ABC Ltd is an IT company. Until the current year it operated solely as a service company providing programming and testing services for its clients. In March 2021 ABC Ltd expanded its operations by manufacturing high-spec laptops, buying in components from other UK companies.

Richard, the finance director, who is a CPA, has produced a trial balance for the year ended 30 June 2021. However, the managing director has some concerns about these balances as he knows that Richard is due to retire shortly and plans to sell his shares in the company. The managing director is concerned that Richard's treatment of certain matters has been influenced by Richard's desire to make the company's financial statements appear more attractive, so that he may get a better price for his shares.

The managing director has asked Clara, another CPA holder, to draft these financial statements. Clara has had an initial meeting with Richard, who has hinted that if she makes as few adjustments to the financial statement amounts as possible, he will recommend her as his replacement.

The list of balances, as prepared by Richard, is set out below.

£
Property, plant and equipment (Notes 1 and 2)	567,800
Inventories	278,500
Trade and other receivables (Note 3)	105,200
Cash and cash equivalents	15,800
Ordinary share capital (£1 shares)	200,000
Preference share capital (Note 4)	100,000
Share premium	75,000
Retained earnings	379,000
Trade and other payables	82,200
Revenue	2,876,500
Cost of sales	1,980,900
Administrative expenses	579,200
Other operating costs	185,300

The following matters have been identified by the managing director for Clara's consideration:

(1) On 1 July 2020 ABC Ltd received a government grant of £10,000 to help finance the acquisition of a machine, purchased on the same date for £25,000. The machine has been depreciated on a reducing balance basis using a rate of 20% pa. Richard has credited the £10,000 grant received to revenue. Clara has discussed this matter with the managing director and they have agreed that ABC Ltd's accounting policy for government grants will be to use the deferred income method. Depreciation on plant and machinery is presented in cost of sales.

(2) On 30 June 2021, the directors decided to sell a machine which had cost ABC Ltd £20,000. Richard did not make any adjustment to reflect this decision on the grounds that the machine had not been sold during the year. Accumulated depreciation on this machine at 30 June 2021 is £8,500. The machine is expected to sell for £8,000 with selling costs of £450 and the directors are confident that a buyer will be found by the end of December 2021.

(3) In August 2021, when the trial balance was extracted, Richard became aware that one of ABC Ltd's customers, Fastolfe Ltd, had gone into liquidation. ABC Ltd's trade receivables at 30 June 2021 include £55,700 due from Fastolfe Ltd. Correspondence from the liquidator indicates that this debt will not be paid. Richard has not made any loss allowance for this expected credit losses on receivables as Fastolfe Ltd's financial difficulties had not been known at the year end. ABC Ltd's managing director also believes that an allowance of 2% should be made against all other trade receivables. ABC Ltd presents any expenses in relation to irrecoverable debts or movements on allowances in other operating costs.

(4) On 1 January 2021 ABC Ltd issued 200,000 irredeemable preference shares at par, included in equity above. These shares have a nominal value of 50p each and carry a coupon rate of 5% pa. The payment of the dividend is mandatory and if it is unpaid at the end of a period it becomes cumulative the following period. The dividend due was paid on 30 June 2021 and will be shown in the statement of changes in equity for the year ended 30 June 2021.

(5) Richard has correctly calculated the income tax liability for the year ended 30 June 2021 at £26,000. However, included in the revenue is an amount of £3,175, which was the amount of the income tax liability at 30 June 2020 which did not ultimately need to be paid.

(6) A provision needs to be included in other operating costs, for dismantling one of ABC Ltd's retail units and returning the site to its original condition. The requirement to do this was a condition put in place by the local government authority when the unit was constructed. The unit was completed on 30 June 2021 and will need to be removed in 10 years' time. The cost in 10 years' time of dismantling the unit is estimated at £25,000.

(7) On 30 June 2021 a full physical inventory count was carried out. Richard's notes show the following:

Inventories at 30 June 2021

Raw materials:

Components A & B = 3,000 components in total: cost £5 per component.

Component C = 1,000 components: cost £1 per component, but no longer used by us – resale value 50p per component.

Finished goods:

30 June 2021 = 200 units.

1,900 units were made during the year (normal capacity is 2,000). Cost to produce: materials £129,380, direct labour £121,000, variable overheads £73,000, fixed overheads £52,500. No adjustment is required to these figures.

(8) On 15 June 2021 ABC Ltd took delivery of a large order of stationery supplies. The purchase invoice amounted to £5,300, but was not received until July 2021. Richard has not made any adjustment for this invoice.

ABC Ltd uses a discount rate of 7% pa where necessary to reflect the time value of money in the preparation of the financial statements.

Required

1) prepare the relevant adjustments through the format of double entry for the above notes.

2) Prepare a statement of profit or loss for ABC Ltd for the year ended 30 June 2021 and a statement of financial position as at that date, in a form suitable for publication.