You are given the following information:

i$.$ The interest payable on the debenture at $6\%$ per annum for the year ending $2020$ has

not yet been accounted for anywhere.

ii$.$ Inventory at $31$ December $2020$ at cost was $1,200,000.$ The market value of the

inventory at this date was $1,140,000.$

iii. Production expenses are to be treated as part of the 'Cost of Sales' figure.

iv$.$ Property should be depreciated over on a straight$-$line basis over $20$ years. No

depreciation has been charged in the current year. See also note $($vi$)$ below for the

allocation of depreciation expense.

v$.$ Plant and Equipment are to be depreciated at $25\%$ on a reducing balance basis. See

also note $($vi$)$ below for the allocation of depreciation expense.

vi$.$ Depreciation is to be allocated to expense headings as follows:

a$.$ Production Expenses

$60\%$

b$.$ Sales and Distribution Expenses

$25\%$

c$.$ Administration Expenses

$15\%$

vii. On $1$ January $2020,$ Stebbings Ltd acquired a specialist equipment from Walsh Leasing

Solutions Ltd through a lease contract. The fair value of the asset at the inception of the

lease on $1$ January $2020$ was $2,400,000$ and the duration of the contract is four years.

The lease payment is paid in arrears $($i$.$e$.,$ at the end of the year, $31$ December$)$ for an

amount of $685,000.$ To date, aside from the first lease payment made on $31$ December

$2020,$ no other accounting entries were recorded for the transaction. The interests to be

recorded for the year $2020$ for Stebbings Ltd correspond to $132,000.$ Payment to be

made by the end of next year is $583,000.$ The remaining amount due after $12$ months is

$1,264,000.$

viii. Corporation tax for the year of $762,000$ is to be provided.

ix$.$ A bonus issue of one $($bonus$)$ share for every five ordinary shares made during the year,

to be funded from the share premium account, has not been reflected in the trial

balance. There were no other movements in the ordinary shares issued.

Required:

$($a$)$ Prepare the Statement of Financial Position and the Income Statement for the year

ended $31$ December $2020$ for the directors.

$($b$)$ Explain why accountants use judgement in arriving at some of the figures to be included

in the financial statements and give examples of areas where judgement is important.The balances below have been extracted from the accounting records of Stebbings Ltd at $31$ December $2020$:

$\backslash$table$[[,\backslash$bar $($Dr$),,$Cr$],[,,],[$Sales$,,24,735\mathrm{.}000],[$Inventory as at $1$ January $2020,2,540,000,],[$Purchases$,13,200,000,],[$Production Expenses,$1,000,000,],[$Administration Expenses,$1,250,000,],[$Sales and Distribution Expenses,$1,340,000,],[$Leasing payment,$685,000,],[$Dividend paid,$400,000,],[$Property $-$ Cost,$6,200,000,],[\backslash$table$[[$Property $-$ Accumulated depreciation at $1$ January$],[2020]],,1,470,000],[$Plant and Equipment $-$ Cost,$3,290,000,,],[\backslash$table$[[$Plant and Equipment $-$ Accumulated depreciation at$],[1$ January $2020]],,1,850,000,],[$Debenture $6\%,,2,000,000],[$Bank$,8,265,000,,],[$Share Capital $($Ordinary Shares of $50$p each$),,5,000,000,],[$Share Premium,,$1,500,000,],[$Trade receivables,$2,200,000,],[$Retained Earnings at $1$ January $2020,,1,280,000],[$Trade payables,,$2,535,000],[,40,370,000,40,370,000]]$