You have been provided with the following trial balance as at 31 May 2014 for a limited liability company.
| ACCOUNT | DEBIT | CREDIT |
| BUILDING | 60,000 | |
| ACC DEP BUILDING | 12,000 | |
| PLANT | 800 | |
| ACC DEP PLANT | 160 | |
| MOTOR VEHICLES | 300 | |
| ACC DEP MOTOR VEHICLES | 60 | |
| BANK | 174 | |
| REVENUE | 150,000 | |
| DISCOUNT RECEIVED | 1,000 | |
| PURCHASE | 97,500 | |
| GENERAL EXPENSES | 3,648 | |
| HEATING & LIGHTING | 100 | |
| MARKETING & ADVERTISING | 2,000 | |
| WAGES | 5,600 | |
| LOAN INTEREST EXPENSES | 100 | |
| INVENTORY | 4,900 | |
| PAYABLES | 12,150 | |
| RECEIVABLES | 13,500 | |
| SHARE CAPITAL | 9,716 | |
| RETAINED EARNINGS | 536 | |
| 5 % LOAN NOTE | 3,000 | |
| 188,622 | 188,622 |
The following notes are relevant.
1. Inventory at 31 May was valued at $5,880.
2. Marketing and advertising expenses include $625 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 $850 for the year ended 31 May 2014.
4. A customer ceased trading owing the company $3,500; 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 $700 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 $5,880.
Debit inventory in financial position and Credit inventory in Income statement.$5,880.
2. Marketing and advertising expenses include $625 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 $625
3. There are wages outstanding of $850 for the year ended 31 May 2014.
Debit wages and credit Accrual $850
4. A customer ceased trading owing the company $3,500; the debt is not expected to be recovered.
Debit Irrecoverable debt expenses and Credit Receivables $3,500
5. An allowance for receivables is to be established amounting to 5% of trade receivables.
(Receivables - debt written off ) X 5 %
( 13,500 - 3,500) X0.05
= $500
Debit irrecoverable debt expenses and Credit allowance for receivables $500
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
$60,000 X 0.05
= $3,000
Debit Cost of sales $1,500
Debit distribution cost $600
Debit administrative expenses $900
And credit Acc Dep Building $3,000
Motor vehicles at 25% per annum of their written down value, allocated to distribution costs.
(Motor Vehicles minus Acc Motor vehicles) X 0.25
=(300 -60) X0.25
=$60
Debit distribution costs and credit Acc Dep Motor Vehicles $60.
Plant and equipment at 20% per annum of their written down value, allocated to cost of sales.
(plant minus acc plant) X O.2
= $(800 -160) X 0.2
=$128
Debit cost of sales and credit Acc Dep Plant $128
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 $500.
Debit audit expenses and credit Accrual $500.
Income statement
| REVENUE | 150,000 |
| COST OF SALES | 101,433 |
| GROSS PROFIT | 48,567 |
| DISTRIBUTION COST | 4,084 |
| ADMIN EXPENSES | 9,264 |
| FINANCING COST | 100 |
| PROFIT BEFORE TAX | 35,119 |
| INCOME TAX | 700 |
| PROFIT FOR THE PERIOD | 34,419 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| OPENING INVENTORY | 4,900 | ||
| PURCHASES | 97,500 | ||
| LESS CLOSING INVENTORY | (5,880) | ||
| GENERAL EXPENSES | 3648 | 0.1 | 364.8 |
| HEAT | 100 | 0.5 | 50 |
| WAGES | 5600 +850 | 0.6 | 3,870 |
| DEP BUILDINGS | 3000 | 0.5 | 1,500 |
| DEP PLANT | 128 | 1.0 | 128 |
| LESS DISCOUNT RECEIVED | (1,000) | ||
| FINAL COST OF SALES | 101,433 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| GENERAL EXPENSES | 3648 | 0.4 | 1459.2 |
| HEAT | 100 | 0.3 | 30 |
| WAGES | 5600 +850 | 0.3 | 1,935 |
| DEP BUILDINGS | 3000 | 0.2 | 600 |
| MOTOR VEHICLES | 60 | 1.0 | 60 |
| DISTRIBUTION COST | 4,084 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| GENERAL EXPENSES | 3648 | 0.5 | 1824 |
| HEAT | 100 | 0.2 | 20 |
| WAGES | 5600 +850 | 0.1 | 645 |
| DEP BUILDINGS | 3000 | 0.3 | 900 |
| AUDIT FEE | 500 | ||
| MARKETING COST | 2000 -625 | 1375 | |
| IRRECOVERABLE DEBTS AND ALLOWANCE | 3500 +500 | 4000 | |
| ADMINISTRATIVE EXPENSES | 9,264 |
Financial position
| ACCOUNT | WORKING | DEBIT | CREDIT |
| NON CURRENT ASSETS | 60000 +300 +800 | 61,100 | |
| LESS ACC DEP EQUIPMENT | 120 + 288 +15000 | (15,408) | |
| TOTAL NON CURRENT ASSETS | 45,692 | ||
| CURRENT ASSETS | |||
| INVENTORY | 5,880 | ||
| RECEIVABLES | 13,500 | ||
| less allowance and bad debt for receivables | (500 + 3500) | ||
| Receivables | 9500 | ||
| PREPAYMENT | 625 | ||
| BANK | 174 | ||
| TOTAL CURRENT ASSETS | 16,179 | ||
| TOTAL ASSETS | 61,871 | ||
| ACCOUNT | WORKING | DEBIT | CREDIT |
| PAYABLES | 12,150 | ||
| ACCRUAL | 1350 | ||
| TAXATION | 700 | ||
| 5% LOAN NOTES | 3000 | ||
| TOTAL CURRENT LIABILITY | 17,200 | ||
| $1 Ordinary shares | 9,716 | ||
| Profit | 34,419 | ||
| RETAINED EARNINGS | 536 | ||
| TOTAL EQUITY | 44,671 | ||
| TOTAL LIABILITIES & EQUITY | 61,871 |