following trial balance relates to Cavern as at 30

Equity shares of $1 each

Other components of equity (share premium)

45,000

6,000

30,600

8% loan note (note (i))

Retained earnings-30 September 20X6

6,600

7,000

Revaluation surplus

Land and buildings at valuation-30 September 20X6:

43,000

Land ($7 million) and building ($36 million) (note (ii)) Plant and equipment at cost (note (ii))

67,400

Accumulated depreciation plant and equipment-30 September 20X6 Equity investments (note (iii))

13,400

Current assets

15,800

48,800

Bank

4,600

Deferred tax (note (iv)) Current tax (note (iv))

4,000

21,700

Trade payables Draft profit for the year

900

37,000

175,900

175,900

The following notes are relevant:

(0 The 8% loan note was issued on 1 October 20X5 at its nominal value of $30 million. The loan note will be redeemed on 30 September 20X9 at a premium which gives the loan note an effective finance cost of 10% per annum.

(1)

Cavern revalues its land and building at the end of each accounting year. At 30 September 20X7 the relevant value to be incorporated into the financial statements is $41.8 million. The building's remaining life at the beginning of the current year (1 October 20X6) was 18 years. Cavern does not make an annual transfer from the revaluation surplus to retained earnings in respect of the realisation of the revaluation surplus. Ignore deferred tax on the revaluation surplus.

Plant and equipment includes an item of plant bought for $10 million on 1 October 20X6 that will have a 10-year life (using straight-line depreciation with no residual value). Production using this plant involves toxic chemicals which will cause decontamination costs to be incurred at the end of its life. The present value of these costs using a discount rate of 10% at 1 October 20X6 was $4 million. Cavern has not provided any amount for this future decontamination cost. All other plant and equipment is depreciated at 12.5% per annum using the reducing balance method.

No depreciation has yet been charged on any non-current asset for the year ended 30 September 20X7. All depreciation is charged to cost of sales.