HK Ltd has prepared its draft trial balance to 30 June 20X1, which is shown opposite.

The authorised share capital is 4,000,000 9% preference shares of $1 each and 18,000,000 ordinar y shares of 50c each.

The following information is available:

1 The depreciation policy of the company is to provide depreciation at the following rates:

Plant and machiner y 20% on cost Fixtures and fittings 10% on cost Buildings 2% on cost In addition, it has been decided to create a reser ve of 10% on the cost of plant and machiner y to allow for the increased cost of replacement. (Depreciation for 20X1 has not been provided in the draft trial balance.) Charge all depreciation to cost of sales.

2 Acquisitions of proper ty, plant and equipment during the year were:

Plant $173,000 Fixtures $144,000 3 Government grants of $85,000 have been received in respect of plant purchased during the year and are shown in the trial balance.

4 During the year freehold land which cost $720,000 was sold for $2,036,000. It was valued in last year’s balance sheet at $1,500,000. The revaluation surplus had been credited to revaluation reser ve.

5 Inventory shown in the trial balance ($11,794,000) consists of:

Raw materials $1,872,000 Work-in-progress $6,660,000 Finished goods $3,262,000 6 Trade receivables and payables are all payable and due within the next financial year. The loan is unsecured and repayable in ten years’ time.

7 During the year a fire took place at one of the company’s depots, involving losses of $200,000.
These losses have been written off to cost of sales shown in the trial balance. Since the end of the financial year a settlement of $150,000 has been agreed with the company’s insurers.
8 It is agreed that $500,000 of the finished goods inventor y is obsolete and should be written off.
However, since the end of the financial year an offer has been received from another company to buy this inventor y for $300,000, subject to cer tain modifications being made at an estimated cost to HK Ltd of $50,000. This has now been agreed.
9 A contract has been entered into, with a building contractor, to extend the company’s premises.
The contract price is $5,000,000 and the work is scheduled to star t in December 20X1.
10 A final ordinar y dividend of 3c per share is declared and was an obligation before the year-end, together with the balance of the preference dividend. Neither dividend was paid at the year-end.
11 The income tax charge in the income statement is to be that based on the net profit for the year, at a rate of 35%.

12 The goodwill has not been impaired.
13 The loan was raised during the year and there is no outstanding interest accrued at the year-end.
Required:

(a) Prepare the company’s income statement for the year to 30 June 20X1 and a balance sheet as at that date, complying with the relevant accounting standards in so far as the information given permits.
(All calculations to nearest $000.)

(b) Prepare the property, plant and equipment schedule for the notes to the accounts.

(c) Explain the usefulness of the schedule prepared in (b).

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Trial balance at 30 June 20X1 $000 $000 Freehold land 2,880 Freehold buildings (cost $4,680) 4,126 Plant and machinery (cost $3,096) 1,858 Fixtures and fittings (cost $864) Goodwill 691 480 Trade receivables 7,263 Trade payables Inventory 2,591 11,794 Bank balance 11,561 Income tax on loan interest 151 Development grant received 85 Profit on sale of freehold land 536 Sales 381,600 Cost of sales 318,979 Administration expenses 9,000 Distribution costs 35,100 Directors' emoluments 562 Bad debts 157 Auditors' remuneration 112 Hire of plant and machinery 2,400 Loan interest paid net Dividends paid during the year - preference 9% loan Share capital - preference shares (treated as equity) - ordinary shares 454 162 - ordinary 426 7,200 3,600 5,400 Retained earnings Revaluation account 6,364 780 408,156 408,156