You have been provided with the following trial balance as at 31 May 2014 for a limited liability company.
| ACCOUNT | DEBIT | CREDIT |
| BUILDING | 180,000 | |
| ACC DEP BUILDING | 36,000 | |
| PLANT | 500 | |
| ACC DEP PLANT | 100 | |
| MOTOR VEHICLES | 500 | |
| ACC DEP MOTOR VEHICLES | 100 | |
| BANK | 609 | |
| REVENUE | 450,000 | |
| DISCOUNT RECEIVED | 250 | |
| PURCHASE | 292,500 | |
| GENERAL EXPENSES | 1,368 | |
| HEATING & LIGHTING | 100 | |
| MARKETING & ADVERTISING | 500 | |
| WAGES | 4,000 | |
| LOAN INTEREST EXPENSES | 150 | |
| INVENTORY | 7,840 | |
| PAYABLES | 32,400 | |
| RECEIVABLES | 36,000 | |
| SHARE CAPITAL | 3,011 | |
| RETAINED EARNINGS | 1,206 | |
| 5 % LOAN NOTE | 1,000 | |
| 524,067 | 524,067 |
The following notes are relevant.
1. Inventory at 31 May was valued at $9,408.
2. Marketing and advertising expenses include $875 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 $5,950 for the year ended 31 May 2014.
4. A customer ceased trading owing the company $1,000; 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 $700 is to be provided for the year.
9. The audit fee accrual is estimated to be $1,500.
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 $9,408.
Debit inventory in financial position and Credit inventory in Income statement.$9,408.
2. Marketing and advertising expenses include $875 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 $875
3. There are wages outstanding of $5,950 for the year ended 31 May 2014.
Debit wages and credit Accrual $5,950
4. A customer ceased trading owing the company $1,000; the debt is not expected to be recovered.
Debit Irrecoverable debt expenses and Credit Receivables $1,000
5. An allowance for receivables is to be established amounting to 5% of trade receivables.
(Receivables - debt written off ) X 5 %
( 36,000 - 1,000) X0.05
= $1,750
Debit irrecoverable debt expenses and Credit allowance for receivables $1,750
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
$180,000 X 0.05
= $9,000
Debit Cost of sales $4,500
Debit distribution cost $1,800
Debit administrative expenses $2,700
And credit Acc Dep Building $9,000
Motor vehicles at 25% per annum of their written down value, allocated to distribution costs.
(Motor Vehicles minus Acc Motor vehicles) X 0.25
=(500 -100) X0.25
=$100
Debit distribution costs and credit Acc Dep Motor Vehicles $100.
Plant and equipment at 20% per annum of their written down value, allocated to cost of sales.
(plant minus acc plant) X O.2
= $(500 -100) X 0.2
=$80
Debit cost of sales and credit Acc Dep Plant $80
7. No dividends have been paid or declared.
No action to be taken.
8. Income tax of $700 is to be provided for the year.
Debit Income tax expenses and Credit Income tax payable $700.
9. The audit fee accrual is estimated to be $1,500.
Debit audit expenses and credit Accrual $1,500.
Income statement
| REVENUE | 450,000 |
| COST OF SALES | 301,419 |
| GROSS PROFIT | 148,581 |
| DISTRIBUTION COST | 5,462 |
| ADMIN EXPENSES | 8,274 |
| FINANCING COST | 150 |
| PROFIT BEFORE TAX | 134,695 |
| INCOME TAX | 700 |
| PROFIT FOR THE PERIOD | 133,995 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| OPENING INVENTORY | 7,840 | ||
| PURCHASES | 292,500 | ||
| LESS CLOSING INVENTORY | (9,408) | ||
| GENERAL EXPENSES | 1368 | 0.1 | 136.8 |
| HEAT | 100 | 0.5 | 50 |
| WAGES | 4000 +5950 | 0.6 | 5,970 |
| DEP BUILDINGS | 9000 | 0.5 | 4,500 |
| DEP PLANT | 80 | 1.0 | 80 |
| LESS DISCOUNT RECEIVED | (250) | ||
| FINAL COST OF SALES | 301,419 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| GENERAL EXPENSES | 1368 | 0.4 | 547.2 |
| HEAT | 100 | 0.3 | 30 |
| WAGES | 4000 +5950 | 0.3 | 2,985 |
| DEP BUILDINGS | 9000 | 0.2 | 1,800 |
| MOTOR VEHICLES | 100 | 1.0 | 100 |
| DISTRIBUTION COST | 5,462 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| GENERAL EXPENSES | 1368 | 0.5 | 684 |
| HEAT | 100 | 0.2 | 20 |
| WAGES | 4000 +5950 | 0.1 | 995 |
| DEP BUILDINGS | 9000 | 0.3 | 2,700 |
| AUDIT FEE | 1500 | ||
| MARKETING COST | 500 -875 | -375 | |
| IRRECOVERABLE DEBTS AND ALLOWANCE | 1000 +1750 | 2750 | |
| ADMINISTRATIVE EXPENSES | 8,274 |
Financial position
| ACCOUNT | WORKING | DEBIT | CREDIT |
| NON CURRENT ASSETS | 180000 +500 +500 | 181,000 | |
| LESS ACC DEP EQUIPMENT | 200 + 180 +45000 | (45,380) | |
| TOTAL NON CURRENT ASSETS | 135,620 | ||
| CURRENT ASSETS | |||
| INVENTORY | 9,408 | ||
| RECEIVABLES | 36,000 | ||
| less allowance and bad debt for receivables | (1750 + 1000) | ||
| Receivables | 33250 | ||
| PREPAYMENT | 875 | ||
| BANK | 609 | ||
| TOTAL CURRENT ASSETS | 44,142 | ||
| TOTAL ASSETS | 179,762 | ||
| ACCOUNT | WORKING | DEBIT | CREDIT |
| PAYABLES | 32,400 | ||
| ACCRUAL | 7450 | ||
| TAXATION | 700 | ||
| 5% LOAN NOTES | 1000 | ||
| TOTAL CURRENT LIABILITY | 41,550 | ||
| $1 Ordinary shares | 3,011 | ||
| Profit | 133,995 | ||
| RETAINED EARNINGS | 1206 | ||
| TOTAL EQUITY | 138,212 | ||
| TOTAL LIABILITIES & EQUITY | 179,762 |