Wateja Ltd. a general trading company, has produced the following draft accounts, prepared on the basis of historical costs, for the year ended 31 December 2003:Income statement for the year ended 31 December 2003SalesCost of sales:Opening InventoryPurchasesClosing inventoryGross profitDepreciationOperating expensesInterest payableProfit before taxTaxProfit after taxProposed dividendsRetained profitsRetained profits brought forwardRetained profits carried forwardSh. â000â2,20012,10014,300(2,500)3401,080 180Sh. â000â16,500(11,800)4,700(1,600)3,100(1,200)1,900(800)1,1005,7006,800Balance sheet as at 31 December2003Sh. â000â2002Sh. â000âAssetsNon current assetsLand and buildings: Cost DepreciationFixtures and fittings: Cost DepreciationInventoryAccounts receivableCashTotal assetsOrdinary share capitalRetained profitsShareholders funds6% loan stockAccounts payableTax payableDividends proposedTotal equity and liabilities7,000(200)3,000(1,050)2,5002,900 1,70015,8502,0006,8008,8003,0002,0501,200 80015,8507,000(160)3,000(750)2,2002,700 16014,1502,0005,7007,7003,0001,8001,050 60014,150Additional information:1. Land and buildings were acquired on 1 January 1999. The split of total cost is estimated as land, Sh. 5 million and buildings, Sh. 2 million. Buildings are depreciated at 5% per annum on a straight line basis. Estimated open market values are as follows:31 December 2003Sh. â000â31 December 2002Sh. â000âLandBuildings16,000 6,30022,30014,000 6,00020,0002. Fixtures and fittings were acquired on 30 June 2000 and are depreciated at 10% per annum on straight line basis. Suitable indices for current cost accounting are as follows:30 June 200031 December 2002Average for 200331December 2003122153163173 Any depreciation adjustment should be based on average values.3. Inventory, accounts receivables and accounts payable at each balance sheet date are estimated to have been in existence for an average of two months. Suitable indices are provided below: 31 October 200231 December 2002Average for 200331 October 200331 December 20031321341401441464. During the year ended 31 December 2003, the retail price index showed the following movements:31 December 2002Average for year 200331 December 20031241311385. The company has produced supplementary current cost account since incorporation. At 31 December 2002, the balance on the current account cost reserve was Sh. 14,864,000.Required:(a) Current cost income statement for the year ended 31 December 2003. (10 marks)(b) Current cost balance sheet as at 31 December 2003.
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