ACCA F3 Trading Account

Malright, a limited liability company, has an accounting year end of 31 October. The accountant is preparing the financial statements as at 31 October 20X7 and requires your assistance. The following trial balance has been extracted from the general ledger.

ACCOUNT	DEBIT	CREDIT
BUILDING	1,600
ACC DEP BUILDING		320
PLANT	100
ACC DEP PLANT		20
BANK	469
REVENUE		10,000
PURCHASE	8,000
INVENTORY	98
CASH	322
PAYABLES		1,231
RECEIVABLES	1,368
ADMINISTRATIVE EXPENSES	1,181
RECEIVABLES ALLOWANCE		80
RETAINED EARNINGS		268
SHARE CAPITAL		1,183
SHARE PREMIUM		36
	13,138	13,138

The following additional information is also available:

1. The allowance for receivables is to be increased to 5% of trade receivables. The allowance for receivables is treated as an administrative expense.

2. Plant is depreciated at 20% per annum using the reducing balance method and buildings are depreciated at 5% per annum on their original cost. Depreciation is treated as a cost of sales expense.

3. Closing inventory has been counted and is valued at $118.

4. An invoice of $84 for energy costs relating to the quarter ended 30 November 20X7 was received on 2 December 20X7. Energy costs are included in administrative expenses.

Required:
Prepare the statement of profit or loss and the statement of financial position of Malright Co as at 31 October 20X7.

Suggested solutions:

Working:

1. 5% of $1,368 =$68.4. Original allowance $80 . The additional allowance of $-11.6 will be charged to administrative expenses.

Debit Administrative expenses $-11.6 and Credit Allowance for receivables $-11.6.

2. Carrying value of plant is $100 - $20 =$80

$80 X 20% = $16

Debit Cost of Sales expenses $16 and Credit Acc dep plant $16

2. Value of Building is $1600

$1600 X 5% = $80

Debit cost of Sales expenses $80 and Credit Acc dep Building $80

3. Closing inventory

Debit Financial position Inventory and credit profit and loss Inventory $118.

4. Accrued 2/3 of $84 i.e. $56

Debit administrative expenses and credit Accrual $56

Income statement

ACCOUNT	WORKING	DEBIT	CREDIT
REVENUE			10,000
INVENTORY OB		98
PURCHASE		8,000
LESS INVENTORY CB		118
COST OF SALES		7,980
SELLING EXPENSES	16 + 80	96
FINAL COST OF SALES		8,076
GROSS PROFIT			1,924
ADMINISTRATIVE EXPENSES	1181.2 + -11.6 + 56	1225.6
NET PROFIT			698.4

Financial Position

ACCOUNT	WORKING	DEBIT	CREDIT
BUILDING		1,600
ACC DEP BUILDING	320 + 80		400
PLANT		100
ACC DEP PLANT	20 + 16		36
TOTAL NON-CURRENT ASSETS	1200 + 64	1264
BANK		469
CASH		322
RECEIVABLES	1368 -68.4	1299.6
CLOSING INVENTORY		118
TOTAL CURRENT ASSETS		2208.6
TOTAL ASSETS		3472.6
ACCOUNT	WORKING	DEBIT	CREDIT
PAYABLES			1231.2
ACCRUAL			56
TOTAL CURRENT LIABILITIES			1287.2
SHARE CAPITAL			1183
SHARE PREMIUM			36
RETAINED EARNINGS	268 + 698.4		966.4
TOTAL EQUITY			2185.4
TOTAL LIABILITIES & EQUITY			3472.6

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