Reference no: EM132522718

Vwalika plc was created on 1 January 2010 with a share capital of K150,000, fully paid in cash on that date. The price level index at that date was 100.

The following transactions were recorded:

1. Purchased equipment for K90,000, K40,000 paid when the index was 100, and payment of the balance being deferred for 18 months.
2. Purchased goods for K88,000 when the index was 100.
3. Purchased goods for K90,000 when the index was 110.
4. Sold goods for K200,000 when the index was 120, the cost of sales amounting to K120,000.
5. Cash expenses amounted to K32,000, and a depreciation provision of 10 per cent on historic cost of equipment was made at year end.

Additional information as at 31 December 2010 was as follows:

Trade debtors K36,000

Bank balance K81,000

Creditors K67,000

Closing inventory was valued at K58,000 on a FIFO basis.

The index at year end was 120.

Required:

Question (a) Calculate the purchasing power gain or loss on the monetary items.

Question (b) show an inflation-adjusted income statement for the year ended 31 December 2010.

Question (c) show an inflation- adjusted balance sheet as at 31 December 2010 when the price level index was 130.