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 | 200 | |
| ACC DEP PLANT | 40 | |
| MOTOR VEHICLES | 500 | |
| ACC DEP MOTOR VEHICLES | 100 | |
| BANK | 522 | |
| REVENUE | 150,000 | |
| DISCOUNT RECEIVED | 1,750 | |
| PURCHASE | 97,500 | |
| GENERAL EXPENSES | 2,736 | |
| HEATING & LIGHTING | 350 | |
| MARKETING & ADVERTISING | 500 | |
| WAGES | 4,800 | |
| LOAN INTEREST EXPENSES | 350 | |
| INVENTORY | 980 | |
| PAYABLES | 36,450 | |
| RECEIVABLES | 40,500 | |
| SHARE CAPITAL | 51,928 | |
| RETAINED EARNINGS | 670 | |
| 5 % LOAN NOTE | 4,000 | |
| 268,938 | 268,938 |
The following notes are relevant.
1. Inventory at 31 May was valued at $1,176.
2. Marketing and advertising expenses include $250 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 $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 $900 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 $1,176.
Debit inventory in financial position and Credit inventory in Income statement.$1,176.
2. Marketing and advertising expenses include $250 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 $250
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 $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 %
( 40,500 - 1,000) X0.05
= $1,975
Debit irrecoverable debt expenses and Credit allowance for receivables $1,975
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
=(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
= $(200 -40) X 0.2
=$32
Debit cost of sales and credit Acc Dep Plant $32
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 $1,750.
Debit audit expenses and credit Accrual $1,750.
Income statement
| REVENUE | 150,000 |
| COST OF SALES | 104,975 |
| GROSS PROFIT | 45,025 |
| DISTRIBUTION COST | 5,469 |
| ADMIN EXPENSES | 9,203 |
| FINANCING COST | 350 |
| PROFIT BEFORE TAX | 30,003 |
| INCOME TAX | 900 |
| PROFIT FOR THE PERIOD | 29,103 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| OPENING INVENTORY | 980 | ||
| PURCHASES | 97,500 | ||
| LESS CLOSING INVENTORY | (1,176) | ||
| GENERAL EXPENSES | 2736 | 0.1 | 273.6 |
| HEAT | 350 | 0.5 | 175 |
| WAGES | 4800 +5100 | 0.6 | 5,940 |
| DEP BUILDINGS | 6000 | 0.5 | 3,000 |
| DEP PLANT | 32 | 1.0 | 32 |
| LESS DISCOUNT RECEIVED | (1,750) | ||
| FINAL COST OF SALES | 104,975 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| GENERAL EXPENSES | 2736 | 0.4 | 1094.4 |
| HEAT | 350 | 0.3 | 105 |
| WAGES | 4800 +5100 | 0.3 | 2,970 |
| DEP BUILDINGS | 6000 | 0.2 | 1,200 |
| MOTOR VEHICLES | 100 | 1.0 | 100 |
| DISTRIBUTION COST | 5,469 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| GENERAL EXPENSES | 2736 | 0.5 | 1368 |
| HEAT | 350 | 0.2 | 70 |
| WAGES | 4800 +5100 | 0.1 | 990 |
| DEP BUILDINGS | 6000 | 0.3 | 1,800 |
| AUDIT FEE | 1750 | ||
| MARKETING COST | 500 -250 | 250 | |
| IRRECOVERABLE DEBTS AND ALLOWANCE | 1000 +1975 | 2975 | |
| ADMINISTRATIVE EXPENSES | 9,203 |
Financial position
| ACCOUNT | WORKING | DEBIT | CREDIT |
| NON CURRENT ASSETS | 120000 +500 +200 | 120,700 | |
| LESS ACC DEP EQUIPMENT | 200 + 72 +30000 | (30,272) | |
| TOTAL NON CURRENT ASSETS | 90,428 | ||
| CURRENT ASSETS | |||
| INVENTORY | 1,176 | ||
| RECEIVABLES | 40,500 | ||
| less allowance and bad debt for receivables | (1975 + 1000) | ||
| Receivables | 37525 | ||
| PREPAYMENT | 250 | ||
| BANK | 522 | ||
| TOTAL CURRENT ASSETS | 39,473 | ||
| TOTAL ASSETS | 129,901 | ||
| ACCOUNT | WORKING | DEBIT | CREDIT |
| PAYABLES | 36,450 | ||
| ACCRUAL | 6850 | ||
| TAXATION | 900 | ||
| 5% LOAN NOTES | 4000 | ||
| TOTAL CURRENT LIABILITY | 48,200 | ||
| $1 Ordinary shares | 51,928 | ||
| Profit | 29,103 | ||
| RETAINED EARNINGS | 670 | ||
| TOTAL EQUITY | 81,701 | ||
| TOTAL LIABILITIES & EQUITY | 129,901 |