Below is the trial balance for Nexxus Ltd, a pharmaceuticals development company

Bank 78,400,000 Premises 620,000,000 Machinery 102,000,000 Fixtures and fittings 24,600,000 Motor vehicles 55,000,000 Equipment 97,500,000 Accumulated depreciation: Premises 120,000,000 Accumulated depreciation: Machinery 15,000,000 Accumulated depreciation: Fixtures and fittings 9,000,000 Accumulated depreciation: Motor vehicles 23,000,000 Accumulated depreciation: Equipment 12,600,000 Trade receivables 11,200,000 Trade payables 3,300,000 Retained earnings 53,100,000 Revaluation reserves 27,000,000 Ordinary share capital 100,000,000 8% Redeemable preference share capital 75,000,000 Investment income 2,500,000 Contingent liability 11,900,000 Revenues 1,576,000,000 Share premium 66,000,000 15% Mortgage 446,000,000 Mortgage interest payment 48,000,000 Brand 90,000,000 Accumulated amortisation: Brand 12,000,000 Research and development costs 164,000,000 Provision for bad debt 3,100,000 Closing inventory 12,300,000 Deferred tax liability 27,000,000 Overprovision of tax 1,700,000 Cost of sales 644,000,000 Administrative expenses 215,000,000 Distribution costs 98,100,000 Other operating expenses 199,600,000 Miscellaneous expenses 18,300,000 2,531,100,000 2,531,100,000

The following details are deemed relevant to the preparation of the draft financial statements which are to be presented to the entitys auditors:

Property, plant and equipment

Premises is inclusive of both land and building, apportioned in a 25:75 ratio. Subsequent to a revaluation which took place on March 31, 2021, the land had a fair value of $184 million, while the building had a fair value of $606 million. The building is depreciated evenly over sixty years to a nil residual value and charged equally between administrative expenses and cost of sales. There have been no adjustments made for the depreciation or revaluation relating to premises in the current period, and the effect of the revaluation has not been included in the accumulated temporary differences noted below. The capital allowances granted on the building to date are equivalent to the accumulated depreciation charged against it.

Motor vehicles are depreciated on the straight line basis over five years to a nil residual value. All depreciation charges on motor vehicles are to be allocated to distribution costs. Halfway through the year, the entity bought a motor vehicle for $8 million but included the amount in miscellaneous expenses. No depreciation has been booked on any of the motor vehicles for the current period.

Machinery and fixtures and fittings are to be depreciated 12% on the reducing balance and 10% on cost respectively, while equipment is to be depreciated over eight years on a straight line basis to a nil residual value. The depreciation on fixtures and fittings is charged to administrative expenses, while for machinery as well as equipment, depreciation charges are allocated equally between cost of sales and other operating expenses.

During the year, management commenced processes to sell all the pieces of equipment so new items could be purchased. The sale was deemed highly probable effective December 31, 2020 when a buyer was identified. The items have a combined fair value of $62 million, with disposal costs amounting to $2.3 million. Any impairment or gain on the transaction should be recognised in other operating expenses.

There has been no depreciation booked for machinery, fixtures and fittings, or equipment for the period.

Included in miscellaneous expenses is a lease payment which relates to the rental of a machine with a useful life of six years. The agreement commenced on April 1, 2020, and requires that a total of three annual payments amounting to $8.5 million are made, which includes an annual insurance premium of $1.5 million. Insurance charges are ordinarily classified as administrative expenses. The interest rate implicit in the lease is 7%, while the incremental borrowing rate is 9%. The $8.5 million payment captured in miscellaneous expenses is the only record of the lease transaction that has been made to date.

Also included in miscellaneous expenses is $1.8 million for legal fees incurred to draft the lease agreement on April 1, 2020.

Depreciation on the right of use asset is to be shared equally between cost of sales, administrative expenses, and other operating expenses. The entity prefers to show the leased asset among its property, plant and equipment for presentation purposes.

Intangible assets: The brand is to be amortized over 15 years to a nil residual value, charged to other operating expenses.

On January 1, 2021, the entity acquired a patent for $82 million, but the transaction has not yet been recorded or otherwise accounted for in the books. The patent should be fully amortized over a 25-year period, with charges going cost of sales and time-apportioned as necessary.

Of the total R&D cost on record, 60% relates to research cost, while the balance relates to development. A fifth of the amount recognized as development cost was incurred between July 1, 2020 to September 30, 2020. The product achieved commercial feasibility as at October 1, 2020. Any capitalized development cost is to be amortized over ten years and charged to cost of sales, with time apportionment where necessary. Any non-capitalized research and development cost should be charged to other operating expenses.

Contingent liability This amount has been recognized in other operating expenses. It relates to a lawsuit for which the chance of payout has now been deemed possible by the entitys attorneys. The treatment of the contingent liability will have no effect on the accumulated temporary differences noted below.

Convertible debenture: The 3% convertible debenture was issued on April 1, 2020. The effective rate of interest on a similar instrument is 5%. The debenture will be redeemable at the end of the fourth year, and has a nominal value of $220 million. Only the interest payment relating to the debenture has been recorded so far, included in other operating expenses

Equity and reserves The par value of each ordinary share is $0.50. On the first day of the financial year, the entity decided to make a bonus issue of three new shares for every four existing shares held. Subsequently, there was a two for five rights issue on September 30, 2020 at $3.25 per share. The market price per share at that date was $4.75. The bonus and rights issues have not yet been recorded. In the case of the bonus issue, managements preference is to preserve the retained earnings balance insofar as is possible.

Dividends on the redeemable preference shares are currently unpaid and remain unaccounted for at the year end. Interim ordinary dividends were paid on October 1, 2020 amounting to $35 million, which have not yet been recorded. A further final ordinary dividend was declared on March 31, 2021 for $0.03 per share held as at that date; this too is yet to be accounted for. The declared dividends are expected to be paid on May 1, 2021.

Trade receivables The provision for bad debt is to be revised to 15% of the adjusted trade receivables balance. Of the trade receivables figure currently reported, $2.5 million relates to a receivables balance that was already paid by the customer during the prior period, but the monies were stolen by an accounting clerk who has since been arrested, and so the payment was never accounted for. Ignore the tax effect on any adjustment to be made. Adjustments relating to receivables are ordinarily recorded in administrative expenses

Cost of sales A final inventory count on March 31, 2021 revealed that $110 million worth of inventory at cost had not yet been recorded. Of that amount, 10% was found to be obsolete and should be written off. Inventory purchases are ordinarily recorded in cost of sales, but any write-offs are charged to other operating expenses.

Administrative expenses Included in administrative expenses is the net results of a discontinued operation. An entire division with assets costing $496 million and accumulated depreciation of $384 million was sold for $125 million.

In addition to the sale, the entity also incurred redundancy costs of $64 million. The now discontinued operation made profits of $95 million before accounting for the cost of redundancies and sale of its assets above. The appropriate taxes on the profits for this segment were already accounted for.

Taxation Taxable profits reported for the current year of assessment amounted to $380 million. The over provision on the trial balance above relates to prior year taxes which have since been paid

The entity has accumulated taxable temporary difference of $460 million, which does not include the effect of the revaluation above or unused tax credits and tax losses carried forward from previous years. These unused tax losses and credits amount to $520 million and $110 million respectively. It was ascertained by management that it is probable that the entity will have taxable profits in the future to utilize unused tax losses and tax credits. The deferred tax liability currently reflected in the trial balance arose solely from transactions charged to the statement of profit or loss. The current corporation tax rate is 25%.

REQUIRED: a) Prepare the statement of profit or loss and other comprehensive income for the year ended March 31, 2021 (18 marks) b) Prepare the statement of changes in equity for the year ended March 31, 2021 (12 marks) c) Prepare the statement of financial position as at March 31, 2021 (30 marks) d) Prepare the basic earnings per share for the year ended March 31, 2021 (5 marks) e) Prepare all relevant workings and explanations, including, but not limited to: all journal entries a fixed assets schedule an intangible assets schedule an expense schedule all other appropriate supporting calculations (35