1.You have been requested to prepare the first set of financial statements for Abertawe Ltd which was established on 1 January 2019 with an introduction of capital totalling 1,000,000.

Abertawe Ltd specialise in the purchase and redistribution of luxury chocolate, operating in South Wales and procuring much of it's chocolate supplies from Peru. On 1 January 2019, the company purchased a warehouse at a cost of 400,000. Also, on 1 January 2019, 40,000kg of chocolate was purchased at a cost of 12 per kg. Subsequently, 25,000kg of this chocolate was sold to a leading supermarket on the 31 December 2019 at a sales price of 26 per kg.

At the year-end inventory valuation and due to a recent poor harvest in Peru, the cost price per kg of the inventory held at year-end had risen to 17.

Towards the end of 2019, the Welsh Government reduced the rateable value of the warehouse in South Wales, increasing its commercial value by 10% during the year.

On 31 December 2019, the following expenses were settled: delivery costs 74,000 and salaries and wages 220,000.

Other information:

During the year, the general price index increased from 104 on 1 January 2019 to 108 on 1 March 2019 and closed at 115 on 31 December 2019. Abertawe Ltd depreciates property, plant and equipment over 25 years on a straight-line basis with an expected nil residual value.

Note all transactions were settled in cash on the day they arose.

Requirement:

a) Using the accounting conventions listed below, prepare an income statement for the period ending 31 December 2019 and statement of financial position as at 31 December 2019 for Abertawe Ltd. Accounting conventions to be used:

(i) Historical cost accounting (HCA);

(ii) Current cost accounting (CCA); and

(iii)Current purchasing power accounting (CPP).

(13 marks)

b) Critically compare the capital maintenance concepts applied above. An illustration or diagram should be used as part of your answer to illustrate any variation in profit and capital employed. [Word Limit: 360 approximately]