Question 2 The following is an extract from the trial balance of Polo co for the year ended 31 December 2020:

	$000	$000
Revenue	-	35,000
Cost of Sales	6,000	-
Administrative expenses	9,000	-
Distribution costs	2,000	-
Income Tax (note 3)	-	4,000
Deferred tax liability 1 January 2020 (note 3)	-	2,000
Provision at 1 January 2020 (note 2)	-	8,000
Retained earnings at 1 January 2020	-	10,000
Equity share capital ($1) at 1 January 2020	-	15,000
Intangible assets (note 6)	4,000	-
Investments property (note 5)	12,000	-
Finance costs	250	-
Investment Income	-	800
Suspense Account	-	7,000

The following information is relevant: 1. Polo co noted there was an error in the inventory count at 31 December 2019, meaning that the closing inventory balance in the 2019 financial statements was understated by $0.1m. No entries have yet been made to correct this error. 2. The provision relates to a court case in existence since December 2019. Polo co settled this case on 31 December 2020 for $10m. The full amount was credited correctly to cash, with a corresponding debit entry being made in the suspense account. 3. The income tax figure in the trial balance relates to the under/over provision from the previous year. The current year tax is estimated to be $5m. In addition to this, the deferred tax liability at 31 December 2020 is estimated to be $1.6m. 4. On 31 September 2020, Polo co made a 1 for 3 rights issue. The exercise price was $2.5 per share. The proceeds were correctly accounted for in cash, with a corresponding credit entry being made in the suspense account. 5. Polo co acquired an investment property for $13m cash on 1 January 2020 and decided to use the fair value model to account for investment properties. As the property is expected to have a 13-year useful life, depreciation was recorded on this basis. The fair value at 31 December 2020 has been assessed at $11m but no accounting has taken place in relation

to this. All depreciation and amortisation is charged on a pro-rata basis to administrative expenses. There were no other acquisitions or disposals of non-current assets. 6. Polo co incurred a number of expenses in relation to brands during the year and has capitalised the following costs as intangible assets: - $1m cash was paid on 1 April 2020 to promote one of its major brands which is deemed to have an indefinite life. - $3m cash was paid on 1 September 2020 to acquire a brand from one of its competitors. Polo co expect the brand to have a useful life of five years. Polo co intends to sell it after five years. At the point of sale, it is estimated that the value of the brand will have increased and so no amortisation has been accounted for in the current year. 7. Polo co paid a dividend of $0.1 per share on all existing shares 31 December 2020, recording the dividend paid in administrative expenses. Required: a. Prepare the statement of profit or loss for Polo co for the year ended 31 December 2020. (20 marks) b. Prepare the statement of changes in equity for Polo co for the year ended 31 December 2020. (12 marks). c. Prepare the following extracts form the statement of cash flows for Polo co for the year ended 31 December 2020: i. Cash flows form investing activities (4 marks) ii. Cash flows from financing activities (4 marks)