The following trial balance has been extracted from the books of Barloworld at 31 December 2017

K K

Distribution costs 16,520,000

Administrative expenses 14,500,000

Share capital (K1 each) 15,120,000

Share premium 4,480,000

Dividend paid 1,512,000

Cash at bank 2,352,000

Receivables 13,048,000

Interest expense 1,400,000

Tax expense 1,000,000

Dividends received 840,000

Interest received 56,000

Land and buildings at cost 27,880,000

Land and buildings: accumulated depreciation 1,680,000

Plant and machinery at cost 22,400,000

Retained earnings account (at 1 January 2017) 14,280,000

Purchases 70,640,000

Sales 141,124,000

Inventory (at 1 January 2017) 7,840,000

Trade payables 1,512,000 1

79,092,000 179,092,000

Additional Information

(1) Inventory at 31 December 2017 was K8,000,000

(2) Plant and equipment was bought on 1 January 2017 its expected to last 10,000 operating hours with the residual value of K800,000.It was used 1,500 hours from 1 January to December 2017.The unit of output method is used to depreciate this Page 3 of 6 equipment and is charged 40% to cost of sales, 50% to distribution and 10% to administration.

(3) The building component included in the land and building at a cost is K10, 000,000 its expected life is 20 years and is depreciated using the double declining balance method. Depreciation is charged 50% to administration cost and 50 % to cost of sales.

(4) On January 1 2017 Barloworld borrowed by purchasing a bond which hard a par value of K400, 000 and a coupon rate 8% , interest is payable annually at the end of the year, and the bond matures in six years effective interest rate on this bond is 10%.Both the initial borrowing and the interest payments have not been recorded.

(5) On January 1, 2017, Barloworld sold equipment to KCM for K240, 000. This price included a 2-year assurance warranty service. KCM received and paid for the equipment on the same date. The standalone price for the equipment is K12, 000 .The accountant has recognized the all K240, 000 as revenue and its included in the revenue for 2017.

Required:

a) Prepare the adjusting journals for the additional information 1-5 above (16 marks)(note that adjustment for 4 and 5 caries 5 marks each)

b) Prepare the income statement for Barloworld for the year ended 31 December 2017 and the statement of financial position together with and notes as at 31 December 2017 in accordance with International Financial Reports Standards (IFRS s).( 15 marks)