Q1.For Issue 1 Revaluation of land and 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.

Q2.Including your recommended adjustments from part a) and the advance and additional information for Issue 3, calculate the current and deferred tax liabilities for Metalwise plc for the year ended 31 December 2020. Set out the journals to adjust the statement of comprehensive income and the statement of financial position.

Advance information - Issue 1 Revaluation of Land e Included in the balance for PPE is a plot of land. The land has been revalued at 31 December 2020 to 30 million. The directors have decided to include this revaluation of land in the statement of financial position but I have not put through the journal entries to recognise the revaluation. + e e Additional information- The cost of the land included in the PPE on the statement of financial position at 31 December 2020 is 5 million. In the tax jurisdiction where Metalwise operates, gains on land are not taxable in any future periods. 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 sharee 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 3 Deferred tax liability brought forward and PPE timing difference At 1 January 2020, the deferred tax liability is recognised at 16 million in the statement of financial position and no adjustments have been made to this figure in the draft financial statements at 31 December 2020. The deferred tax liability arises solely in relation to the difference between the carrying amount of plant and machinery and its tax base. The carrying amount of this plant and machinery on 1 January 2020 was 95 million, and its tax base was 15 million. Depreciation is disallowed for tax purposes and a claim for tax depreciation is made each year in calculating the current tax liability for the company. There were no additions or disposals of plant and machinery. On 30 September 2020 Metalwise paid the current tax liability it owed for the year ended 31 December 2019. The balance on the current tax liability on the statement of financial position at 31 December 2020 represents an over provision in respect of the year ended 31 December 2019. I have not calculated the current tax or the deferred tax movement for the year ended 31 December 2020. Additional information - The depreciation charge on PPE for the year ended 31 December 2020 was e 15 million. This charge included 2 million depreciation on a building. No tax depreciation is available for buildings but Metalwise can claim 5 million tax depreciation for PPE for the year ended 31 December 2020.- On 1 April 2020, Metalwise bought the rights to a metal alloy process, an intangible asset. The carrying amount of this intangible asset is included on the statement of financial position at 31 December 2020 at 10 million. The intangible cost 14 million and amortisation of 4 million has been included in the statement of profit or loss. This is the correct financial reporting treatment for this asset.- The tax treatment for intangibles in the tax jurisdiction where Metalwise operates permits a full tax deduction for the full cost of the intangible asset in the year that it is purchased. For all other income and expenses the treatment for accounting profit and taxable profit are the same except for those differences identified above. The tax rate is 20% Statement of profit or loss for the year ended 31 December 20204 Revised 0004 + A 13 0002 617,000 -450,000 167,000 -120,761 46,2394 -6,500 39,7394 ca Revenue Cost of salese Gross profite Operating expenses Operating profite Finance costs Profit before taxe Income tax expense (To be completed) Profit for the year e Total comprehensive income I 39,739 39,7394 Statement of financial position at 31 December 2020- ASSETS E Non-current assets 0002 000 revised 100,000 Property, plant and equipment e Intangible Investment e 10,000 8,000 118,000 Current assets Inventoriese Trade receivablese Financial asset e Cash and cash equivalentse 93,0624 35,0354 504 1. 1. 1. 1. f. 8,3224 e Total assets? 133,4694 254,4694 1. 1. 1. 1. 1. EQUITY AND LIABILITIESA Share capital and 100,000 share premium Retained earningse 65,3394 Other reserves e 165,3394 Long-term liabilitiese Bank borrowingse 35,010- Deferred tax- Balance at 1 January 16,000 2020 51,0104 Current liabilities Trade and other payables 38,0204 1. 1. 1. 1. 1. 1. Current tax payable + 100 38,120 Total equity and liabilities 254,469 Advance information - Issue 1 Revaluation of Land e Included in the balance for PPE is a plot of land. The land has been revalued at 31 December 2020 to 30 million. The directors have decided to include this revaluation of land in the statement of financial position but I have not put through the journal entries to recognise the revaluation. + e e Additional information- The cost of the land included in the PPE on the statement of financial position at 31 December 2020 is 5 million. In the tax jurisdiction where Metalwise operates, gains on land are not taxable in any future periods. 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 sharee 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 3 Deferred tax liability brought forward and PPE timing difference At 1 January 2020, the deferred tax liability is recognised at 16 million in the statement of financial position and no adjustments have been made to this figure in the draft financial statements at 31 December 2020. The deferred tax liability arises solely in relation to the difference between the carrying amount of plant and machinery and its tax base. The carrying amount of this plant and machinery on 1 January 2020 was 95 million, and its tax base was 15 million. Depreciation is disallowed for tax purposes and a claim for tax depreciation is made each year in calculating the current tax liability for the company. There were no additions or disposals of plant and machinery. On 30 September 2020 Metalwise paid the current tax liability it owed for the year ended 31 December 2019. The balance on the current tax liability on the statement of financial position at 31 December 2020 represents an over provision in respect of the year ended 31 December 2019. I have not calculated the current tax or the deferred tax movement for the year ended 31 December 2020. Additional information - The depreciation charge on PPE for the year ended 31 December 2020 was e 15 million. This charge included 2 million depreciation on a building. No tax depreciation is available for buildings but Metalwise can claim 5 million tax depreciation for PPE for the year ended 31 December 2020.- On 1 April 2020, Metalwise bought the rights to a metal alloy process, an intangible asset. The carrying amount of this intangible asset is included on the statement of financial position at 31 December 2020 at 10 million. The intangible cost 14 million and amortisation of 4 million has been included in the statement of profit or loss. This is the correct financial reporting treatment for this asset.- The tax treatment for intangibles in the tax jurisdiction where Metalwise operates permits a full tax deduction for the full cost of the intangible asset in the year that it is purchased. For all other income and expenses the treatment for accounting profit and taxable profit are the same except for those differences identified above. The tax rate is 20% Statement of profit or loss for the year ended 31 December 20204 Revised 0004 + A 13 0002 617,000 -450,000 167,000 -120,761 46,2394 -6,500 39,7394 ca Revenue Cost of salese Gross profite Operating expenses Operating profite Finance costs Profit before taxe Income tax expense (To be completed) Profit for the year e Total comprehensive income I 39,739 39,7394 Statement of financial position at 31 December 2020- ASSETS E Non-current assets 0002 000 revised 100,000 Property, plant and equipment e Intangible Investment e 10,000 8,000 118,000 Current assets Inventoriese Trade receivablese Financial asset e Cash and cash equivalentse 93,0624 35,0354 504 1. 1. 1. 1. f. 8,3224 e Total assets? 133,4694 254,4694 1. 1. 1. 1. 1. EQUITY AND LIABILITIESA Share capital and 100,000 share premium Retained earningse 65,3394 Other reserves e 165,3394 Long-term liabilitiese Bank borrowingse 35,010- Deferred tax- Balance at 1 January 16,000 2020 51,0104 Current liabilities Trade and other payables 38,0204 1. 1. 1. 1. 1. 1. Current tax payable + 100 38,120 Total equity and liabilities 254,469