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Zinc is a limited liability company. The company's trial balance as at 31 December 2020 is presented below: Revenue 540,000 Purchases 216,000 Administrative expenses 168,000 Distribution expenses 67,200 Plant and Machinery-cost 180,000 Plant and Machinery - Accumulated depreciation af 1 January 2020 36,000 Trade receivables 43,200 Allowance for receivables - 1 January 2020 3,000 Inventory - 1 January 2020 39,600 Share capital 12,000 Trade payables 38,400 Retained earnings - 1 January 2020 30,600 8% Loan - repayable 31 December 2024 60,000 Cash 6,000 720.000 720,000 The following notes are relevant to the preparation of the financial statements for the year ended 31 December 2020: 1) The current year tax charge has been estimated at 6,000. 2) It has been determined that trade receivables of 1,800 are irrecoverable. In addition, it was decided that the allowance for receivables should be increased by 1,200. 3) Depreciation on plant and machinery is charged at 20% per annum on a reducing balance basis. Depreciation is charged to cost of sales. 4) The loan was taken out on 1 October 2020. No interest has been accrued. 5) Closing inventory has been correctly valued at 32,400. 6) A customer bought goods on credit from Zinc for 1,200 on 5 December 2020. The customer returned these goods on 28 December 2020. No entries have been posted for this return 7) Zinc is being sued by a customer regarding the sale of goods that the customer believes to be defective. Legal advisers think that it is probable that Zinc will lose the case and that they will have to pay damages of 24,000 in 2021. Legal expenses are charged to administrative expenses. Question 1 continues on the next page MN-2031 (August 2021) Page 3 Question 1 continued Required: a) Prepare the statement of profit or loss of Zinc for the year ended 31 December 2020. [15 marks) b) Prepare the statement of financial position of Zinc as at 31 December 2020. [20 marks] c) Briefly explain how companies should choose between straight-line method and reducing balance method when calculating the depreciation expenses and identify the circumstances which can make the reducing balance method more appropriate than the straight-line method. (5 marks) [Total 40 marks)

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