SECTION A: Compulsory question QUESTION ONE (40 marks) Kettering Plc, a trading company, was incorporated on 1 January 2016 The following information is available for the financial year to 31 December 2016 1. 3 million 1 ordinary shares were issued at par on January 1st Dividends of 6p per share were paid on these shares during the year 2. 1,140,000 4% preference shares of 1 each were issued 45,600 were paid on these shares during the year . Dividends of 3. A long-term loan of 1,400,000 was taken by the company on March 31st at a 6% interest rate, with 3% to be paid at the end of each six month period, the first payment being made on September 30th. The company received 20,000 interest on its cash balances during the year 4. Sales for the year are equal to 10,000.000 Revem Cush aut dministrative expenses paid during the year were (1,650,000 Administrative expenses owing at 31 December 2016 amounted to 265,000. 26 7. Wages paid during the year are equal to 750,000 ofawhich wages paid (ow in advance amounted to 30,000. ment was purchased for cash during the year (on 31 March 2016) T at a cost of 3,600,000. It is expected to last 10 years and to have a salvage value at the end of its life of 1,000,000. Depreciation is charged pro rata to the proportion of the year the equipment was in use. 9, Corporation tax is charged at 20%. Assume that depreciation is tax deductible. No tax was paid during the year. 10. Trade payables at 31 December 2016, relating to purchases of inventory, are equal to 900,000. 11. Trade receivables at 31 December 2016 are equal to 2,250,000 However, one of these debtors which owes 90,000 has gone bankrupt 12. Inventory purchases for the year are equal to 5,100,000. Inventory at ,JA (~ 31 December 2016 valued at cost amounted to 900,00 13.On 31 December 2016, the company made two important capital structure decisions in the following sequence: (a) made a share split of 4 for 1: and (b) offered rights issue of 2 for 3 f 0 30 pe ordinary share.he These are to take effect immediately. (Note that both the share split and rights issue do not carry any right of dividend in 2016) t Required a. Prepare an Income Statement for Kettering Pic for the year to 1 December 2016, Work in 000, rounding where necessary. (12 marks) b. Prepare a Balance Sheet (also known as the Statement of Financial Position) for the year to 31 December 2016. Show your workings clearly (including for the cash balance, which should be fully calculated and not just the balancing item on the Balance Sheet, and changes in the capital structure), and present a "clean" copy of the requested two documents. If you make any assumptions, explain them briefly. (20 marks) c. What are the demerits and merits of rights issue of shares? (8 marks) TOTAL: 40 MARKS SECTION B: Financial Accounting (30 marks)