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	400
ACC DEP BUILDING		80
PLANT	700
ACC DEP PLANT		140
BANK	67
REVENUE		25,000
PURCHASE	20,000
INVENTORY	784
CASH	322
PAYABLES		3,283
RECEIVABLES	3,648
ADMINISTRATIVE EXPENSES	3,233
RECEIVABLES ALLOWANCE		70
RETAINED EARNINGS		402
SHARE CAPITAL		71
SHARE PREMIUM		108
	29,154	29,154

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 $941.

4. An invoice of $108 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 $3,648 =$182.4. Original allowance $70 . The additional allowance of $112.4 will be charged to administrative expenses.

Debit Administrative expenses $112.4 and Credit Allowance for receivables $112.4.

2. Carrying value of plant is $700 - $140 =$560

$560 X 20% = $112

Debit Cost of Sales expenses $112 and Credit Acc dep plant $112

2. Value of Building is $400

$400 X 5% = $20

Debit cost of Sales expenses $20 and Credit Acc dep Building $20

3. Closing inventory

Debit Financial position Inventory and credit profit and loss Inventory $941.

4. Accrued 2/3 of $108 i.e. $72

Debit administrative expenses and credit Accrual $72

Income statement

ACCOUNT	WORKING	DEBIT	CREDIT
REVENUE			25,000
INVENTORY OB		784
PURCHASE		20,000
LESS INVENTORY CB		941
COST OF SALES		19,843
SELLING EXPENSES	112 + 20	132
FINAL COST OF SALES		19,975
GROSS PROFIT			5,025
ADMINISTRATIVE EXPENSES	3233.2 + 112.4 + 72	3417.6
NET PROFIT			1607.4

Financial Position

ACCOUNT	WORKING	DEBIT	CREDIT
BUILDING		400
ACC DEP BUILDING	80 + 20		100
PLANT		700
ACC DEP PLANT	140 + 112		252
TOTAL NON-CURRENT ASSETS	300 + 448	748
BANK		67
CASH		322
RECEIVABLES	3648 -182.4	3465.6
CLOSING INVENTORY		941
TOTAL CURRENT ASSETS		4795.6
TOTAL ASSETS		5543.6
ACCOUNT	WORKING	DEBIT	CREDIT
PAYABLES			3283.2
ACCRUAL			72
TOTAL CURRENT LIABILITIES			3355.2
SHARE CAPITAL			71
SHARE PREMIUM			108
RETAINED EARNINGS	402 + 1607.4		2009.4
TOTAL EQUITY			2188.4
TOTAL LIABILITIES & EQUITY			5543.6

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