Draft summary statement of comprehensive income for the year ended 31 December 2020

		000
Revenue		617,000
Cost of sales		(450,000)
Gross profit		167,000
Operating expenses		(120,761)
Operating profit		46,239
Finance costs		(6,500)
Profit before tax		39,739
Income tax expense (To be completed)		-
Profit for the year		39,739
Other comprehensive income (To be completed)		-
Total comprehensive income		39,739

Draft statement of financial position as at 31 December 2020

			000
ASSETS
Non-current assets
Property, plant and equipment (Exhibit 3 Issue 1)			100,000
Intangible			10,000
Investment (Exhibit 3 Issue 2)			8,000
			118,000
Current assets
Inventories			93,062
Trade receivables			35,035
Financial asset			50
Cash and cash equivalents			8,322
			136,469
Total assets			254,469
EQUITY AND LIABILITIES
Share capital and share premium			100,000
Retained earnings			65,339
Other reserves
			165,339
Long-term liabilities
Long-term bank borrowings			35,010
Deferred tax Balance at 1 January 2020 (Exhibit 3 Issue 3)			16,000
			51,010
Current liabilities
Trade and other payables			38,020
Current tax payable (Exhibit 3 Issue 3)			100
			38,120
Total equity and liabilities			254,469

1. For Issue 2 Investment:

• explain the appropriate financial reporting treatment making reference to relevant accounting standards; and
• set out the accounting adjustments required to correct the financial statements for Metalwise plc for the year ended 31 December 2020.

Maximum words for part a) = 225

(5 marks)

Advance information - Issue 2 Investment 8,000,000 On 1 February 2020, Metalwise bought 200,000 shares of the issued ordinary share capital of KKL plc, a listed company. Each share cost 40 and this investment, which represents a 10% shareholding, is a long-term investment in KKL plc. Metalwise incurred legal fees and brokers fees when it made this investment. Additional information Legal and brokers fees (transaction costs) of 500,000 are included in finance costs in the statement of profit or loss for the year ended 31 December 2020. The directors have not made an irrevocable election to classify the investment as at fair value through OCI. At 31 December 2020, the fair value of one share in KKL plc was 65 per share In the tax jurisdiction where Metalwise operates gains arising on equity instruments are taxed at 20% only when the shares are sold. Transaction costs in relation to the acquisition of shares are allowed as a tax deduction. Advance information - Issue 2 Investment 8,000,000 On 1 February 2020, Metalwise bought 200,000 shares of the issued ordinary share capital of KKL plc, a listed company. Each share cost 40 and this investment, which represents a 10% shareholding, is a long-term investment in KKL plc. Metalwise incurred legal fees and brokers fees when it made this investment. Additional information Legal and brokers fees (transaction costs) of 500,000 are included in finance costs in the statement of profit or loss for the year ended 31 December 2020. The directors have not made an irrevocable election to classify the investment as at fair value through OCI. At 31 December 2020, the fair value of one share in KKL plc was 65 per share In the tax jurisdiction where Metalwise operates gains arising on equity instruments are taxed at 20% only when the shares are sold. Transaction costs in relation to the acquisition of shares are allowed as a tax deduction