The following trial balance was extracted from the books of Marric Ltd. as at 31.05.03

The following information has not been accounted for:
1. Closing inventory as at 31.05.03 is £497,000
2. Depreciation is to be charged at 2% straight line on buildings, 10% straight line on equipment and 25% reducing balance vehicles. Assets are used at 50% cost of sales, 25% distribution and 25% administration except for vehicles that are solely used for distribution.
3. Land is to be revalued to £1,000,000
4. Taxation for the year is estimated at £47,000

5. Preference dividends are to be paid in full
6. Debenture interest has not yet been paid
7. Dividends of 4p per ordinary share are declared
8. A provision for bad debts of 6% is to be allowed for
9. During the year, a further issue of 50p ordinary shares had been made at a premium of £1.20. The proceeds of the issue were debited to the bank account and credited to a share issue account. These new shares did not rank for dividend.

Required:
(a) Prepare the income statement and the statement of financial position as at 31.05.03 in a form suitable for publication for Marric Ltd.
(b) Explain the difference between the ordinary shares and the preference shares and why a share premium account needs to be created.

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Credit Debit £000s £000s Sales 2,347 Inventory 1.06.02 542 Purchases 1,932 750 Land at cost Buildings at cost 3,500 Equipment at cost 530 Vehicles at cost 42 Depreciation as at 1.06.02: Buildings Equipment 415 83 Vehicles 11 Share issue 340 Trade receivables and trade payables 230 235 22 Bank £0.50 ordinary shares £1.6% preference shares 550 300 5.5% debentures 250 Share premium Retained profits 1.06.02 420 2,710 Cash Distribution expenses 87 Administration expenses 21 7,661 7,661 LO