You have been provided with the following trial balance as at 31 May 2014 for a limited liability company.
| ACCOUNT | DEBIT | CREDIT |
| BUILDING | 120,000 | |
| ACC DEP BUILDING | 24,000 | |
| PLANT | 300 | |
| ACC DEP PLANT | 60 | |
| MOTOR VEHICLES | 400 | |
| ACC DEP MOTOR VEHICLES | 80 | |
| BANK | 87 | |
| REVENUE | 200,000 | |
| DISCOUNT RECEIVED | 2,000 | |
| PURCHASE | 130,000 | |
| GENERAL EXPENSES | 3,648 | |
| HEATING & LIGHTING | 300 | |
| MARKETING & ADVERTISING | 3,500 | |
| WAGES | 1,600 | |
| LOAN INTEREST EXPENSES | 50 | |
| INVENTORY | 1,960 | |
| PAYABLES | 36,450 | |
| RECEIVABLES | 40,500 | |
| SHARE CAPITAL | 34,987 | |
| RETAINED EARNINGS | 268 | |
| 5 % LOAN NOTE | 4,500 | |
| 302,345 | 302,345 |
The following notes are relevant.
1. Inventory at 31 May was valued at $2,352.
2. Marketing and advertising expenses include $1,125 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 $1,700 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 $900 is to be provided for the year.
9. The audit fee accrual is estimated to be $2,000.
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 $2,352.
Debit inventory in financial position and Credit inventory in Income statement.$2,352.
2. Marketing and advertising expenses include $1,125 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 $1,125
3. There are wages outstanding of $1,700 for the year ended 31 May 2014.
Debit wages and credit Accrual $1,700
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 %
( 40,500 - 500) X0.05
= $2,000
Debit irrecoverable debt expenses and Credit allowance for receivables $2,000
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
$120,000 X 0.05
= $6,000
Debit Cost of sales $3,000
Debit distribution cost $1,200
Debit administrative expenses $1,800
And credit Acc Dep Building $6,000
Motor vehicles at 25% per annum of their written down value, allocated to distribution costs.
(Motor Vehicles minus Acc Motor vehicles) X 0.25
=(400 -80) X0.25
=$80
Debit distribution costs and credit Acc Dep Motor Vehicles $80.
Plant and equipment at 20% per annum of their written down value, allocated to cost of sales.
(plant minus acc plant) X O.2
= $(300 -60) X 0.2
=$48
Debit cost of sales and credit Acc Dep Plant $48
7. No dividends have been paid or declared.
No action to be taken.
8. Income tax of $900 is to be provided for the year.
Debit Income tax expenses and Credit Income tax payable $900.
9. The audit fee accrual is estimated to be $2,000.
Debit audit expenses and credit Accrual $2,000.
Income statement
| REVENUE | 200,000 |
| COST OF SALES | 133,151 |
| GROSS PROFIT | 66,849 |
| DISTRIBUTION COST | 3,819 |
| ADMIN EXPENSES | 10,889 |
| FINANCING COST | 50 |
| PROFIT BEFORE TAX | 52,091 |
| INCOME TAX | 900 |
| PROFIT FOR THE PERIOD | 51,191 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| OPENING INVENTORY | 1,960 | ||
| PURCHASES | 130,000 | ||
| LESS CLOSING INVENTORY | (2,352) | ||
| GENERAL EXPENSES | 3648 | 0.1 | 364.8 |
| HEAT | 300 | 0.5 | 150 |
| WAGES | 1600 +1700 | 0.6 | 1,980 |
| DEP BUILDINGS | 6000 | 0.5 | 3,000 |
| DEP PLANT | 48 | 1.0 | 48 |
| LESS DISCOUNT RECEIVED | (2,000) | ||
| FINAL COST OF SALES | 133,151 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| GENERAL EXPENSES | 3648 | 0.4 | 1459.2 |
| HEAT | 300 | 0.3 | 90 |
| WAGES | 1600 +1700 | 0.3 | 990 |
| DEP BUILDINGS | 6000 | 0.2 | 1,200 |
| MOTOR VEHICLES | 80 | 1.0 | 80 |
| DISTRIBUTION COST | 3,819 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| GENERAL EXPENSES | 3648 | 0.5 | 1824 |
| HEAT | 300 | 0.2 | 60 |
| WAGES | 1600 +1700 | 0.1 | 330 |
| DEP BUILDINGS | 6000 | 0.3 | 1,800 |
| AUDIT FEE | 2000 | ||
| MARKETING COST | 3500 -1125 | 2375 | |
| IRRECOVERABLE DEBTS AND ALLOWANCE | 500 +2000 | 2500 | |
| ADMINISTRATIVE EXPENSES | 10,889 |
Financial position
| ACCOUNT | WORKING | DEBIT | CREDIT |
| NON CURRENT ASSETS | 120000 +400 +300 | 120,700 | |
| LESS ACC DEP EQUIPMENT | 160 + 108 +30000 | (30,268) | |
| TOTAL NON CURRENT ASSETS | 90,432 | ||
| CURRENT ASSETS | |||
| INVENTORY | 2,352 | ||
| RECEIVABLES | 40,500 | ||
| less allowance and bad debt for receivables | (2000 + 500) | ||
| Receivables | 38000 | ||
| PREPAYMENT | 1125 | ||
| BANK | 87 | ||
| TOTAL CURRENT ASSETS | 41,564 | ||
| TOTAL ASSETS | 131,996 | ||
| ACCOUNT | WORKING | DEBIT | CREDIT |
| PAYABLES | 36,450 | ||
| ACCRUAL | 3700 | ||
| TAXATION | 900 | ||
| 5% LOAN NOTES | 4500 | ||
| TOTAL CURRENT LIABILITY | 45,550 | ||
| $1 Ordinary shares | 34,987 | ||
| Profit | 51,191 | ||
| RETAINED EARNINGS | 268 | ||
| TOTAL EQUITY | 86,446 | ||
| TOTAL LIABILITIES & EQUITY | 131,996 |