Q plc manufactures household appliances. The companys latest trial balance as at 31 December 20X1 is as follows:

	000	000
Administration costs	1,200
Bank overdraft		1,050
Factory cost	27,000
Factory depreciation		2,700
Factory running costs	1,800
Machinery cost	22,020
Machinery depreciation		12,000
Manufacturing wages	1,950
Opening inventory parts and materials	1,950
Purchases parts and materials	3,450
Research and development	7,950
Retained earnings		570
Sales		20,200
Sales salaries	900
Share capital		34,000
Tax	200
Trade payables		900
Trade receivables	3,000
	71,420	71,420

1. Stock was counted at 31 December 20X1 and valued at 1,845,000.
2. Depreciation has still to be charged for the year ended 31 December 20X1. The company depreciates the factory at 2% of cost per annum and all machinery at 25% per annum on the reducing balance basis.
3. The balance on the research and development account is made up as follows:

Opening balance (development costs brought forward)	3,150,000
Test equipment purchased for laboratory	900,000
Combination microwave	1,350,000
Dry-cook grill	2,550,000
	7.950,000

4. The opening balance comprises expenditure on new products which have just been introduced to the market. The company has decided that these costs should be written off over ten years, starting with the year ended 31 December 20X1.
5. The new test equipment is used in the companys research laboratory.
6. The combination microwave is a new product which offers the convenience of a microwave and the results of a conventional oven. The product is due to launch late in 20X2 at a retail price which is comparable to existing products. Q plcs sales director is very confident that the product will sell well for several years.
7. The dry-cook grill is essentially an improved version of a competitors product. The product has been tested and could be manufactured immediately. It would outsell the current market leader. Unfortunately, Q plcs lawyers have advised that the grill may infringe the competitors patents and have advised against selling it in the immediate future. The design team is trying to replace some of the key components with a different technology, but this is proving difficult.
8. Q plc expects to pay tax of 1.2m on the profits for the year. The balance on the tax account is the amount left after settling the final liability for the year ended 31 December 20X0.

Required:

1. Prepare Q plcs financial statements for the year ended 31 December 20X1.
2. Explain your treatment of the items in (iii) above.