The balances below have been extracted from the accounting records of Nelson Ltd at 31 December 2020: Dr Cr 2,000,000 8% Debenture loan: repayable in 2026 Prepayment on building insurance Bank account 80,000 267,000 Retained profits at 1 January 2020 Freehold land Buildings: cost Buildings: accumulated depreciation at 1 January 2020 2,058,000 2,000,000 8,000,000 2,000,000 Plant & machinery: cost Plant & machinery: accumulated depreciation at 1 January 2020 Trade payables Trade receivables Return outwards Inventory at 1 January 2020 Revenue 3,750,000 2,340,000 520,000 450,000 38,000 238,000 5,006,000 3,200,000 80,000 66,000 Purchases Debenture interest Return inwards Provision for doubtful debts Distribution costs Administrative expenses Ordinary shares of 1 each Share premium 65,000 382,000 514,000 4,500,000 500,000 19,027,000 19,027,000 You are given the following information: The land was purchased in 2008 for 2,000,000. It was externally valued at 4,000,000 on 31 December 2020. The directors wish to include this figure in the accounts. Inventory at 31 December 2020 cost 300,000. This includes some slow- moving items which cost 18,000 which would normally sell for 22,000 but which the directors have decided to sell at 14,000 to clear them. The company's depreciation policy is to provide a full year's depreciation in the year of acquisition and no depreciation in the year of disposal with the following rates applicable to the non-current assets: Freehold land no depreciation required. Buildings 2% per year on a straight-line basis. Plant and machinery 10% on a reducing balance method. A bad debt of 20,000 is to be written off. The company has decided to maintain the provision for doubtful debts at 5% of remaining trade receivables. The prepayment on building insurance on 31 December 2020 was 100,000. Corporation Tax of 25,000 on the current year's profits is to be provided. An audit fee for 13,000 would also need to be provided. The company issued 12,000 additional shares at 2.50 each on 30 December 2020. The proceeds were paid as Christmas bonuses to employees. No entries have been made in the company's accounting records in respect of this transaction. There was no movement on the debenture account in 2020. Any unpaid interest has yet to be accrued for. (a) Prepare the Statement of Financial Position and the Income Statement for the year ended 31 December 2020 for the directors. 25 marks (b) "The Matching Principle is the essence of financial accounting, with significant implications for the compilation of both the income statement and the statement of financial position." Discuss the statement above illustrating your discussion with the use of two examples. 5 marks Total 30 marks