The following is an extract from the trial balance of Wolrus Ltd for the year end 31st December 2015.

	Debits	Credits
Sales		5,395,000
Purchase (production costs)	2,573,000
Land-cost	3,900,000
Leasehold propertycost	1,500,000
Plantcost at 1 January 2005	1,320,000
Plantaccumulated depreciation		660,000
Equipmentcostcost at 1 January 2007	350,000
Equipmentaccumulated depreciation		140,000
Capitalised development expenditureat 1 January 2015	200,000
Development expenditure accumulated amortisation		40,000
Inventories as at 01 January 2015	765,000
Distribution cost	19,660
Administrative expenses	98,000
Retained earnings		284,660
Trade receivable	815,000
Cash at bank	249,000
5% bank loan repayable 2018		800,000
Share capital		1,000,000
Share premium		500,000
Trade payable		2,970,000
	11,789,660	11,789,660

Note:

1. The share capital of the company consists of ordinary shares with a nominal value of 1 each.

2. The sales figure in the trial balance includes sales made on credit for January 2016 amounting to 445,000.

3. Interest on the bank loan for the fiscal year 2015 has not been included in the trial balance.

4. The board has decided to pay dividends as 5p/share.

5. An accruals for wages of 30,000 is required. Suggestion: These are included in administration expenses.

6. The allowance for doubtful debt is to be maintained at 5% of the ending balance of the trade receivable accounts

7.The inventories at the close of business on 31st December, 2015 cost 825,000 before adjusting for the following:

Items which had cost 80,000 and which would normally sell for 120,000 were found to be faulty. 20,000 needs to be spent on these items in order to sell them for 90,000.

8. Non-current assets-tangible

a). The leasehold property has a remaining life of 20 years at 31 December, 2014. The company's policy is to revalue its property at each year end and at 31 December, 2015 it was valued at 1,400,000. Ignore deferred tax on the revaluation.

b). On 1 Janaury 2015 an item of equipment was disposed of for 25,000. The proceeds have been treated as sales revenue by Wolrus Ltd. The equipment is still included in the above trial balance figures at its cost of 100,000 and accumulated depreciation of 60,000.

c). Straight-line method is applied to the whole Property, Plant and Equipment category. Plants have expected useful life of 20 years, and Equipments have expected useful life of 8 years. Depreciation of all non-current-tangible assets is charged to administration cost.

9. Non-current assets-intangible

In addition to the capitalised development expenditure (of 200,000), further research and development costs were incurred on a new poject which commenced on 1 January 2015. The research stage of the new project lasted until 31 March, 2015 and incurred 85,000 of costs. From that date the project incurred development costs of 25,000 per month. On 1st July, 2015 the directors are confident that the project would be successful and yield a profit well in excess of its costs. The project is still in development at 31 December, 2015.

Capitalised development expenditure is amortised at 20% per annum using the straight-line method. All expensed research and development is charged to cost of sales.

Requirement:

1. Show relevant journal entries for all the transactions whenever adjustment is needed. (30%)

2. Draft the statement of comprehensive income of Wolrus Ltd. for the year ended 31st December, 2015. (10%)

3. Draft the statement of financial position of Wolrus Ltd. for the year ended 31st December, 2015. (20%)

4 . If the board decided to change the measurement of Plant to revaluation model from 31^st December, 2014. The Plant is revalued at 720,000 with a residual value of nil. The original life of the Plant has not been changed as a result of the revaluation module, but the depreciation method was decided to change to straight line method. If the revaluation model is used, show relevant journal entries, the statement of comprehensive income and the statement of financial position of Wolrus Ltd. for the year ended 31^st December 2015 (other transactions remain the same). (20%)

5. Explain the purpose of depreciation according to its definition, and the factors affecting the assessment of useful life according to IAS 16 Property, Plant and Equipment. (10%)

6. Distinguish between the cost model and the revaluation model for the measurement of property, plant and equipment subsequent to its initial recognition. (10%)