QUESTION ONE The following list of balances was extracted from the books of Jackson Plc for the year to 31st December 2020: K KI ordinary shares 2,020,000 Share Premium 525,000 Retained earnings 400,620 Revaluation Reserve 220,000 General reserves 50,000 Sales Revenue 1,519,344 Purchases 523,890 Inventory (1 January 2020) Salesmen commission 50,250 Delivery expenses 24,230 Salesmen salaries 120,300 220,000 Management salaries General worker salaries 350,654 15,360 Insurance 7,360 Utility bills 2/4 Interest payable 124,500 Bank charges 10,360 Interest expense 14,200 20,300 47,000 321,500 Short term provisions Long term provisions Machinery at cost Accumulated depreciation on machinery Buildings at valuation Accumulated depreciation 795,000 132,500 1,560,000 32,000 Motor vehicles at cost 762,000 Accumulated depreciation Goodwill 145,000 Trademarks 52,000 25,000 Hotel Franchise 325,700 Additional information Research and development 432,580 1. Closing inventory had a listed price of K220,000 and a trade discount of 10%. The company also incurred import duty of 10% of the purchase price, installation costs of K50,000, professional fees of K45,000, transport costs of K20,200, VAT K12,000 and administrative expenses of K5,000. 2. The Company uses the units of production method of depreciation. Property, plant and equipment was expected to produce the following units over a four year period: Year 1 50,000 units Year 2 45,000 units Year 3 60,000 units . . Year 4 25,000 units \ 180, wo It is currently the third year of the use of all the tangible non-current assets. 3. Machinery, motor vehicles and goodwill make up a cash generating unit whose net realizable value is K705,000 and is expected to generate cash flows of K286,506.80 over the next three years. The discount rate used by the company is 10%. 4. Research and development costs are broken down as follows: K32,580 was for a project to investigate the efficiency of a new production process. The project seems likely to be successful and the cost is a reliable estimate of what was spent. K120,600 was for the completion of a new product that is expected to be on the market in the first half of the following year. K219,400 was for the finalization of a new plant that would completely revolutionize the way business is done in the company. K60,000 was for the development of new software which was superseded by more efficient ones. 5. 50% of the short term provision relates to a court settlement for an employee that sued the company for unlawful termination of employment. The court has ordered that the employee be paid within next twelve months. The other 50% has been provided based on this court order as the company 3/4 court for another unlawful termination and expects to lose the case. incurred in two years' time. The total cost of restructuring comprises K60,000 for benefits and 6. The long term provision has been made for restructuring and environmental costs expected to de K22,000 incidentals. A plan detailing how and when the lay-offs will be made is already in place and the affected employees are expected to be communicated to at the beginning of the coming financial year. 7. A transfer of K30,000 to general reserves is required at the year end. 8. Corporation tax of 35% of taxable profits is payable for the year. Required i) Prepare the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity for the year to 31" December 2020. ra 2 w 146, ao QUESTION ONE The following list of balances was extracted from the books of Jackson Plc for the year to 31st December 2020: K KI ordinary shares 2,020,000 Share Premium 525,000 Retained earnings 400,620 Revaluation Reserve 220,000 General reserves 50,000 Sales Revenue 1,519,344 Purchases 523,890 Inventory (1 January 2020) Salesmen commission 50,250 Delivery expenses 24,230 Salesmen salaries 120,300 220,000 Management salaries General worker salaries 350,654 15,360 Insurance 7,360 Utility bills 2/4 Interest payable 124,500 Bank charges 10,360 Interest expense 14,200 20,300 47,000 321,500 Short term provisions Long term provisions Machinery at cost Accumulated depreciation on machinery Buildings at valuation Accumulated depreciation 795,000 132,500 1,560,000 32,000 Motor vehicles at cost 762,000 Accumulated depreciation Goodwill 145,000 Trademarks 52,000 25,000 Hotel Franchise 325,700 Additional information Research and development 432,580 1. Closing inventory had a listed price of K220,000 and a trade discount of 10%. The company also incurred import duty of 10% of the purchase price, installation costs of K50,000, professional fees of K45,000, transport costs of K20,200, VAT K12,000 and administrative expenses of K5,000. 2. The Company uses the units of production method of depreciation. Property, plant and equipment was expected to produce the following units over a four year period: Year 1 50,000 units Year 2 45,000 units Year 3 60,000 units . . Year 4 25,000 units \ 180, wo It is currently the third year of the use of all the tangible non-current assets. 3. Machinery, motor vehicles and goodwill make up a cash generating unit whose net realizable value is K705,000 and is expected to generate cash flows of K286,506.80 over the next three years. The discount rate used by the company is 10%. 4. Research and development costs are broken down as follows: K32,580 was for a project to investigate the efficiency of a new production process. The project seems likely to be successful and the cost is a reliable estimate of what was spent. K120,600 was for the completion of a new product that is expected to be on the market in the first half of the following year. K219,400 was for the finalization of a new plant that would completely revolutionize the way business is done in the company. K60,000 was for the development of new software which was superseded by more efficient ones. 5. 50% of the short term provision relates to a court settlement for an employee that sued the company for unlawful termination of employment. The court has ordered that the employee be paid within next twelve months. The other 50% has been provided based on this court order as the company 3/4 court for another unlawful termination and expects to lose the case. incurred in two years' time. The total cost of restructuring comprises K60,000 for benefits and 6. The long term provision has been made for restructuring and environmental costs expected to de K22,000 incidentals. A plan detailing how and when the lay-offs will be made is already in place and the affected employees are expected to be communicated to at the beginning of the coming financial year. 7. A transfer of K30,000 to general reserves is required at the year end. 8. Corporation tax of 35% of taxable profits is payable for the year. Required i) Prepare the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity for the year to 31" December 2020. ra 2 w 146, ao