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 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

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