4 (50 marks) InterStar Ltd adopts perpetual inventory system and has a fiscal year end of 31 December. The unadjusted trial balance of the company at 31 December 2020 is detailed below: Account Title Freehold land (at revalued amount) Equipment (at cost) Accumulated depreciation - Equipment Inventories Prepaid rent Accounts receivable Allowance for bad debts Cash at bank Loan payable Dr $960,000 Cr 120,000 $30,000 107,600 7,200 181,000 4,900 63,400 150,000 Accounts payable 222,500 Ordinary share capital, no par value 100,000 Revaluation reserve - Freehold land 63,000 Dividends Interim (paid in August 2020) 15,000 Retained profits (at 1 January 2020) 474,580 Sales 1,479,820 Sales returns 12,020 Cost of goods sold Administrative expense Salary expense Selling expense Rent expense Utilities expense Other expense 654,100 52,880 174,000 91,000 18,000 21,200 47,400 $2.524.800 $2,524,800 Additional information: 1. The company adopts the revaluation model for its freehold land. The revaluation reserve balance associated with the freehold land was at 1 January 2020. Entries for the current year revaluation exercise have not been recorded yet. The fair value of the land as of 31 December 2020 was $800,000. 2. The company uses the cost model for its equipment. The equipment was acquired on 1 January 2017 for $120,000 with an estimated residual value of $20,000 and a useful life of 10 years. At the beginning of 2020, the company changed its estimates of residual value to $41,000 due to sustained increase in market demand for the equipment. The company has not recorded depreciation for the equipment in 2020. 3. The company received a notice from its supplier that a batch of goods worth $3,000 has been shipped to it on 29 December 2020, with term FOB shipping point. The company ordered the goods on credit, but did not receive the shipment as of 31 December 2020 and did not record this transaction in its accounting system. 4. On 1 September 2020, the company paid $7,200 for office rent covering the period 1 September 2020 to 28 February 2021 at $1,200 per month. The company has recorded the total payment in the "Prepaid rent" account. 5. The "Allowance for bad debts" account at 31 December 2020 should be $6,500. 6. The "Loan payable" account is related to a loan that the company borrowed from the bank on 1 July 2020 with 10% interest rate payable annually. The principal is due on 30 June 2023. 7. The estimated tax to be provided for the year was $20,000. 8. Included in "Ordinary share capital, no par value" are ordinary shares issued by the company with a total amount of cash of $40,000 received during the year. The company has made all relevant entries for the issuing of the new shares. 9. The following expenses should be classified according to the categories as shown below where applicable: Category Administrative expenses Selling and distribution expenses Other expenses Cost of goods sold Required: Expenses 30% of salary expense, 30% of rent expense, utilities expense, depreciation expense 70% of salary expense, selling expense, 70% of rent expense, bad debt expense Loss on revaluation, if any Cost of goods sold a. Provide all journal entries necessary for the preparation of the 2020 financial statements for InterStar Ltd. Narratives are not required. (15 marks) b. Prepare the following financial statements for the year ended 31 December 2020 for InterStar Ltd in accordance with HKAS 1 (Revised) Presentation of Financial Statements: i. ii. Statement of Changes in Equity (columnar format). iii. Statement of profit or loss and other comprehensive income (using a single-statement approach where expenses are classified by function). (13 marks) (5 marks) Statement of Financial Position (using the Net Assets = Equity, i.e., A-L-E "classified" format). (17 marks)