Question $2$

Answer both parts of the question in this section.

The balances below have been extracted from the accounting records of Angel Lights Limited at $31$ December $2014$:

$\backslash$table$[[,,Dr,Cr$

You are given the following information:

Inventory at $31$ December $2014$ has a selling price of $$1,200,000.$ The company marks up goods at $60\%.$

The land is to be revalued to $$3\mathrm{.}8m.$

The charge for insurance includes a premium of $$24,000$ for the year ended $31$ August $2015.$ Heat and light for the $3$ months to $28$ February $2015,$ paid in March $2015$ was $$90,000.$

An item of fixtures and fittings, the cost of which had been $$230,000$ and whose net book value was $$161,000,$ had been sold in the year for $$180,000.$ No accounting entries refating to the disposal have been made in the company's books of account other than in relation to the disposal proceeds.

Depreciation on non$-$current assets is to be charged as follows: freehold land: no depreciation is charged buildings: $2\%$ per annum on a straight$-$line basis fixtures and fittings: $20\%$ per annum on a reducing balance basis. A full year's depreciation is charged in the year of acquisition while no depreciation is charged in the year of disposal.

A debt of $$145,000$ is to be written off while the bad debt provision is to be $4\%$ of remaining receivables.

A final dividend of $3e$ per ordinary share is to be proposed by the directors.

The dividend on the cumulative preference shares, due to be paid on I January $2015$ is to be provided.

Corporation Tax of $$287,000$ on the current year's profits is to be provided together with any unpaid interest on the loan.

A $1$ for $2$ bonus issue of shares was made on the $28$ December $2014$ but this has not yet been recorded in the accounting records.

Required:

$($a$)$ an income statement for the year ended $31$ December $2014,$ a statement of financial position at that date, and a statement of movements in equity note for $2014,$ all in good style, for the directors.

$(22$ marks$)$

$($b$)$ "What is the point of revaluing the freehold land? Surely accounts are supposed to be based on the historical cost convention, aren't they?" Comment on this statement.

$(3$ marks$)$

Total $25$ marks