CAPSTONE

The company CAPSTONE was founded a few years back and has developed well so far.
CAPSTONEs balance sheet per 31 December year 3 is shown below. All amounts are in
thousand Euros unless explicitly stated otherwise.

Capitalized development costs

Inventories
Accounts receivable
Current tax receivable
Cash and cash equivalents
Total Assets

31 DEC Y3
230
180
135
4
115
664

Shareholders equity
Deferred tax liability
Pension obligation
Accounts payable
Total Equity & Liabilities

31 DEC Y3
335
69
100
160
664

Your task is to prepare an income statement for year 4, and a balance sheet per 31 December
year 4, based on the information below.
Information about year 4
1. The company spent 200 on Research and Development (R&D) in year 1, 300 in year 2
and 420 in year 3. Twenty-five per cent of the R&D spending has been capitalized
each year (product development). In the beginning of year 4, there will be a launch of
the developed product, which is expected to generate revenue over five years. At the
same time a new product development project commences with 260 in spending
whereof 25% is capitalized.
2. The company delivered products for 1,800 during year 4 (total revenue). Customers
are invoiced directly after delivery and the payment terms correspond to one month,
on average. No invoices are past due.
3. The company made the following purchases during year 4:
January 31: 100 units for 4.1 thousand each
May 15: 150 units for 3.5 thousand each
November 15: 50 units for 3.9 thousand each
The company pays its suppliers two months after delivery. At the end of year 4, the
net realizable value is 3.95 thousand per unit. The company applies FIFO and has 70
units left at the end of year 4.
4. Only the sales and administrative employees in CAPSTONE are eligible for pension
benefits. The selling and administrative expenses amount to 270 before including the
pension costs. The company applies IAS 19R and has paid 40 in pension premium fees

to insurance companies during the year and 15 in pensions to retired employees at the
end of year 4. The current service cost for year 4 was 20 and the discount rate used
was 5%. On December 31, year 4, a change in operative assumptions increased the
value of the obligation by 10. Other comprehensive income is reported net of tax.
5. The tax rate is 30%. Taxes paid amount to 40. There are no differences between
carrying amounts and tax bases except for R&D, where the tax authorities accept
immediate expensing of all R&D spending. Accordingly, CAPSTONE has expensed
all R&D spending for tax purposes.
6. No owner transactions (dividends, new issues, etc.) occur during the year.

Tasks
Prepare an income statement for year 4, and a balance sheet per 31 December year 4,
based on the information provided. Your income statement should include Revenues, Cost
of Goods Sold, Selling and Administrative Expenses, R&D Expenses, Financial Expenses
and other items that are relevant given the information provided above. Provide answers
on separate sheets.