ACCA F3 Trading Account 3

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

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