1 (65 marks) The trial balance extracted from the books of Kenny Limited as at 31 October 2020 was as follows: Dr Cr $ $ Property, at cost 800,000 Office equipment, at cost 320,000 Accumulated depreciation at 1 November 2019: Property 110,000 Office equipment 52,000 Cash at bank 492,288 Inventory at 1 November 2019 565,056 Accounts receivable 281,710 Accounts payable 489,120 Purchases 1,789,970 Transportation-in 36,000 Sales 2,520,454 Administrative expenses 320,180 Selling expenses 228,844 6% Bank loan, repayable in 2022 320,000 Bank loan interest expenses 17,600 Ordinary share capital 1,200,000 (500,000 shares in issue and fully paid) General reserves Retained profits at 1 November 2019 18,000 142,074 4,851,648 4,851,648 The following additional information is available: (i) Inventory as at 31 October 2020 was valued at $539,308 after physical count of inventory. (ii) The bank statement for October 2020 showed that a bank loan interest of $1,600 was deducted but no entries had been recorded in the book. (iii) It was discovered that a payment of $72,600 for purchase of office equipment on 1 May 2020 had been incorrectly treated as purchase of inventory. The cash paid was correctly recorded in the cash at bank account. No adjustment had been made. There were no other additions or disposal of non-current assets during the period. (iv) Depreciation is to be provided for the year as follows: Property: 4% per annum on cost. Office equipment: straight line method with useful life of 10 years and no residual value. Depreciation is provided on a monthly basis. (v) The company declared a bonus issue of one bonus share for every five existing shares held at $1 each out of retained earnings on 31 October 2020. These shares were not entitled to any dividends for the year of 2020. No entry had been made in the book. The directors resolved to capitalize $100,000 retained profits on bonus share issues. (vi) The following year-end adjustments are to be made: $ Prepaid selling expenses 16,000 Accrued administrative expenses 26,800 (vii) Profits tax rate was 15%. (viii) The directors made the following appropriations for the year ended 31 October 2020: Transfer to general reserves Declared final dividends at $0.15 per share $ 15,000 Required: a. Prepare a statement of profit or loss for the year ended 31 October 2020 (Notes to the accounts are not required). (25 marks) b. Prepare a statement of financial position (or balance sheet) as at 31 October 2020 (Notes to the accounts are not required). (25 marks) C. Investment in ordinary shares is always better than investment in preference shares of the company. Explain whether you agree or disagree with this argument. (Answer this question in your own words). (15 marks)