The following trial balance relates to Highwood at 31 March 2011 Equity shares of 50 cents each Retained earnings (note (i)) B% convertible loan note (note (ii)) Freehold property - at cost 1 April 2005 (land element $25 miltion (note (iti))) Plant and equipment - at cost Accumulated depreciation - 1 April 2O1O - building - plant and equipment Current tax (note (iv)) Deferred tax (note (iv)) lnventory - 4 April 2011 (note (v)) Trade receivables Bank Trade payables Revenue Cost of sales Distribution costs Administrative expenses (note (vi)) Loan interest paid (note (ii)) $'ooo 75,000 74,500 36,000 47,700 207,750 27,500 30,700 2,400 $'ooo 56,000 1,400 30,000 70,OOO 24,500 800 2,600 11,500 24,500 339,650 500,950 500,950 The following notes are relevant: (i) An equity dlvidend of 5 cents per share was paid in November 2010 and charged to retained earnings. (ii) The B% $30 million convertible loan note was issued on 1 April 2010 at par. lnterest is payable annually in arrears on 31 March each year. The loan note is redeemable at par on 31 March 2013 or convertible into equity shares at the option of the loan note holders on the basis of 30 equity shares for each $100 of loan note. Highwood's finance director has calculated that to issue an equivalent loan note without the conversion rights it would have to pay an interest rate of 10% per annum to attract investors. The present value of $1 receivable at the end of each year, based on discount rates of B% and lOTo are: 8% to% End of year 1 0'93 0.9i 2 0.86 0.83 3 0.79 0.75 (iii) Non-current assets: On 1 April 20i0 Highwood decided for the first time to value its freehold property at its current value. A qualified property valuer reported that the market value of the freehold property on this date was $80 million, of which $30 million related to the land. At this date the remaining estimated life of the property was 20 years. Highwood does not make a transfer to retained earnings in respect of excess depreciation on the revaluation of its assets. Plant is depreciated aI 20% per annum on the reducing balance method. All depreciation of non-current assets is charged to cost of sales. (iv) The balance on current tax represents the under/over provision of the tax Iiability for the year ended 31 March 2010. The required provision for income tax for the year ended 31 March 2011 is $19.4 million. The difference between the carrying amounts of the net assets of Highwood (including the revaluation of the property in note (iii) above) and their (lower) tax base at 31 March 2011 is $27 million. Highwood's rate of income tax is 25%. (v) The inventory of Highwood was not counted until 4 April 2011 due to operational reasons. Atthis date its value at cost was $36 million and this figure has been used in the cost of sales calculation above. Between the year end of 31 lVlarch 2011 and 4 April 2011, Highwood received a delivery of goods at a cost of $2.7 million and made sales of $7'B million at a mark-up on cost of 30%. Neither the goods delivered nor the sales made in this period were included in Highwood's purchases (as part of cost of sales) or revenue in the above trial balance. I i L L l Question 2 7 (vi) On 31 March 2011 Highwood factored (sold) trade receivables with a book value of $10 million to Easyfinance. Highwood received an immediate payment of $8.7 million and will pay Easyfinance 2% per month on any uncollected balances. Any of the factored receivables outstanding after six months will be refunded to Easyfinance. Highwood has derecognised the receivables and charged $1.3 million to administrative expenses. lf Highwood had not factored these receivables it would have made an allowance of $600,000 against them., Required: (0 Prepare the statement of comprehensive income for Highwood for the year ended 31 March 2011; (ii) Prepare the statement of changes in equity for Highwood for the year ended 31 March 2011; (iii) Prepare the statement of financial position of Highwood as at 3L March 2011. Note: your answers and workings should be presented to the nearest $1,000; notes to the financial statements are not required.