You have been provided with the following trial balance as at 31 May 2014 for a limited liability company.
| ACCOUNT | DEBIT | CREDIT |
| BUILDING | 80,000 | |
| ACC DEP BUILDING | 16,000 | |
| PLANT | 700 | |
| ACC DEP PLANT | 140 | |
| MOTOR VEHICLES | 300 | |
| ACC DEP MOTOR VEHICLES | 60 | |
| BANK | 522 | |
| REVENUE | 200,000 | |
| DISCOUNT RECEIVED | 250 | |
| PURCHASE | 130,000 | |
| GENERAL EXPENSES | 2,736 | |
| HEATING & LIGHTING | 150 | |
| MARKETING & ADVERTISING | 1,500 | |
| WAGES | 3,200 | |
| LOAN INTEREST EXPENSES | 300 | |
| INVENTORY | 1,960 | |
| PAYABLES | 28,350 | |
| RECEIVABLES | 31,500 | |
| SHARE CAPITAL | 5,130 | |
| RETAINED EARNINGS | 938 | |
| 5 % LOAN NOTE | 2,000 | |
| 252,868 | 252,868 |
The following notes are relevant.
1. Inventory at 31 May was valued at $2,352.
2. Marketing and advertising expenses include $375 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 $5,100 for the year ended 31 May 2014.
4. A customer ceased trading owing the company $2,000; 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 $200 is to be provided for the year.
9. The audit fee accrual is estimated to be $1,750.
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 $375 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 $375
3. There are wages outstanding of $5,100 for the year ended 31 May 2014.
Debit wages and credit Accrual $5,100
4. A customer ceased trading owing the company $2,000; the debt is not expected to be recovered.
Debit Irrecoverable debt expenses and Credit Receivables $2,000
5. An allowance for receivables is to be established amounting to 5% of trade receivables.
(Receivables - debt written off ) X 5 %
( 31,500 - 2,000) X0.05
= $1,475
Debit irrecoverable debt expenses and Credit allowance for receivables $1,475
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
$80,000 X 0.05
= $4,000
Debit Cost of sales $2,000
Debit distribution cost $800
Debit administrative expenses $1,200
And credit Acc Dep Building $4,000
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
= $(700 -140) X 0.2
=$112
Debit cost of sales and credit Acc Dep Plant $112
7. No dividends have been paid or declared.
No action to be taken.
8. Income tax of $200 is to be provided for the year.
Debit Income tax expenses and Credit Income tax payable $200.
9. The audit fee accrual is estimated to be $1,750.
Debit audit expenses and credit Accrual $1,750.
Income statement
| REVENUE | 200,000 |
| COST OF SALES | 136,799 |
| GROSS PROFIT | 63,201 |
| DISTRIBUTION COST | 4,489 |
| ADMIN EXPENSES | 9,778 |
| FINANCING COST | 300 |
| PROFIT BEFORE TAX | 48,634 |
| INCOME TAX | 200 |
| PROFIT FOR THE PERIOD | 48,434 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| OPENING INVENTORY | 1,960 | ||
| PURCHASES | 130,000 | ||
| LESS CLOSING INVENTORY | (2,352) | ||
| GENERAL EXPENSES | 2736 | 0.1 | 273.6 |
| HEAT | 150 | 0.5 | 75 |
| WAGES | 3200 +5100 | 0.6 | 4,980 |
| DEP BUILDINGS | 4000 | 0.5 | 2,000 |
| DEP PLANT | 112 | 1.0 | 112 |
| LESS DISCOUNT RECEIVED | (250) | ||
| FINAL COST OF SALES | 136,799 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| GENERAL EXPENSES | 2736 | 0.4 | 1094.4 |
| HEAT | 150 | 0.3 | 45 |
| WAGES | 3200 +5100 | 0.3 | 2,490 |
| DEP BUILDINGS | 4000 | 0.2 | 800 |
| MOTOR VEHICLES | 60 | 1.0 | 60 |
| DISTRIBUTION COST | 4,489 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| GENERAL EXPENSES | 2736 | 0.5 | 1368 |
| HEAT | 150 | 0.2 | 30 |
| WAGES | 3200 +5100 | 0.1 | 830 |
| DEP BUILDINGS | 4000 | 0.3 | 1,200 |
| AUDIT FEE | 1750 | ||
| MARKETING COST | 1500 -375 | 1125 | |
| IRRECOVERABLE DEBTS AND ALLOWANCE | 2000 +1475 | 3475 | |
| ADMINISTRATIVE EXPENSES | 9,778 |
Financial position
| ACCOUNT | WORKING | DEBIT | CREDIT |
| NON CURRENT ASSETS | 80000 +300 +700 | 81,000 | |
| LESS ACC DEP EQUIPMENT | 120 + 252 +20000 | (20,372) | |
| TOTAL NON CURRENT ASSETS | 60,628 | ||
| CURRENT ASSETS | |||
| INVENTORY | 2,352 | ||
| RECEIVABLES | 31,500 | ||
| less allowance and bad debt for receivables | (1475 + 2000) | ||
| Receivables | 28025 | ||
| PREPAYMENT | 375 | ||
| BANK | 522 | ||
| TOTAL CURRENT ASSETS | 31,274 | ||
| TOTAL ASSETS | 91,902 | ||
| ACCOUNT | WORKING | DEBIT | CREDIT |
| PAYABLES | 28,350 | ||
| ACCRUAL | 6850 | ||
| TAXATION | 200 | ||
| 5% LOAN NOTES | 2000 | ||
| TOTAL CURRENT LIABILITY | 37,400 | ||
| $1 Ordinary shares | 5,130 | ||
| Profit | 48,434 | ||
| RETAINED EARNINGS | 938 | ||
| TOTAL EQUITY | 54,502 | ||
| TOTAL LIABILITIES & EQUITY | 91,902 |