Ken Li (Ken) is the managing director of Entity A which is a limited company in Hong Kong. Entity A did not keep completed accounting records for the period from 1 April 2019 to 31 March 2020 because the previous accountant suddenly resigned on 1 April 2019 and the position was kept vacant up to 31 March 2020.

However, Entity A needs to prepare the financial statements for the year ended 31 March 2020 in order to fulfil the financial reporting requirements. The new accountant, Kat Chan (Kat) was employed on 1 April 2020. She worked hard to find any useful information to facilitate the preparation for financial statements as at 31 March 2020.

The information which was found by Kat are listed as below:

(1)
Entity A
Statements of Financial Position
as at 31 March 2019
	$	$
Assets
Non-current assets
Office equipment		5,250,000
Current assets
Inventory	8,300,000
Trade receivables	2,750,000
Bank	1,430,000	12,480,000
Total assets		17,730,000
Equity and Liabilities
Ordinary share capital		13,500,000
Retained earnings		630,000
Total equity		14,130,000
Current liabilities
Trade payables	3,150,000
Accrued rent	450,000
Total liabilities		3,600,000
Total equity and liabilities		17,730,000
(2)
Cash deposit into the bank during the year:		$
From customers		21,270,000
Short-term bank loan		4,150,000
Proceeds from the sale of office equipment		600,000
(3)
Cash paid out from bank during the year:		$
Supplier		16,095,000
Rental expenses		550,000
Office expenses		2,875,000
Kens private use		3,500,000
Purchases of office equipment		3,900,000
On 31 March 2020, the carrying amounts of:		$
Trade receivables		3,250,000
Inventory		11,900,000
Trade payables		4,925,000

Kat also found some additional useful information as below:

• Rent of $600,000 was owed to the property owner on 31 March 2020.
• The 6-month bank loan was approved and received on 1 January 2020. The interest rate was 10% annually.
• In this accounting period, cash of $1,200,000 was taken out and paid for purchases of inventory and cash of $600,000 was also taken out for Kens private use before banking the cash received from customers.
• All office equipment was purchased on 1 April 2018 at $7,500,000.
• The original cost and carrying amount of the disposed office equipment were $2,250,000 and $1,575,000 respectively.
• The depreciation policy of office equipment is the straight-line method of 30%.
• Kens private use will be repaid on or before 31 March 2021.
• The effective profits tax rate is 16.5%.

REQUIRED:

If you are Kat, in accordance with Hong Kong Accounting Standard 1 (Revised) Presentation of Financial Statements, prepare:

1. A Statement of Profit or Loss and Other Comprehensive Income of Entity A for the year ended 31 March 2020; and
2. A Statement of Financial Position of Entity A as at 31 March 2020.

ANSWERS:

(A)
Entity A
Statements of Profit and Loss and Other Comprehensive Income
for the period ended 31 March 2020
	$	$
Sales
Cost of sales
Opening inventory
Add: Purchases
Less: Closing inventory
Gross profit
Operating expenses
Rent
Office expenses
Interest expense
Depreciation
Loss on disposal
Profit before tax
Taxation (16.5%)
Profit after tax
(B)
Entity A
Statement of Financial Position
as at 31 March 2020
	$	$
Assets
Non-current assets
Office equipment, net
Current assets
Inventory
Trade receivables
Amount due from Ken
Bank
Total assets
Equity and Liabilities
Equity
Ordinary share capital
Retained earnings
Profit for the year
Total equity
Current liabilities
Accrued rent
Bank loan
Interest payable
Trade payables
Tax payable
Total liabilities
Total equity and liabilities