Question 2 (UOL 2008) Hope Ltd started trading on 1 January 2007. The Income Statement and the balance sheet for the first year of trading are given as follows: Income Statement Sales Cost of sales Opening Invento Purchases Gross profit Expenses Depreciation Net profit SOFP Non-Current Assets | Plant and machine Z Cost 200,000 I Accumulated depreciation 10.000) | Net book value 190,000 _ Invento 20,000 s 80,000 | Long term liabilities Debentures 20.000) | Netassets | | 150000 Share capital (E1 shares 100,000 | Income Statement 50,000 Share capital and reserves ] 0.000 | The price change indices for the year were identified as follows: Indices 1 January Average for 30 November 31December 2007 the year 2007 2007 Inventory 115 130 140 150 Plant and Machinery 125 145 150 155 RPI 135 155 160 170 Closing Inventory was acquired on 30 November 2007, All fixed assets and opening Inventory were acquired on the first day of trading. Sales and purchases accrue evenly throughout the year. Required (a) Prepare the current purchasing power Income Statement and SOFP as at 31 December 2007. (8 marks) (b) Prepare the current value (replacement cost) Income Statement and SOFP as at 31 December 2007 and explain how the fixed asset adjustment arises. Ilgnore gains and losses on net monetary items and gearing adjustments and use the maintenance of physical / operating capacity principle. Depreciation is to be calculated on year-end replacement cost. (9 marks)