Reference no: EM131295863

Question 1. Alkal Co. is a publicly traded production entity. The Company stores finished products in a warehouse until customer orders are processed. Alkail Co. has been facing some financial difficulties lately and has embarked on reorganization in order to improve their results.

The Company trial balance as at 31 December 2010 was as follows:

	$'000	$'000
Sales		124,900
Cost of goods manufactured in 2010
(without depreciation)	94,000
Distribution costs	9,060
Administration costs	16,020
Restructuring costs	121
Interest received		1,200
Loan note interest paid	639
Land and buildings (including land $20,000,000)	50,300
Plant and equipment	3,720
Accumulated depreciation at 31 December 2009:
Buildings		6,060
Plant and equipment		1,670
Investment properties (at market value)	24,000
Inventories at 31 December 2009	4,852
Trade receivables	9,330
Cash	1,190
Ordinary shares of $1 each, fully paid		20,000
Share premium		430
Revaluation surplus		3,125
Retained earnings at 31 December 2009		28,077
Ordinary dividends paid	1,000
7% loan notes 2014		18,250
Trade payables		8,120
Proceeds of share issue		2,400
	214,232	214,232

The following notes are relevant:

(i) Property, plant and equipment are depreciated in the following manner:
- Buildings 5% per annum straight line.
- Plant and equipment 25% per annum reducing balance.

Depreciation of buildings is part of administration costs whereas depreciation of plant and equipment should be treated as a cost of sale.

(ii) The land was revalued to$24,000,000 on 31 December 2010.

(iii) Projected income tax for the year ending 31 December 2010 is $976,000.

(iv) The inventories at 31 December 2010 were valued at $5,180,000. Finished goods tests found that a manufacturing machine had not been properly calibrated and that several production lots, which had cost $50,000 to produce, had been defectively processed. The goods cannot be sold under these terms and need to be amended at an additional cost of $20,000. Following the additional intervention, these items could then be sold at a price of $55,000. The defectively processed goods were part of closing inventories at their cost of $50,000.

(v) The 7% loan notes are 10-year loans due for repayment by 31 December 2014. Loan interest needs to be accrued for the second ½ year to 31 December 2010.

(vi) The restructuring costs provided in the trial balance represent the cost of a large restructuring of Alkal Co. to recover financial performance and future market positioning.

(vii) During the period, the fair value of investment properties did not have to be adjusted.

(viii) In the course of the year the company issued 2m new ordinary shares for cash at $1.20 per share. The proceeds have been recorded as 'Proceeds of share issue'.

Required

Prepare for Alcal Co.:

a) Statement of profit or loss and other comprehensive income for the year ended 31 December 2010,

b) Statement of changes in equity for Alkal Co. for the year ended 31 December 2010, and

c) Statement of financial position as at 31 December 2010.

Notes to the financial statements are not required. All calculations must be clearly shown.

Question 2. Shown below are the statements of financial position for Trade Incorporated at 31 December 2000 and 31 December 2001 and the statement of profit or loss and other comprehensive income for the year ended 31 December 2001.

Statements of financial position	2001		2000
	$'000		$'000
ASSETS
Non-current assets
Property, plant and equipment	798		638
Development costs	110		92
	908		730
Current assets Inventories	313		280
Trade receivables	208		186
Cash and cash equivalents	111		4
	632		470
Total assets	1,540		1,200
EQUITY AND LIABILITIES
Equity
Ordinary shares of $1 each	220		200
Share premium	140		80
Revaluation surplus	42		-
Retained earnings	599		570
	1,001		850
Non-current liabilities
4% loan notes	250		100
Provision for warranties	30		26
	280		126
Current liabilities Trade payables	152		146
Current tax payable	102		78
Interest payable	5		-
	259		224
Total equity and liabilities	1,540		1,200

The following information is relevant:

(1) Depreciation of property, plant and equipment for 2001 was in amount of $54,000. Amortization of deferred development expenditure was$25,000.

(2) Proceeds from the sale of equipment were $58,000, with sales profit of $7,000. There were no other property, plant and equipment disposals during the year.

(3) Finance costs represent interest paid on the loan notes. New loan notes were issued on 1 January 2001.

(4) Trade Incorporated revalued its property at year end. Company policy is to treat revaluations as realised profits when the asset is retired or disposedof (i.e. derecognized).

(5) The Expenses item includes salaries paid in amount of $44,000 and$12,000 of bad debts.

Required

Prepare the statement of cash flows for Trade Incorporated for the year ended 31 December 2001, applying the indirect method in accordance with IAS 7.

Interpret the Statements of Cash Flows, wrapping up with Conlusions and Recommendations sections, for the Management Board of the company using the complete set of Financial Statements provided/calculated.