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Moonlight Ltd ("Moonlight") is in the business of designing, manufacturing and supplying various types of glass products for decoration, architecture and residence uses. Thomas Lo, the accountant, is responsible for preparing the general purpose financial statements using the financial information below. Trial balance at 31 December 2019 Debit Credit $000 $000 Production machine 4,000 Property, plant and equipment - at cost 850,000 - Accumulated depreciation - 1 January 2019 421,000 Inventories - 31 December 2019 240,000 Accounts receivable 177,300 Provision for bad debts 5,300 Accounts payable 136,440 Bank 100,800 Ordinary share capital 360,000 Preference share capital 150,000 Retained profits -1 January 2019 238,600 6% convertible debentures 280,000 Current tax 3,240 Deferred tax 6,300 7,020 Revenue 1,050,000 Provision for warranty cost 5,100 Interest income 4,200 Cost of sales 637,700 Selling and distribution costs 138,000 General and administrative costs 132,900 Debenture interests paid 11,200 Fixed bank deposits 180,000 Preference dividends paid 50.000 Ordinary dividends paid 132,700 2,660,900 2,660,900 The following notes are also relevant: 1 . The total number of ordinary shares outstanding at 31 December 2018 was 25,000,000 shares. Moonlight made a rights issue of one new for every five shares held on 1 July 2019 and a new issue of 3,000,000 shares at its full market price of $3 each on 1 November 2019. The exercise price of the rights issue was $1.20 and the average market price immediately preceding the rights issue was $3.20. The total number of convertible preference shares outstanding at 31 December 2018 was 150,000,000. There was no change in the convertible preference shares during the year. Preference shareholders are entitled to fixed amount of dividends each year.The 6% convertible debentures were issued on 1 March 2013. Debenture interest is payable half-yearly in arrears on 1 September and 1 :March. Each $1,000 convertible debentures can be converted into 200 ordinary share; any time after 31 December 2021. On 2 January 2019, Moonlight leased a production machine for 5 years with an option to renew for another 2 years under the same terms. At the inception of the lease, the management is uncertainwhether it should renew the lease. The fair value of the machine is $15,630,000. Moonlight is required to make equal annual rental payment of $4,000,000 commencing 2 January 2019. The lease has an implicit interest rate of 10% and the useful life of the leased asset is 10 years. Moonlight adopted a straightline depreciation for the leased machinery. I'doonlight also paid $15,000 in negotiating and signing the lease agreement, and $150,000 initial direct cost as installation and machine testing cost. Moonlight has performed the following entries in relation to the lease: Dr. Production machine $4,000,000 Dr. Cost of sales 155,000 Cr. Bank $ 4,165,000 I'doonlight leased l0 ipads for the use of directors and senior management personnel under a 13-month lease on 1 April 2019- The market price of each ipad on 1 Apri12019 was $1450. Moonlight made an initial paynaent of $25,600 on lApril 2019 followed by a monthly payment of$4,0'00 for 1'?" months commencing 1 May 2019. According to the lease agreement, Moonlight has exchisive use of the ipads but the lessor will be responsible for the repair and maintenance of the products. The lease is cancellable after 12 months if it is replaced by a similar lease of ipads. However, all the lease payments made are not refundable if the lease is cancelled. The management has no intention to cancel the lease after 12 months. The lease transaction qualies for the simplied lease accounting model under HKFRS 16. The accounting staff has charged all the lease payments to general and administrative expenses. Moonlight annual incremental borrowing rate is 10%. Moonlight's accounting policy is to provide depreciation on noncurrent assets based on yearend gures. Property, plant and equipment (PPE) are depreciated over 10 years on a straight-line basis. There were no additions or disposals of PPE during the year. Depreciation on PPE is charged to cost of sales. At 3 1 December 2019, Moonlight decided to measure its PPE using the revaluation model and has engaged a qualified professional valuer to perform the valuation. At 16 February 2020, the management received conrmation that the fair value of the machine cost should be revalued upward by $20 million at 31 December 2019. The revaluation gain does not affect the tax base of the PPE- A provision for current year tax of $8.2 million should he made for the year ended 31 December 2019- The balance on current tax account in the trial balance represented the underfover provision of the tax liability the year before. At 31 December 2019, the outstanding deductible and taxable temporary differences were $24,000,000 and $42,000,000 respectively. 25% of the deferred tax assets were expected to reverse in the 4 ACT BSSZF Group Assignment V1 next 12 months. These gures did not include the tax effects arising on the revaluation of PPE in note 5. Moonlight has the practice of offering a 12month warranty to the products sold. According to the terms and conditions specied in the sales contract, Moonlight undertakes to remedy= by repair or replacement, manufacturing defects that become apparent within 12month from the date of sale. Past experience indicated the following: (i) Repair costs depend on the extent ofthe defects: 58 million in case all products will suffer minor defects and $22 million in case all products will su'er major defects; (ii) Moonlight estimated that 60% of the products will sulfa no defects, 25% products will suffer minor defects= and 15% products will suffer major defects; (iii) Assume all cash ows happen at the end of each year. Ignore time value of money of warranty costs. Assume corporate tax rate is 20%. Required: Prepare the following nancial statements for Moonlight in accordance with the legal and professional requirements in Hong Kong [ignore notes to the accounts and express all your answers in thousand dollars): (a) Statement of prot or loss and other comprehensive income for the year ended 31 December 2019. (22 mark)