The equity of Fiorente Ltd at 30 June 2018 was:

Share capital 500 000 5% cumulative preference shares issued at $1 each 1 000 000 ordinary shares issued at $2 each		$	500 000 2 000 000
Total share capital General reserve Retained earnings			2 500 000 350 000   (200 000)
		$	3 650 000

Additional information

During the year ended 30 June 2019, the following transactions occurred:

2018 Oct.   1 Dec.   1 2019 Feb.   1 June 30

Fiorente Ltd settled a long standing civil lawsuit for $125 000 (significantly less than had been expected). The directors had previously placed $350 000 into a general reserve in anticipation of the potential costs. The board has now decided that the general reserve can be discontinued. The directors had not paid the preference shareholders their dividend for 2018, given the lack of retained earnings. They now declare and pay the dividend. The profits for the half year were such that the directors declare and pay 15c per share interim dividend for ordinary shareholders. The profit before tax for the year was $1264000. The directors decided to recommend final dividend of 30c per share for ordinary shareholders. Assume the tax rate is 30% for estimating income tax expense.

In determining the profit before tax of $1 264 000 the following items were taken into account:

Sales Cost of sales Selling, distribution and administrative expenses Damages on lawsuit Revaluation down of land Profit on sale of investment in government bonds Bad debts expense

$

7 510 000 5 760 000 61 000 125 000 351 000 585 000 220 000

Required

A. Prepare general journal entries for all dated transactions in the additional information.

B. Prepare a statement of profit or loss and other comprehensive income for the reporting period ended 30 June 2019 in accordance with current accounting standards.

C. Prepare a statement of changes in equity for Fiorente Ltd for the reporting period ended 30 June 2019.

D. Discuss the nature and purpose of the general reserve.