Below is the Trial Balance for Voortex Ltd. (“Voortex”) at the financial year end 30  September 2019. Voortex operates as a wholesaler of goods, selling mostly on credit.  

VOORTEX LTD.  

Trial Balance as at 30 September 2019  

DR                      CR 

£000                £000 

Ordinary share capital (Nominal value £5) 4,600  Share premium 2,645  Retained earnings at 30 September 2018 2,791  Land 4,525  

Buildings (B) 1,400  Plant & machinery (P&M) 7,500  Intangibles - Website development (WD) 336  Provision for depreciation - B at 30 September 2018 225  

Provision for depreciation – P&M at 30 September 2018 4,800  Provision for amortisation - WD at 30 September 2018 112  Provision for environmental clean-up at 30 September 2018 57  Provision for bad debts at 30 September 2018 82  Inventory at 30 September 2018 3,283  

Trade receivables 2,600  Trade payables 1,375  Bank overdraft 256  Sales 37,371  Purchases 23,715  Rent expense 2,235  Other operating expenses 8,479  Interest expense 11  Dividend paid 230  54,314 54,314 

Additional Information:  

The following additional information provides further details about some items appearing  on the trial balance, as well as information required to record period-end adjustments:  

1. The inventory at 30 September 2019 has been counted and valued at £3,752,000  2. The following information relates to the non-current assets:  

a) The company uses the revaluation model to value Land. All the land has recently been  independently valued and in total the land valuation has increased by £1,275,000.  

b) Buildings are expected to have a useful life of 20 years and a residual value of £500,000  c) Plant & machinery is depreciated using the declining balance method at 40%.  

d) The initial costs relating to the development of the company’s website have been  capitalised and are being spread over a period of 3 years.  

3. The rent expense includes an amount of £510,000 which was paid on 1 September 2019  for the period September – November 2019.  

4. Some operating expenses, totalling £275,000, have been incurred during September 2019  but as no invoices have as yet been received from the suppliers, these have not been  recorded in the accounting records.  

5. A review of the existing provision for costs relating to the environmental clean-up (which  will be carried out in 2023) was carried out and the provision amount is considered to be  understated and should be increased by £17,000  

6. An analysis of the trade receivables balance has been carried out and it is estimated that  4% of this balance will not ultimately be received.  

7. The company does not have any bank loans but has used up all its cash balances during  the year. The bank agreed to allow Voortex an overdraft facility and interest charges  relating to the overdraft have all been paid. The company intends to sell a number of plots  of land early in 2020 and this will generate a significant cash inflow.  

8. The taxation charge for the year is estimated at £950,000  

9. A dividend of 25p per share was paid during the year (and has been correctly recorded)  

REQUIRED:  

a) From the additional information provided, prepare the necessary journal entries to record  any period-end adjustments required.  

b) Prepare an Income Statement for the year ended 30 September 2019 AND a Statement of  Financial Position (in total assets format) at that date.  

c) The Financial Control team have been reviewing these draft financial statements and there  is some concern that the profit figure seems higher than was expected. There is some  concern that the sales figure includes items of deferred revenue. In the context of this  

business, what does this term mean AND if this were the case, how would it affect the  financial statements you have prepared if this is corrected?  

d) A major shareholder (David, a close family member of the managing director but with no  involvement in the business and no finance/accounting expertise) has commented that the  figure showing for Total Equity in the financial statements represents only about 25% of  what he believes the company is “worth”. In the context of this business, explain how the  financial statements’ equity figure and the perceived “worth” of the business may differ.