and fair value less costs to sell.

The disclosures under FRS 102 are similar to those under FRS 15 including the disclosure of the carrying value under the cost basis where the revaluation model is used.

FRS 102 also includes disclosure requirements for the following, which are already required for companies under CA 2006:

(a) The existence and carrying amounts of property, plant and equipment to which the entity has restricted ti tle or that is pledged as security for l iabilities; and

(b) The amount of contractual commitments for the acquisition of property, plant and equipment. 13 INVESTMENT PROPERTY

Total

£ Market Fair value at 1 January 2014

Additions Disposals

Net gains or losses from fair value adjustments

Transfers to and from property, plant and equipment Market Fair value at 31 December 2014

Investment property is not one of the format headings and could be included within tangible fixed assets or under investments or, as here, as a separate heading.

The key changes in the treatment of investment properties are covered in the accounting policy note above. There is no requirement for a qualified or independent valuer.

14 INVESTMENTS HELD AS FIXED ASSETS FINANCIAL ASSETS

Listed

£

Unlisted

£

Total

£ £ Cost or valuation at 1 January 2014

Additions Disposals

Cost or valuation at 31 December 2014

FRS 102 will change the default position for many of these investments such that they should be included at fair value i.e. listed investments and others which can be measured

reliably. Under current UK GAAP, many of these will be carried at cost less impairment.

Where this caption includes investments in subsidiaries, associates or joint venture it may be

appropriate to retain the heading investments held as fixed assets.

Transfers when fair value can no longer be measured at fair value without undue cost or

effort. Where relevant, separate lines would be

required for transfers in and out.

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At the end of the year/period the market value of l isted investments was £ (2013 - £ )

15 STOCKS (AND WORK IN PROGRESS) INVENTORIES

2014

£ 2013

£

Raw materials (and consumables) Work in progress

Finished goods (and goods for resale) Payments on account

FRS 102 requires disclosure of the amount of inventories recognised as an expense in the period (FRS 13.22).

Inventories are subject to impairment review under Section 27 on an annual basis. This is l ikely to give the same results as the current recognition of provisions for slow moving and obsolete stock. However, FRS 102 13.22 requires disclosure of impairment losses recognised or reversed during the year, which was not required by SSAP 9.

FRS 102 permits the capitalisation of borrowing costs in inventories. Under previous GAAP it was permitted only in relation to tangible fixed assets under FRS 15. If such a policy is adopted the following disclosures are required:

(a) Details of the accounting policy;

(b) The fact that the transitional exemption under 35.10 (o) has been used, where relevant. This permits the capitalisation to commence from the date of transition;

(c) The amount of borrowing costs capitalised in the period; and (d) The capitalisation rate used.

16 DEBTORS

2014

£ 2013

£

Trade debtors Amounts owed by group undertakings

Amounts owed by undertakings in which the company has a participating interest

Other debtors Prepayments and accrued income

Staff Education Note 3 gives some guidance on impairment of trade debtors. FRS 102 requires debtors to be included at amortised cost. In practice this is l ikely to produce the same results as the current provision for bad and doubtful debts. However FRS 102 is more prescriptive in requiring objective evidence of impairment.

Particular care is required when recording sales and trade debtors where sales includes a financing element.

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17 INVESTMENTS HELD AS CURRENT ASSETS FINANCIAL ASSETS

2014

£

2013

£ At cost or fair value

Listed Unlisted

The market value of the listed investments was £ .

18 CREDITORS - AMOUNTS FALLING DUE WITHIN ONE YEAR

2014 £

2013 £

Debenture loans

Bank loans and overdrafts Payments received on account

Trade creditors Bil ls of exchange payable

Amounts owed to group undertakings Amounts owed to undertakings in which the company has

a participating interest

Other creditors

Financial l iabilities Corporation tax

Other tax and social security Obligations under finance leases and hire purchase

contracts

Accruals and deferred income

The bank overdraft/loan/debenture is secured by …………………………………………………………..

The big change in the creditors will be financial l iabilities recognised under Section 11 and 12 which are not currently recognised.

FRS 102 will change the default position for many of these investments such that they should be included at fair value i.e. listed investments and others which can be measured

reliably. Under current UK GAAP, many of these will be carried at cost less impairment.

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These il lustrative financial statements do not include the detailed disclosure requirements relating to financial

instruments. 19 CREDITORS - AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR

2014 £

2013 £

Debenture loans

Bank loans and overdrafts Payments received on account Trade creditors

Bil ls of exchange payable Amounts owed to group undertakings Amounts owed to undertakings in which the company has a participating interest

Other creditors Corporation tax Financial l iabilities Other tax and social security

Obligations under finance leases and hire purchase contracts

Accruals and deferred income

20 BORROWINGS 2014

£ 2013

£

Analysis of creditors falling due after more than five years: Aggregate of non-instalment debts that fall due for

repayment after five years:

Bank loans Debentures, loan stock and other loans Finance leases and hire purchase contracts

Aggregate of instalments which fall due for payment after five years:

Bank loans

Debentures, loan stock and other loans Finance leases and hire purchase contracts

The payment terms and interest rate of each creditor for which an amount fall due after five years are as follows:

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21 PROVISIONS FOR LIABILITIES

Deferred

taxation £

Other

provisions £

Total £

Balance at 1 January 2014

Util ised during the year/period Charge for the year/period Change in discount rate

Balance at 31 December 2014

2014 £

2013 £

Deferred tax:

Accelerated capital allowances Tax losses carried forward

Undiscounted provision for deferred tax

Discount

Discounted provision for deferred tax

22 SHARE CAPITAL

Allotted called up and fully paid

2014 £

2013 £

(Number) Ordinary shares of

each

(Number) Cumulative / Non-cumulative / Redeemable / Coupon Preference

Shares* of each

On 20 shares which had an aggregate nominal value of £ were allotted for an aggregate consideration of £ .

The redeemable preference shares are redeemable on 20 at the option of the company between 20 and 20 . No premium is payable on redemption./A premium of £ per share is payable on redemption.

FRS 102 prohibits discounting of deferred tax, previously permitted under FRS 19 but requires it for other provisions under Section 22:

Provisions and contingencies

Redeemable shares should be, and other preference shares may need to be, classified as creditors. Where this is the case, this disclosure could be included in the creditors’ notes above. It is unlikely that the treatment of such shares will change under FRS 102.

The introduction of the Statement of changes in equity is likely to mean that many of these notes become redundant or are given as supplementary to, perhaps on the face of that statement, especially when there are no changes in share capital during the per iod.

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FRS 102 includes the following disclosure requirements some of which exceed the disclosure requirements of CA 2006, and impose requirements on other financial statements which may not be required currently:

For each class of share capital:

o Number of shares issues and fully paid, and issued but not fully paid; o Par value per share or that the shares have no par value; o A reconciliation of the number of shares outstanding at the beginning and end of the

period. This reconciliation need not be presented for prior periods;

o The rights, preferences and restrictions attaching to that class including restrictions on the distribution of dividends and the repayment of capital;

o Shares in the entity held by the entity or by its subsidiaries, associates or joint ventures;

o Shares reserved for issue under options and contracts for the sale of shares, including the terms and conditions

A description of each reserve within equity

An entity without share capital shall disclose equivalent information as that for shares showing

changes during the period, and the rights, preferences and restrictions attaching to each class of equity.

23 SHARE PREMIUM ACCOUNT

2014

£ 2013

£

At 20 20 On issue of shares during the year

Expenses of issue

At 20 20

24 REVALUATION RESERVE

2014 £

2013 £

At 20 20

Arising on revaluation during the year Amortisation during the year

At 20 20

25 PROFIT AND LOSS RESERVE

2014

£ 2013

£

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At 20

Profit for the financial year / period Dividends

At 20

26 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

2014

£

2013

£ Profit (loss) for the financial year Dividends

Other recognised gains and losses relating to the year (net) New share capital subscribed Goodwill written-off

Net addition to shareholders' funds

Opening shareholders' funds

Closing shareholders' funds

27 ADVANCES TO DIRECTORS

During the period a director, Mr H Potter received an interest free loan of £25,000 to enable him to carry out

his duties. The amount outstanding at the year-end was £25,000. 28 RELATED PARTY TRANSACTIONS

During the year the company made sales of £25,000 to Potter Ltd, a company controlled by H Potter a shareholder.

29 CONTROLLING PARTY

The directors consider that Mr H Potter is the controlling party.

30 POST BALANCE SHEET EVENT(S)

31 CAPITAL COMMITMENTS

20 20

The definition and treatment of adjusting and non-adjusting post balance sheet events under FRS 102 is identical to that under FRS 21.

The reconciliation of shareholders’ funds has been replaced by the Statement of changes in equity which must appear as a primary statement and not in the notes.

FRS 102 removes the requirement to disclose the name of the related party. Care should be taken where the related party is a director as disclosure of the name may be

required by Companies Act 2006.

FRS 102 includes a requirement for disclosure of the amount of contractual commitments for the acquisition of property, plant and equipment. Previously this was only a requirements

under the Companies Act.

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£ £

Contracts for capital expenditure not provided for

32 LEASING COMMITMENTS

The company had annual total commitments under non-cancellable operating leases as detailed below:

20 20 Land and

Buildings £

Other

£

Land and Buildings

£

Other

£

Operating leases which expire:

Within one year

Within two to five years

After more than five years

33 CONTINGENT LIABILITIES / ASSETS

34 PENSION COSTS The company operates a defined contribution pension scheme. The assets of the scheme are held separately

from those of the company in an independently administered fund. The pension cost charge represents contributions payable by the company to the fund and amounted to £ (20 - £ ). Contributions totall ing £ (20 - £ ) were payable to the fund at the year-end and are included in creditors.

35 GROSS CASH FLOWS

£ £

Returns on investments and servicing of finance Interest received

Interest paid

Capital expenditure Payments to acquire intangible fixed assets Payments to acquire tangible fixed assets

Receipts from sales of tangible fixed assets

Management of l iquid resources

The definitions and disclosures relating to contingent assets and liabilities under Section 22 of FRS 102 mirror those of FRS 12 and are unlikely ti change on transition.

Note the change to disclosure of total commitments (see FRS 102). This figure will therefore change more frequently (annually?) than under SSAP 21!

FRS 102 does not include the distinction between leases of land and buildings and other required by SSAP 21. A total will suffice

for each time period

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Purchase of treasury bil ls Sales of treasury bil ls

Financing

Issue of ordinary share capital Repurchase of debenture loan Expenses paid in connection with share issues

36 ANALYSIS OF CHANGES IN NET DEBT

At 1 January

2014

£

Cash flows

£

Other

changes

£

At 31

December

2014 £

Cash in hand, at bank

Overdrafts

Debt due within 1 year

Debt due after 1 year

Current asset investments

TOTAL

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EXPLANATION OF TRANSITION

As part of the explanation required by FRS 102, sections 35.12, 35.13 requires the following:

(a) A description of the nature of each change in accounting policy;

(b) Reconciliations of its equity determined in accordance with its previous financial reporting framework to its equity determined in accordance with FRS 102 for both the date of transition and the most recent statement of financial position;

(c) A reconciliation of the profit or loss determined in accordance with its previous financial reporting framework for

the latest period in the entity’s most recent financial statements to its profit or loss

FRS 102 does not give any guidance on the form of the reconciliations required in relation to the reconciliations of equity or profit or loss, or of the explanation of the effects of transition. The following il lustrations are based on those

included in Staff Education Note 13: Transition to FRS 102. Staff Education Note 13 gives 2 options for the reconciliations and both are i l lustrated here.

The il lustrations in Staff Education Note 13 include monetary amounts which are gross i.e. before taxation. No change in shown in the taxation figure in the il lustration. In practice these changes may well be taxable or tax allowable. It may therefore be appropriate to note the tax effects of the changes in the explanation of transition.

37 RECONCILIATION OF EQUITY Option 1

At 1 January 2014 At 31 December 2014 Note As

previously stated

Effect of transition

FRS 102 (as restated)

As previously stated

Effect of transition

FRS 102 (as restated)

Fixed assets

Current assets

Creditors: amounts fall ing due within one year

Net current assets

Total assets less current l iabilities

Creditors: amounts fall ing due

after more than one year

Provisions for l iabilities

Net assets

Capital and reserves

Option 2

Note 1 January

2014

31 December

2014 Capital and reserves (as previously stated) Recognition of derivative financial instruments Short term compensated absences

Capital and reserves as restated

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38 RECONCILIATION OF PROFIT AND LOSS

Option 1

Year ended 31 December 2014 Notes As

previously stated

Effect of transition

FRS 102 (as restated)

Turnover Cost of sales

Gross profit Administrative expenses

Other operating income Operating profit

Interest receivable and similar income Interest payable and similar charges

Profit before taxation Taxation

Profit on ordinary activities after taxation and for the financial year

Option 2

Note Year ended 31 December

2014 Profit for the year (as previously stated)

Recognition of derivative financial instruments Re-measurement of stock using spot exchange rate Short term compensated absences

Profit for the year as restated

39 NOTES TO RECONCILIATIONS (a) Financial instruments

Transition Ltd was not previously required to recognise derivative financial instruments on the balance sheet. Instead the effects of the derivative financial instruments were recognised in profit or loss on settlement.

Under FRS 102, derivative financial instruments are classified as other financial instruments and are recognised as a financial asset or a financial l iabil ity, at fair value, when an entity becomes party to the contractual provisions of the instrument.

On the adoption of the requirements of FRS 102, financial assets of £Y and financial l iabilities of £Y have been recognised on the balance sheet at the date of transition, 1 January 2014.

At 31 December 2014, the fair values of the financial assets and financial l iabil ities were £Y and £Y respectively. In accordance with the accounting policy in 1 above the difference between the fair values of £Y-£X has been

recognised in profit and loss for the year.

(b) Short-term compensated absences

Prior to the adoption of FRS 102, Transition Ltd did not make provision for holiday pay earned but not taken before the year end. FRS 102 requires the cost of short-term compensated absences to be recognised when employees render the service that increases their entitlement.

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Consequently an additional accrual of £A at 1 January 2014 has been made to reflect this. The provision at 31 December 2014 had increased to £B and the increase in provision of £B- £A has been charged to profit and loss in the year ended 31 December 2014.

(c) Lease incentives

Prior to the adoption of FRS 102, Transition Ltd had recognised the benefit of lease incentives over the

shorter of the life of the lease of the period to the date of the next rent review at which rent is expected to be reset to a market rate.

FRS 102 requires such incentives to be recognised over the life of the lease but includes an exemption which allows an entity to continue with that policy for leases entered into before the date of transition. Transition Ltd has taken advantage of the exemption and accordingly there is no adjustment to the balance sheet at 1 January 2014.

Lease incentives obtained in 2014 have been restated in accordance with FRS 102 resulting in an increase in lease expenses charged and a reduction in deferred income of £M.

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www.uktraining.info

UK Training (Worldwide) Limited Registration Number 02695623 England and Wales

Registered Office 17 Duke Street, Formby L37 4AN

Telephone: 01704 878988 Facsimile: 01704 832124

e-mail:[email protected]


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