The following is an extract from the trial balance of World Star Co for the year ended 31 December 2005: $000 $000 Revenue 50,000 Cost of Sales 15,000 Administrative expenses 10000 Distribution Cost 7,000 Income Tax (note 3) 120 Deferred tax liability 1 January 2005 (note 3) 7,000 Provision at 1 January 2005 (note 2) 5000 Retained earnings at 1 January 2005 64,000 Equity share capital ($1) at 1 January 2005 50,000 Intangible assets (note 6) 2,650 Investment property (note 5) 29,000 Finance Cost 3,500 Investment Income 850 Suspense account 60,000 The following information is relevant: 1. The store manager made a mistake in the inventory count at 31 December 2004, hence the closing inventory balance in the financial statements was overstatedby $950,000. No entries have been made to correct this error.

1. The provision relates to a court case in existence since December 2004. World Star Company settles the case on 31 December 2005 for $8,500,000. The full amount was credited correctly to cash, with a corresponding debit entry being made in the suspense account.
2. 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 a tax refund of $2,000,000. In addition, the deferred tax liability at 31 December 2005 is estimated to be 9,000,000.
3. On 30 September 2005, World Star Company made a 1 for 4 rights issue. The exercise price was $1.50 per share. The proceeds were correctly accounted for in cash, with a corresponding credit entry being made in the suspense account.
4. World Star acquired an investment property for 30,000,000 cash on January 2005 and decided to use the fair value model to account for investment properties. As the property is expected to have a 30-year useful life, depreciation was recorded in this basis. The fair value of the property at 31 December 2005 has been assessed at 32,000,000 but no accounting has taken place in relation to this. All depreciation and amortization is charged on a pro-rate basis to administrative expenses. There were no other acquisitions or disposals of non-current assets.
5. World Star Co incurred a number of expenses in relation to branding during the year and has capitalized the following costs as intangible assets.

• $1,700,000 cash was paid on 1 April 2005 to promote one of its major brands which is deemed to have an indefinite life.
• $950,000 cash was paid on 1 October 2005 to acquire a brand from one of its competitors. World Star 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 amortization has been accounted for in the current year.

1. World Star Co paid dividend of $0.05 per share on all existing shares 31 December 2005 recording the dividend paid in administrative expenses.

Required:

1. Prepare the statement of profit or loss for the year ended 31 December 2005. (Show the necessary adjustments for each line item based on the notes) (20 marks)
2. Prepare the statement of changes in equity for the year ended 31 December 2005.

(12 marks)

1. Prepare the following extracts form the statement of cash flows Co for the year ended 31 December 2005:
2. Cash flows from investing activities (4 marks)
3. Cash flows from financing activities (4 marks)