The trial balance at 31^st August 2021 and additional information relating to the year then ended for Grace Ltd are given below.

Additional information at 31/08/21

1. During the year computer equipment which had cost £20,000 in December 2017 was sold. To record this the trainee bookkeeper debited the bank account and opened a new account to record the other side of the entry. No other adjustments have been made in respect of this
2. Closing inventory was valued at £53,500.
3. Included in the administrative expenses is a payment of £1600 for services to be received in April 2022.
4. Costs should be allocated on the basis of their function. Costs and gains relating to property, plant and equipment should be apportioned to the cost of sales, distribution expenses and administrative expenses in the ratio 2:1:2.
5. Depreciation is to be charged at 10% on the straight line basis, with a full year’s charge in the year of acquisition and none in the year of disposal:
6. The directors elected to pay no ordinary cash dividends during the year. Instead, on 5th July 2021 they made a 2 for 5 bonus issue of shares. As at the year- end no adjustments had been made to record the transaction. vii) The tax expense for the year should be estimated as 20% of the pretax profits.
7. None of the long-term capital is due to mature in the foreseeable future. The full annual dividend for the preference share has been paid and correctly recorded
8. The allowance for doubtful debts should be adjusted to £1500 at the year-end.
9. At the year-end the directors propose to pay a cash dividend of 10% of the year’s profits.
10. Required:

a) Use the information above to prepare for Grace Ltd, in a format suitable for publication, the following:

(i) An income statement for the year ended 31st August 2021 with all expenses classified by function,

(ii) A statement of changes in equity for the year ended 31st August 2021

1. 
   
   3. A statement of financial position at 31st August 2021 and
2. 
   
   4. Any relevant accompanying notes.

b) While the trainee bookkeeper is looking through the financial statements he notes your treatment of the preference share capital. Explain, WITH REASONS, how you have dealt with the preference share capital in preparing the financial statements

1,154,720

	£ £
5% Redeemable preference shares at 1/9/20	42,000
5% Loan notes	36,000
Accountancy fees	3,960
Administration expenses (note iv)	113,940
Allowance for doubtful debt at 1/9/20 (note ix)	1,260
Carriage inwards	800
Cash and bank	7,140
Directors' remuneration	118,160
Dividends from Leng plc	900
Interest paid	1,080
Inventories at 1/9/20	48,240
Ordinary shares (25p)	71,300
Preference dividends paid (note viii)	2,100
Property, plant and equipment:
At cost	244,000
Accumulated depreciation	32,490
Purchases	387,900
Receipt from sale of equipment (note i)	9,600
Retained earnings	34,970
Revenue	837,900
Sales commission paid	114,000
Share premium	33,680
Shares in Leng plc	45,900
Trade payables	54,620
Trade receivables	67,500