You have been provided with the following trial balance as at 31 May 2014 for a limited liability company.
| ACCOUNT | DEBIT | CREDIT |
| BUILDING | 80,000 | |
| ACC DEP BUILDING | 16,000 | |
| PLANT | 100 | |
| ACC DEP PLANT | 20 | |
| MOTOR VEHICLES | 600 | |
| ACC DEP MOTOR VEHICLES | 120 | |
| BANK | 348 | |
| REVENUE | 100,000 | |
| DISCOUNT RECEIVED | 750 | |
| PURCHASE | 65,000 | |
| GENERAL EXPENSES | 1,368 | |
| HEATING & LIGHTING | 150 | |
| MARKETING & ADVERTISING | 1,500 | |
| WAGES | 7,200 | |
| LOAN INTEREST EXPENSES | 450 | |
| INVENTORY | 6,860 | |
| PAYABLES | 4,050 | |
| RECEIVABLES | 4,500 | |
| SHARE CAPITAL | 42,064 | |
| RETAINED EARNINGS | 1,072 | |
| 5 % LOAN NOTE | 4,000 | |
| 168,076 | 168,076 |
The following notes are relevant.
1. Inventory at 31 May was valued at $8,232.
2. Marketing and advertising expenses include $500 paid in advance for a marketing campaign which will begin in June 2014. Marketing and advertising should be allocated to administrative expenses.
3. There are wages outstanding of $3,400 for the year ended 31 May 2014.
4. A customer ceased trading owing the company $500; the debt is not expected to be recovered.
5. An allowance for receivables is to be established amounting to 5% of trade receivables.
6. Depreciation is to be provided for as follows
Buildings at 5% per annum on their original cost, allocated 50% to cost of sales, 20% to distribution costs and 30% to administrative expenses.
Motor vehicles at 25% per annum of their written down value, allocated to distribution costs.
Plant and equipment at 20% per annum of their written down value, allocated to cost of sales.
7. No dividends have been paid or declared.
8. Income tax of $800 is to be provided for the year.
9. The audit fee accrual is estimated to be $500.
10. The expenses listed below should be apportioned as follow
| COST OF SALES | DISTRIBUTION COSTS | ADMIN EXPENSES | |
| % | % | % | |
| GENERAL EXPENSES | 10 | 40 | 50 |
| HEATING | 50 | 30 | 20 |
| WAGES | 60 | 30 | 10 |
Required
1. Prepare a statement of profit or loss for the year ended 31 May 20X6.
2. Prepare a statement of financial position as at that date.
Suggested solutions:
Working:
1. Inventory at 31 May was valued at $8,232.
Debit inventory in financial position and Credit inventory in Income statement.$8,232.
2. Marketing and advertising expenses include $500 paid in advance for a marketing campaign which will begin in June 2014. Marketing and advertising should be allocated to administrative expenses.
Debit Prepayment and Credit Marketing and advertising expenses $500
3. There are wages outstanding of $3,400 for the year ended 31 May 2014.
Debit wages and credit Accrual $3,400
4. A customer ceased trading owing the company $500; the debt is not expected to be recovered.
Debit Irrecoverable debt expenses and Credit Receivables $500
5. An allowance for receivables is to be established amounting to 5% of trade receivables.
(Receivables - debt written off ) X 5 %
( 4,500 - 500) X0.05
= $200
Debit irrecoverable debt expenses and Credit allowance for receivables $200
6. Depreciation is to be provided for as follows
Buildings at 5% per annum on their original cost, allocated 50% to cost of sales, 20% to distribution costs and 30% to administrative expenses.
Buildings X 0.05
$80,000 X 0.05
= $4,000
Debit Cost of sales $2,000
Debit distribution cost $800
Debit administrative expenses $1,200
And credit Acc Dep Building $4,000
Motor vehicles at 25% per annum of their written down value, allocated to distribution costs.
(Motor Vehicles minus Acc Motor vehicles) X 0.25
=(600 -120) X0.25
=$120
Debit distribution costs and credit Acc Dep Motor Vehicles $120.
Plant and equipment at 20% per annum of their written down value, allocated to cost of sales.
(plant minus acc plant) X O.2
= $(100 -20) X 0.2
=$16
Debit cost of sales and credit Acc Dep Plant $16
7. No dividends have been paid or declared.
No action to be taken.
8. Income tax of $800 is to be provided for the year.
Debit Income tax expenses and Credit Income tax payable $800.
9. The audit fee accrual is estimated to be $500.
Debit audit expenses and credit Accrual $500.
Income statement
| REVENUE | 100,000 |
| COST OF SALES | 71,466 |
| GROSS PROFIT | 28,534 |
| DISTRIBUTION COST | 4,692 |
| ADMIN EXPENSES | 5,174 |
| FINANCING COST | 450 |
| PROFIT BEFORE TAX | 18,218 |
| INCOME TAX | 800 |
| PROFIT FOR THE PERIOD | 17,418 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| OPENING INVENTORY | 6,860 | ||
| PURCHASES | 65,000 | ||
| LESS CLOSING INVENTORY | (8,232) | ||
| GENERAL EXPENSES | 1368 | 0.1 | 136.8 |
| HEAT | 150 | 0.5 | 75 |
| WAGES | 7200 +3400 | 0.6 | 6,360 |
| DEP BUILDINGS | 4000 | 0.5 | 2,000 |
| DEP PLANT | 16 | 1.0 | 16 |
| LESS DISCOUNT RECEIVED | (750) | ||
| FINAL COST OF SALES | 71,466 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| GENERAL EXPENSES | 1368 | 0.4 | 547.2 |
| HEAT | 150 | 0.3 | 45 |
| WAGES | 7200 +3400 | 0.3 | 3,180 |
| DEP BUILDINGS | 4000 | 0.2 | 800 |
| MOTOR VEHICLES | 120 | 1.0 | 120 |
| DISTRIBUTION COST | 4,692 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| GENERAL EXPENSES | 1368 | 0.5 | 684 |
| HEAT | 150 | 0.2 | 30 |
| WAGES | 7200 +3400 | 0.1 | 1,060 |
| DEP BUILDINGS | 4000 | 0.3 | 1,200 |
| AUDIT FEE | 500 | ||
| MARKETING COST | 1500 -500 | 1000 | |
| IRRECOVERABLE DEBTS AND ALLOWANCE | 500 +200 | 700 | |
| ADMINISTRATIVE EXPENSES | 5,174 |
Financial position
| ACCOUNT | WORKING | DEBIT | CREDIT |
| NON CURRENT ASSETS | 80000 +600 +100 | 80,700 | |
| LESS ACC DEP EQUIPMENT | 240 + 36 +20000 | (20,276) | |
| TOTAL NON CURRENT ASSETS | 60,424 | ||
| CURRENT ASSETS | |||
| INVENTORY | 8,232 | ||
| RECEIVABLES | 4,500 | ||
| less allowance and bad debt for receivables | (200 + 500) | ||
| Receivables | 3800 | ||
| PREPAYMENT | 500 | ||
| BANK | 348 | ||
| TOTAL CURRENT ASSETS | 12,880 | ||
| TOTAL ASSETS | 73,304 | ||
| ACCOUNT | WORKING | DEBIT | CREDIT |
| PAYABLES | 4,050 | ||
| ACCRUAL | 3900 | ||
| TAXATION | 800 | ||
| 5% LOAN NOTES | 4000 | ||
| TOTAL CURRENT LIABILITY | 12,750 | ||
| $1 Ordinary shares | 42,064 | ||
| Profit | 17,418 | ||
| RETAINED EARNINGS | 1072 | ||
| TOTAL EQUITY | 60,554 | ||
| TOTAL LIABILITIES & EQUITY | 73,304 |