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The following information are deemed relevant to the preparation of the draft financial statements which are to be presented to the entitys auditors:

Property, plant and equipment

Property is inclusive of land and building. The approximate cost and fair value of the land is 20% of the total property cost and value. The remaining 80% relates to building, which has an estimated useful life of fifty years from the date of construction. Building is depreciated over a period of fifty years on a straight line basis to a nil residual value. Any depreciation of building is to be charged equally between cost of sales and administrative expenses. On December 31, 2020, the property had a fair value of $750 million and no adjustments were made by management.

Any taxable temporary differences as a result of revaluation were not included in the accumulated taxable temporary differences below.

Furniture and fitting are to be depreciated 10% on cost. The depreciation charges on furniture and fittings are to be included in administrative expenses.

On the other hand, plant and machinery are to be depreciated 10% on the reducing balance method and charged between, cost of sales, administrative expense and other operating cost in the ratio of 50%, 10% and 40% respectively.

Motor vehicles are to be depreciated on a straight line basis over a period of five years to a nil residual value. All depreciation charged on motor vehicle is to be recognized in distribution costs. The entity bought motor vehicle for $5 million on March 31, 2020 for cash, but was included in miscellaneous expenses.

The pieces of equipment are to be depreciated over a period of ten years to a nil residual value. The depreciation on equipment is to be charged to other operating expenses. On October 1, 2020, the entire pieces of equipment were held for sales and the sale was deemed highly probable, on the said date the equipment is to be sold at a fair value of $25 million and the cost of disposing is $5 million. Any impairment on this transaction should be charged to other operating expenses.

The lease payment on the trial balance relates to the first year payment of an arrangement to rent a specialized machine on January 1, 2020 for period of three years. The implicit rate in the lease is only 10%, but the incremental borrowing rate of interest represents 14%. Included in the rental payment in insurance expense of $5 million. Any insurance charges are should be recognized in other operating expenses. The under provision account on the trial balance also includes $5 million of legal fees to assist with initiating the lease agreement above. Depreciation on the right of use asset is to be charged equally between cost of sale and other operating expenses.

Intangible Assets

Brand is to be amortized over a period of ten years to a nil residual value and charged to other operating expenses.

On July 1, 2020, the entity also bought patent for $50 million in cash, but the transaction to date was not recorded by management. The entity normally amortizes patents over twenty years to a nil residual value. Any amortization of patents is to be charged to cost of sales.

Fifty percent of R&D costs relate solely to research and the remainder to development cost. However, half of the development cost reached the stage of commercial feasibility on December 1, 2020. Any capitalized development costs should be amortized over ten years to a nil residual value. Amortization on development cost should be recognized in cost of sales.

Trade receivables

It was ascertained on January 10, 2021, that $10 million of trade receivables, which relates to 2019, was in fact paid by the customer, however, the monies were stolen by the accounting manager who did not apply the payment to the debtors balance. The accounting manager was taken into custody as a result.

Provision for bad debts is to be adjusted to 5% of the adjusted accounts receivable balance. Any increase or reduction in provision for bad debts is to be recorded in administrative expenses.

Convertible loan note

On January 1, 2020, the entity issued a 2% convertible loan note, which has a par value of $500 million. The effective rate of interest on similar loan notes without any conversion features in 6%. The note pays interest annually in arrears. The note is to be redeemed for shares at the end of four years.

Taxation

The entitys auditors indicated that the taxable profits for the year of assessment 2020 amounted to $600 million. The corporate tax rate for 2020 was 25%. The remaining under provision on the trial balance above relates to prior year taxes. However, accumulated taxable temporary difference, which does not included revaluation above as well as unused tax losses and tax credits amount to $260 million.

The unused tax losses and credits amount to $400 million and $80 million respectively. It was ascertained by management that it is probable that the entity will have taxable profits in the future to utilize any unused tax losses and tax credits.

Cost of sales

On further investigation after conducted an inventory count on December 31, 2020, management counted inventory at cost of $150 million dollars, which was not recognized to date. Of the said amount 20% has become obsolete and needs to be written off. Any write off of inventory is to be charged to other operating expense.

Miscellaneous expenses

The remaining miscellaneous expense relates to the issue of shares on April 1, 2020 for a market price of $10 each. At the time of issue, the share had a par value of $2 each. On further analysis, only the credit side of the transaction was appropriately recorded by management.

Administrative expenses

Administrative expense includes the net results of a discontinued operation. The discontinued operation had total revenues of $500 million, total expenses of $450 million and cost of redundancy, which was not included in total expense above of $150 million.

The assets of the said division was disposed of for $100 million. On the date of disposal, the assets had cost and accumulated depreciation of $400 million and $250 million respectively.

Dividends

The entity paid interim dividends amounting to $115 million dollars in cash, which has not been recorded to date. On December 31, 2020, the entity declared dividends of $0.05 per share. The dividends are expected to be paid on February 15, 2021.

Required:

a. Prepare the statement of profit or loss and comprehensive income for the period ended December 31, 2019

b. Prepare the statement of changes in Equity for the period ended Dec 31, 2019

c. Prepare the statement of financial position as at December 31, 2019

d. Prepare the basic earnings per share for the period ended December 31, 2019

e. Prepare all relevant journal entries based on adjustments made during the period

The following below represents the trial balance for Montego Enterprise Limited a private entity for period ended December 31, 2020: Debit Credit 55,000,000.00 650,000,000.00 40,000,000.00 145,000,000.00 50,000,000.00 100,000,000.00 60,000,000.00 30,000,000.00 24,000,000.00 15,000,000.00 43,500,000.00 25,000,000.00 40,000,000.00 100,000,000.00 400,000,000.00 30,000,000.00 15,000,000.00 10,000,000.00 Bank Balance Property Furniture & Fittings at cost Plant and Machinery at cost Motor Vehicles at cost Equipment at Cost Equipment:Accum Dep'n as at Jan 1, 2020 Motor Vehicles:Accum Depinas at Jan 1, 2020 Furniture & Fixtures:Accum Dep'n as at Jan 1, 2020 Property :Accum Dep'n as at Jan 1, 2019 Plant and Machinery :Accum Depinas at Jan 1, 2020 Trade and Other Payables Trade Receivables Brand Research & Development Cost Brand :Accum Amortization as at Jan 1, 2020 Lease Payment 2% Convertible Note Provision for Bad Debt Deferred Tax Liability Under Provision of Tax Retained Earnings Discount Received Royalty Income Interest Income Provision Revenues Share Premium 14% Bank Loan Bank Interest Payment Share Premium Ordinary Share Capital 12% Redeemable Preference Share Capital Cost of Goods Sold Admin Expense Disctribution costs Other Operating Expense Miscellaneous Expense 10,000,000.00 50,000,000.00 45,000,000.00 55,000,000.00 50,000,000.00 56,000,000.00 1,250,000,000.00 95,000,000.00 200,000,000.00 5,500,000.00 150,000,000.00 400,000,000.00 250,000,000.00 500,000,000.00 228,000,000.00 170,000,000.00 260,000,000.00 25,000,000.00 2,838,500,000.00 2,838,500,000.00 Der erwin Dog

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