Note $1$ Purchase of $6\%$ bond in RNJ plc

On $1$ January $2022$ TM plc purchased a $6\%$ bond in RNJ plc at par for $18$ million.

RNJ plc will pay interest to TM plc annually in arrears. The bond is redeemable on $31$

December $2024$ for $20$ million. TM plc intends to hold the bond until maturity and to

collect the contractual cash flows. The bond has an effective interest rate of $8\mathrm{.}49\%.$

TM plc has recorded the bond in the financial statements for the year ended $31$

December $2022$ as follows:

Being the purchase of a $6\%$ bond in RNJ plc

Being the receipt of cash interest from RNJ plc

TM plc paid an arrangement fee of $420,000$ and included it in operating expenses.

In the tax jurisdiction where TM plc operates, the tax rules and the accounting rules

are the same in respect of interest income and arrangement fees. This means that

current tax is payable on the basis of the interest figure credited to the profit or loss

account. A deduction is received for any arrangement fees debited to profit or loss.

Note $2$ Current and deferred tax

Timing difference on plant and machinery

The deferred tax liability at $1$ January $2022$ arises from a temporary difference in

respect of plant and machinery as follows:

The accounting depreciation expense for the year ended $31$ December $2022$ was

$12,000,000.$ In the tax jurisdiction where TM plc operates, the accounting

depreciation expense is disallowed when calculating the company's current tax

liability. Instead, $16,400,000$ tax depreciation for the year ended $31$ December $2022$

can be claimed by TM plc when calculating its current tax liability.QUESTION $3$

Set out below are the draft statement of profit or loss and statement of financial

position for TM plc for the year ended $31$ December $2022.$

Draft statement of profit or loss for the year ended $31$ December $2022$

Draft statement of financial position for the year ended $31$ December $2022$

ASSETS

Non$-$current assets

Plant and equipment

$000$

$68,000$

Current assets

$6\%$ Bond in RNJ plc $($Note $1)$

Cash and bank

Other current assets

Total assets

EQUITY AND LIABILITIES

Share capital and share premium

Retained earnings

Non$-$current liabilities

Deferred tax $-$ Balance at $1$ January $2022($Note $2)$

$4,000$

Current liabilities

Trade and other payables

Current tax payable

Total equity and liabilities

The following notes relate to unresolved financial reporting issues: There have been no additions or disposals of plant and machinery during the year.

Inventory allowance

During the year ended $31$ December $2022,$ a large number of a product were returned

by customers due to a fault in a component part. Therefore, TM plc made a specific

inventory allowance of $5,000,000$ against this product held in inventory at $31$

December $2022.$ In addition, due to the uncertainty of the impact of the fault on other

products, a general inventory allowance was set up of $9,000,000.$ At $31$ December

$2022,$ the total inventory allowance recognised is therefore $14,000,000.$

Tax relief is available for the specific inventory allowance, but general allowances

are disallowed until the inventory is written off in the future.

Tax rate

The current tax rate is $20\%$ and there are no changes expected to this tax rate in the

future.

REQUIRED:

c$)$ Prepare, including your adjustments above in a$)$ and b$),$ a revised statement of

profit or loss and a revised statement of financial position at $31$ December $2022$

for TM plc$.$