Question One 1100 Marks! The following below represents the trial balance for Bengals Enterprise Limited a private traded entity for period ended December 31, 2019: Bengal's Trial balance for the period ended December 31, 2019 Debit Credit 4.500.000,00 100 000 000.00 350 000 000 00 15.000.000,00 25,000,000.00 SO 000 200 00 100 000.000.00 60,000,000.00 30,000,000.00 9,000,000.00 21.000.000.00 7.500.000,00 2,250,000.00 15.000.000.00 100.000.000.00 225.000.000.00 30,000,000.00 Cash and Bank Balance Land Building Furniture & Fittings at cost Machinery at cost Motor Vehicles at cost Equipment at Cost Equipment:Accum Dep'n as at Jan 1, 2019 Motor Vehides Accum Dep'n as at Jan 1, 2019 Furniture & Fixtures.Accum Depinas at Jan 1, 2019 Building Accum Depinas at Jan 1, 2019 Machinery Accum Dep'n as at Jan 1, 2019 Trade Payables Trade Receivables Patents Research & Development Cost Patents:Accum Amortization as a Jan 1, 2019 Lease 5X Convertible Note Provision for Blad Debt Deferred Tax Liability Under Provision of Tax Retained Earnings Contingent Liability Revenues Share Premium 10% Bank Loan Bank Interest Payment Revaluation Reserves Ordinary Share Capital 14% Redeemable Preference Share Capital Cost of Goods Sold Admin Expense Operating Expense Inventory 4.000.000,00 6.000 000.00 1.200.000,00 36,000,000.00 2.000.000,00 10 000 000 00 40,000,000.00 1,053,000,000.00 95,000,000.00 100,000,000.00 4.000.000.00 100,000,000.00 100,000,000.00 100,000,000.00 315 900 000.00 271.000.000.00 172,000,000.00 15.550 000.00 1.754 950.000.00 1.784.950.000,00 The following information are deemed relevant to the preparation of the draft financial statements which are to be presented to the entity's auditors Property, plant and equipment A revaluation exercise took place as at December 31, 2019, which indicated that land was revalued upward to S200 million, while building had a current value of $400 million Building is depreciated over a period of fifty years to a nil residual value and charged equally between administrative expense as well as cost of goods sold. No depreciation or revaluation were booked for the current period. The effect of revaluation is not included in the total accumulated temporary differences below. Motor vehicles are depreciated over a period of five years using a straight line basis to a nil residual value. The annual depreciation is to be charged to operating expenses. No depreciation was booked on motor vehicle for the current period. Equipment is to be depreciated over five years on a straight line basis to a nil residual value. No depreciation was booked on equipment for the current period. However, management have conducted a vigorous advertising campaign to have the pieces of equipment sold. The sale was advertised at fair value and a suitable buyer has been located. It was ascertained that management is committed to plan of sale and the sale is now deemed highly probable. At the end of the year the pieces of equipment have a fair value of S27 million, but the cost of disposing will amount to only $2 million Furniture and fittings are depreciated over a period of five years on a straight line basis to a nil residual value. No amortization has been book for the current period, but is to be charged to operating and administration expense in the ratio of 75:25 respectively. Trade Receivables Provision for depreciation is to be 10% of adjusted trade receivable balance of the total gross trade receivables currently reported, S5 million relates to receivables already paid by the customer during 2018, but the monics were stolen by the accounts receivable clerk who has recently retired and cannot be located. Ignore and tax effect on the aforementioned adjustment. Research and Development Costs of the total R&D cost, $125 relates to research and the remainder to development. A quarter of the development cost was incurred January 1, 2019 to March 31, 2019. The product has reached technical commercial and operating feasibility as of April 1, 2019. Any capitalized development cost is to be amortized over ten years, time apportioned where necessary. Amortization of development cost is to be charged to cost of goods sold. Patents are to be amortized of a period of ten years to a nil residual value. Lease Payments Lease payments relate to the rental of a machine. The agreement was finalized on January 1. 2019. The agreement entails the lessee payment S4 million annually for a period of three years. However, the useful life of the machine is five years. The implicit rate in the lease is 2% below the incremental borrowing rate. The incremental borrowing rate is currently 12% per annum. Included in operating expense is S2 million for legal fees to write the above lease agreement on January 1, 2019 Convertible Note The convertible loan note above was issued on January 1, 2019. The effective rate of interest on similar loan note is currently 14%. The loan note is expected to be redeemed at the end of the third year. The nominal value of the loan note is $120 million on January 1, 2019. The loan pays interest at 5% in artears annually. Contingent Liability This amount is recognized in administrative expenses. The contingent liability relates to environmental pollution, but which is now deemed possible by the entity's attomeys. The treatment of the contingent liability will have no effect of accumulated temporary differences below Taxation The current rate of tax is 25%. Taxable profits reported for the current year of assessment amounted to $400 million. The entity also has accumulated tacable temporary difference of S240 million, which has not accounted for the effect of revaluation above and tax losses carryforward from previous years. The tax losses carryforward amounts to $800 million. In addition the government's new fiscal policies have granted the entity tax credits of an additional $200 million, which are unused and can be utilized next year provided that the entity earns taxable profits. Assessments by management indicates that it is probable that there will be sufficient taxable profits in the future to absorb these benefits. All benefits and exposures relate to the same taxation authorities in Jamaica The under-provision relates to prior year taxation Equity and reserves The par value of the ordinary shares is S1. The entity decides to make a bonus issue of three new shares for five existing shares as at January 1, 2019. The bonus issue was followed by was followed by a one for four rights issue on April 1, 2020 at $8. The market price of each share at the date of issue was $10. Dividends on the redeemable ordinary shares are currently unpaid at the year end. However, the entity declared ordinary year end dividends of $0.05 per share on December 31, 2019. The declared dividends are expected to be paid on February 10, 2020. It also paid interim dividends on July 1, 2019 totaling $50 million, however, on further investigations, this amount remained unrecorded to date. Administrative Expenses Included in administrative expense is the results of discontinued operations. This entails a division with net book value of $600 million that was sold for only $580 million. In addition to the sale, the entity also incurred redundancy costs of S80 million. These amounts were initially recorded in administrative expenses. The tax implication of these transactions were appropriately accounted for. Operating Expenses Included in operating expense is the cost of a brand that was bought on July 1, 2019 for $20 million and is to be amortized on a straight line basis over 20 years to a nil residual value from the date of capitalization Required: a. Prepare the statement of profit or loss and comprehensive income for the period ended December 31, 2019 | 18 marks b. Prepare the statement of changes in Equity for the period ended Dec 31, 2019 | 12 marks] c. Prepare the statement of financial position as at December 31, 2019 [ 30 marks d. Prepare the basic earnings per share for the period ended December 31, 2019 | 5 marks e. Prepare all relevant journal entries based on adjustments made during the period 35 marks Question One 1100 Marks! The following below represents the trial balance for Bengals Enterprise Limited a private traded entity for period ended December 31, 2019: Bengal's Trial balance for the period ended December 31, 2019 Debit Credit 4.500.000,00 100 000 000.00 350 000 000 00 15.000.000,00 25,000,000.00 SO 000 200 00 100 000.000.00 60,000,000.00 30,000,000.00 9,000,000.00 21.000.000.00 7.500.000,00 2,250,000.00 15.000.000.00 100.000.000.00 225.000.000.00 30,000,000.00 Cash and Bank Balance Land Building Furniture & Fittings at cost Machinery at cost Motor Vehicles at cost Equipment at Cost Equipment:Accum Dep'n as at Jan 1, 2019 Motor Vehides Accum Dep'n as at Jan 1, 2019 Furniture & Fixtures.Accum Depinas at Jan 1, 2019 Building Accum Depinas at Jan 1, 2019 Machinery Accum Dep'n as at Jan 1, 2019 Trade Payables Trade Receivables Patents Research & Development Cost Patents:Accum Amortization as a Jan 1, 2019 Lease 5X Convertible Note Provision for Blad Debt Deferred Tax Liability Under Provision of Tax Retained Earnings Contingent Liability Revenues Share Premium 10% Bank Loan Bank Interest Payment Revaluation Reserves Ordinary Share Capital 14% Redeemable Preference Share Capital Cost of Goods Sold Admin Expense Operating Expense Inventory 4.000.000,00 6.000 000.00 1.200.000,00 36,000,000.00 2.000.000,00 10 000 000 00 40,000,000.00 1,053,000,000.00 95,000,000.00 100,000,000.00 4.000.000.00 100,000,000.00 100,000,000.00 100,000,000.00 315 900 000.00 271.000.000.00 172,000,000.00 15.550 000.00 1.754 950.000.00 1.784.950.000,00 The following information are deemed relevant to the preparation of the draft financial statements which are to be presented to the entity's auditors Property, plant and equipment A revaluation exercise took place as at December 31, 2019, which indicated that land was revalued upward to S200 million, while building had a current value of $400 million Building is depreciated over a period of fifty years to a nil residual value and charged equally between administrative expense as well as cost of goods sold. No depreciation or revaluation were booked for the current period. The effect of revaluation is not included in the total accumulated temporary differences below. Motor vehicles are depreciated over a period of five years using a straight line basis to a nil residual value. The annual depreciation is to be charged to operating expenses. No depreciation was booked on motor vehicle for the current period. Equipment is to be depreciated over five years on a straight line basis to a nil residual value. No depreciation was booked on equipment for the current period. However, management have conducted a vigorous advertising campaign to have the pieces of equipment sold. The sale was advertised at fair value and a suitable buyer has been located. It was ascertained that management is committed to plan of sale and the sale is now deemed highly probable. At the end of the year the pieces of equipment have a fair value of S27 million, but the cost of disposing will amount to only $2 million Furniture and fittings are depreciated over a period of five years on a straight line basis to a nil residual value. No amortization has been book for the current period, but is to be charged to operating and administration expense in the ratio of 75:25 respectively. Trade Receivables Provision for depreciation is to be 10% of adjusted trade receivable balance of the total gross trade receivables currently reported, S5 million relates to receivables already paid by the customer during 2018, but the monics were stolen by the accounts receivable clerk who has recently retired and cannot be located. Ignore and tax effect on the aforementioned adjustment. Research and Development Costs of the total R&D cost, $125 relates to research and the remainder to development. A quarter of the development cost was incurred January 1, 2019 to March 31, 2019. The product has reached technical commercial and operating feasibility as of April 1, 2019. Any capitalized development cost is to be amortized over ten years, time apportioned where necessary. Amortization of development cost is to be charged to cost of goods sold. Patents are to be amortized of a period of ten years to a nil residual value. Lease Payments Lease payments relate to the rental of a machine. The agreement was finalized on January 1. 2019. The agreement entails the lessee payment S4 million annually for a period of three years. However, the useful life of the machine is five years. The implicit rate in the lease is 2% below the incremental borrowing rate. The incremental borrowing rate is currently 12% per annum. Included in operating expense is S2 million for legal fees to write the above lease agreement on January 1, 2019 Convertible Note The convertible loan note above was issued on January 1, 2019. The effective rate of interest on similar loan note is currently 14%. The loan note is expected to be redeemed at the end of the third year. The nominal value of the loan note is $120 million on January 1, 2019. The loan pays interest at 5% in artears annually. Contingent Liability This amount is recognized in administrative expenses. The contingent liability relates to environmental pollution, but which is now deemed possible by the entity's attomeys. The treatment of the contingent liability will have no effect of accumulated temporary differences below Taxation The current rate of tax is 25%. Taxable profits reported for the current year of assessment amounted to $400 million. The entity also has accumulated tacable temporary difference of S240 million, which has not accounted for the effect of revaluation above and tax losses carryforward from previous years. The tax losses carryforward amounts to $800 million. In addition the government's new fiscal policies have granted the entity tax credits of an additional $200 million, which are unused and can be utilized next year provided that the entity earns taxable profits. Assessments by management indicates that it is probable that there will be sufficient taxable profits in the future to absorb these benefits. All benefits and exposures relate to the same taxation authorities in Jamaica The under-provision relates to prior year taxation Equity and reserves The par value of the ordinary shares is S1. The entity decides to make a bonus issue of three new shares for five existing shares as at January 1, 2019. The bonus issue was followed by was followed by a one for four rights issue on April 1, 2020 at $8. The market price of each share at the date of issue was $10. Dividends on the redeemable ordinary shares are currently unpaid at the year end. However, the entity declared ordinary year end dividends of $0.05 per share on December 31, 2019. The declared dividends are expected to be paid on February 10, 2020. It also paid interim dividends on July 1, 2019 totaling $50 million, however, on further investigations, this amount remained unrecorded to date. Administrative Expenses Included in administrative expense is the results of discontinued operations. This entails a division with net book value of $600 million that was sold for only $580 million. In addition to the sale, the entity also incurred redundancy costs of S80 million. These amounts were initially recorded in administrative expenses. The tax implication of these transactions were appropriately accounted for. Operating Expenses Included in operating expense is the cost of a brand that was bought on July 1, 2019 for $20 million and is to be amortized on a straight line basis over 20 years to a nil residual value from the date of capitalization Required: a. Prepare the statement of profit or loss and comprehensive income for the period ended December 31, 2019 | 18 marks b. Prepare the statement of changes in Equity for the period ended Dec 31, 2019 | 12 marks] c. Prepare the statement of financial position as at December 31, 2019 [ 30 marks d. Prepare the basic earnings per share for the period ended December 31, 2019 | 5 marks e. Prepare all relevant journal entries based on adjustments made during the period 35 marks