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Required: a) For Issue 1 Revaluation of land and Issue 2 Investment, explain the appropriate financial reporting treatment making reference to relevant accounting standards; and set out the accounting adjustments required to correct the financial statements for Metalwise plc for the year ended 31 December 2020. Maximum words for part a) = 450 (10 marks) b) Including your recommended adjustments from part a) and the advance and additional information for Issue 3, calculate the current and deferred tax liabilities for Metalwise plc for the year ended 31 December 2020. Set out the journals to adjust the statement of comprehensive income and the statement of financial position. (20 marks) c. Prepare a revised statement of comprehensive income and statement of financial position for Metalwise plc for the year ended 31 December 2020 which reflects your adjustments for a) and b) above. You must show your workings. (20 marks) Exhibit 1: Metalwise plc- draft financial statement extracts Draft summary statement of comprehensive income for the year ended 31 December 2020 5000 Revenue $17.000 Cost of sales 450,000) Gross profit 167.000 Operating expenses 120,760 Operating profil 46.239 Finance costs 6.500) Profit before tax 39,739 Income tax expense (To be completed) Profit for the year 39.739 Other comprehensive income (To be completed) Total comprehensive income 39.739 Draft statement of financial position as at 31 December 2020 000 ASSETS Non-current assets Property, plant and equipment Exhibit 3 Issue 1) Intangible Investment (Exhibit 3 Issue 2) 100.000 10.000 18.000 118.000 Current assets Inventories Trade receivables Financial asset Cash and cash equivalents 93.062 35,035 50 3.322 136,469 1254,469 Total assets EQUITY AND LIABILITIES Share capital and share premium 100,000 Retained earnings 65.339 Other reserves 165,339 Long-term liabilities Long-term bank borrowings 35,010 Deferred tax - Balance at 1 January 2020 (Exhibit 3 Issue 3) 16.000 51,010 Current liabilities Trade and other payables 38,020 Current tax payable (Exhibit 3 Issue 3) 1100 38,120 Total equity and liabilities 254,469 Exhibit 2: Metalwise - accounting policies as disclosed in the financial statements Exhibit 2: Metalwise - accounting policies as disclosed in the financial statements Taxation Current and deferred taxation are recognised in accordance with IAS 12 Income Taxes, in the SOPL for the period, except where the taxation arises because of a transaction or event that is recognised directly in equity. Taxation arising on transactions or events recognised directly in equity is charged or credited directly to other reserves in equity. Deferred tax is recognised in respect of all taxable temporary differences, using the liability method, that have originated but not reversed at the balance sheet date. Deferred tax is measured using tax rates enacted at the balance sheet date. A deferred tax asset is recognised only when it is regarded as more likely than not that it will be recovered. Deferred tax liabilities are provided in full with no discounting Current tax represents the estimate of company tax payable calculated based on the tax legislation enacted during the accounting period. Any over or under provision arising from the settlement of tax liabilities is adjusted in the following accounting period. Additional information for the unresolved financial reporting issues in Exhibit 3 Advance information - Issue 1 Revaluation of Land Included in the balance for PPE is a plot of land. The land has been revalued at 31 December 2020 to 30 million. The directors have decided to include this revaluation of land in the statement of financial position but I have not put through the journal entries to recognise the revaluation. Additional information The cost of the land included in the PPE on the statement of financial position at 31 December 2020 is 20 million. In the tax jurisdiction where Metalwise operates, gains on land are taxed when the land is sold in the future period. Advance information - Issue 2 Investment 8.000.000 On 1 February 2020, Metalwise bought 200,000 shares of the issued ordinary share capital of KKL plc, a listed company. Each share cost 40 and he investment which this investment represents a 10% shareholding is a long- term investment in KKL plc. Metalwise incurred legal fees and brokers fees when it made this investment. Additional information Legal and brokers fees (transaction costs) of 500,000 are included in finance costs in the statement of profit or loss for the year ended 31 December 2020. The directors have made an irrevocable election to classify the investment as at fair value through OCI. At 31 December 2020, the fair value of one share in KKL plc was 45 per share. In the tax jurisdiction where Metalwise operates gains on the disposal of equity instruments are not taxable in the current or any future periods. The transaction costs in relation to the acquisition of shares are not allowed as a tax deduction in the year ended 31 December 2020 or in future periods. Advance information - Issue 3 Deferred tax liability brought forward and PPE timing difference At 1 January 2020, the deferred tax liability is recognised at 16 million in the statement of financial position and no adjustments have been made to this figure in the draft financial statements at 31 December 2020. The deferred tax liability arises solely in relation to the difference between the carrying amount of plant and machinery and its tax base. The carrying amount of this plant and machinery on 1 January 2020 was 95 million, and its tax base was 15 million. Depreciation is disallowed for tax purposes and a claim for tax depreciation is made each year in calculating the current tax liability for the company There were no additions or disposals of plant and machinery On 30 September 2020 Metalwise paid the current tax liability it owed for the year ended 31 December 2019. The balance on the current tax liability on the statement of financial position at 31 December 2020 represents an over provision in respect of the year ended 31 December 2019. I have not calculated the current tax or the deferred tax movement for the year ended 31 December 2020 Additional information The depreciation charge on PPE for the year ended 31 December 2020 was 8 million. This charge included 3 million depreciation on a building. No tax depreciation is available for buildings but Metalwise will claim 6 million tax depreciation for plant and machinery for the year ended 31 December 2020 On 1 April 2020, Metalwise bought the rights to a metal alloy process, an intangible asset. The carrying amount of this intangible asset is included on the statement of financial position at 31 December 2020 at 10 million. The intangible cost 14 million and amortisation of 4 million has been included in the statement of profit or loss for the year ended 31 December 2020. This is the correct financial reporting treatment for this asset. The tax treatment for intangibles in the tax jurisdiction where Metalwise operates permits tax deduction of 20% of the total cost of the intangible asset in the year it is purchased and 80% in the future accounting periods. For all other income and expenses the treatment for accounting profit and taxable profit are the same except for those differences identified above. The tax rate is 20%

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