QUESTION SIX (6): The following trial balance relates to Koli Ltd for the year ended 31 December, 2020. GH000 GH000 Sales 128,000 Purchases 75,000 Distribution expenses 8,000 Administrative expenses (Note ii) 22,000 License (Note iii) 5,000 Inventories at 31 December 2019 26,200 Finance costs on a long term loan 3,000 Income tax (Note iv) 200 Deferred tax (Note iv) 6,000 Dividend paid on equity shares 2,000 Property, Plant and Equipment (PPE) - at cost (Note v) 57,000 Provision for depreciation on PPE (31/12/2019) 10,790 Trade receivables 52,000 Bank balances 33,790 Trade payables 12,000 Provision for legal costs (Note ii) 10,000 Long-term loan 40,000 Stated capital 50,000 Retained earnings as at 31 December 2019 27,000 283,990 283,990 Additional information: i) The carrying value of inventories on 31 December 2020 was GH23 million. 9 ii) Administrative expenses include a provision of GH10 million for the possible costs of a legal claim lodged against Koli Ltd by one of its customers before 31 December 2020. The directors of Koli Ltd consider that it is probable that Koli Ltd can successfully defend the case, but they are providing for the worst possible outcome on the grounds of prudence. The provision of GH10 million is for the amount sought by the customer (GH9.6 million) plus the directors' best estimate of the legal costs incurred in defending the case. If Koli Ltd successfully defends the case, then based on the outcomes of similar cases in the past, it is likely (but not sure) that the customer will be required to reimburse Koli Ltd for its legal costs. iii) On 1 January, 2020, Koli Ltd paid GH5 million for a ten-year export license. iv) The estimated income tax on the profits for the year to 31 December 2020 is GH2.5 million. During the year, GH2.2 million was paid in full and in the final settlement of income tax on the profits for the year ended 31 December 2019. The statement of financial position on 31 December 2019 had included GH2.4 million in respect of this tax liability. A transfer of GH1.4 million is required to increase the deferred tax liability in the statement of financial position; GH900,000 of this amount was necessary due to the taxable temporary difference caused by the property revaluation (see note v below). v) The details of property, plant and equipment are as follows: Cost Accumulated depreciation at 1 January 2020 Carrying Amount at 1 January 2020 Component of PPE GH'000 GH'000 GH'000 Land 12,000 0 12,000 Buildings 18,000 3,240 14,760 Plant and Equipment 27,000 7,550 19,450 57,000 10,790 46,210 Estimate of useful economic life (at the date of purchase) of PPE components: Land nil (infinite life) Building 50 years Plant and Equipment 4 years Depreciation of property, plant and Equipment is allocated as follows: 80% to cost of sales 10% to distribution expenses 10% to administrative expenses The above allocation relates to only owned tangible assets. All other depreciation or amortisation charges should be fully charged to the cost of sales. On 1 January, 2020 the directors of Koli Ltd decided to revalue its property (Land and Building) to its market value of GH40 million, including GH19.5 million for the Land. The original estimate of the useful economic life of the property was still considered valid. The directors wish to make an annual transfer of excess depreciation from the revaluation 10 reserve to realised profits following the revaluation. Required: Prepare for Koli Ltd, a) The Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2020. (8 marks) b) The Statement of Changes in Equity for the year ended 31 December 2020. (4 marks) c) The Statement of Financial Position as at 31 December 2020. (8 marks) d) Write Notes to the Financial Statement (6 marks)