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 | 600 | |
| ACC DEP PLANT | 120 | |
| MOTOR VEHICLES | 500 | |
| ACC DEP MOTOR VEHICLES | 100 | |
| BANK | 261 | |
| REVENUE | 300,000 | |
| DISCOUNT RECEIVED | 1,250 | |
| PURCHASE | 195,000 | |
| GENERAL EXPENSES | 1,824 | |
| HEATING & LIGHTING | 50 | |
| MARKETING & ADVERTISING | 4,500 | |
| WAGES | 5,600 | |
| LOAN INTEREST EXPENSES | 450 | |
| INVENTORY | 3,920 | |
| PAYABLES | 28,350 | |
| RECEIVABLES | 31,500 | |
| SHARE CAPITAL | 54,679 | |
| RETAINED EARNINGS | 1,206 | |
| 5 % LOAN NOTE | 2,500 | |
| 424,205 | 424,205 |
The following notes are relevant.
1. Inventory at 31 May was valued at $4,704.
2. Marketing and advertising expenses include $1,000 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 $6,800 for the year ended 31 May 2014.
4. A customer ceased trading owing the company $1,500; 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 $400 is to be provided for the year.
9. The audit fee accrual is estimated to be $250.
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 $4,704.
Debit inventory in financial position and Credit inventory in Income statement.$4,704.
2. Marketing and advertising expenses include $1,000 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 $1,000
3. There are wages outstanding of $6,800 for the year ended 31 May 2014.
Debit wages and credit Accrual $6,800
4. A customer ceased trading owing the company $1,500; the debt is not expected to be recovered.
Debit Irrecoverable debt expenses and Credit Receivables $1,500
5. An allowance for receivables is to be established amounting to 5% of trade receivables.
(Receivables - debt written off ) X 5 %
( 31,500 - 1,500) X0.05
= $1,500
Debit irrecoverable debt expenses and Credit allowance for receivables $1,500
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
$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
= $(600 -120) X 0.2
=$96
Debit cost of sales and credit Acc Dep Plant $96
7. No dividends have been paid or declared.
No action to be taken.
8. Income tax of $400 is to be provided for the year.
Debit Income tax expenses and Credit Income tax payable $400.
9. The audit fee accrual is estimated to be $250.
Debit audit expenses and credit Accrual $250.
Income statement
| REVENUE | 300,000 |
| COST OF SALES | 205,209 |
| GROSS PROFIT | 94,791 |
| DISTRIBUTION COST | 6,365 |
| ADMIN EXPENSES | 11,612 |
| FINANCING COST | 450 |
| PROFIT BEFORE TAX | 76,364 |
| INCOME TAX | 400 |
| PROFIT FOR THE PERIOD | 75,964 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| OPENING INVENTORY | 3,920 | ||
| PURCHASES | 195,000 | ||
| LESS CLOSING INVENTORY | (4,704) | ||
| GENERAL EXPENSES | 1824 | 0.1 | 182.4 |
| HEAT | 50 | 0.5 | 25 |
| WAGES | 5600 +6800 | 0.6 | 7,440 |
| DEP BUILDINGS | 9000 | 0.5 | 4,500 |
| DEP PLANT | 96 | 1.0 | 96 |
| LESS DISCOUNT RECEIVED | (1,250) | ||
| FINAL COST OF SALES | 205,209 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| GENERAL EXPENSES | 1824 | 0.4 | 729.6 |
| HEAT | 50 | 0.3 | 15 |
| WAGES | 5600 +6800 | 0.3 | 3,720 |
| DEP BUILDINGS | 9000 | 0.2 | 1,800 |
| MOTOR VEHICLES | 100 | 1.0 | 100 |
| DISTRIBUTION COST | 6,365 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| GENERAL EXPENSES | 1824 | 0.5 | 912 |
| HEAT | 50 | 0.2 | 10 |
| WAGES | 5600 +6800 | 0.1 | 1,240 |
| DEP BUILDINGS | 9000 | 0.3 | 2,700 |
| AUDIT FEE | 250 | ||
| MARKETING COST | 4500 -1000 | 3500 | |
| IRRECOVERABLE DEBTS AND ALLOWANCE | 1500 +1500 | 3000 | |
| ADMINISTRATIVE EXPENSES | 11,612 |
Financial position
| ACCOUNT | WORKING | DEBIT | CREDIT |
| NON CURRENT ASSETS | 180000 +500 +600 | 181,100 | |
| LESS ACC DEP EQUIPMENT | 200 + 216 +45000 | (45,416) | |
| TOTAL NON CURRENT ASSETS | 135,684 | ||
| CURRENT ASSETS | |||
| INVENTORY | 4,704 | ||
| RECEIVABLES | 31,500 | ||
| less allowance and bad debt for receivables | (1500 + 1500) | ||
| Receivables | 28500 | ||
| PREPAYMENT | 1000 | ||
| BANK | 261 | ||
| TOTAL CURRENT ASSETS | 34,465 | ||
| TOTAL ASSETS | 170,149 | ||
| ACCOUNT | WORKING | DEBIT | CREDIT |
| PAYABLES | 28,350 | ||
| ACCRUAL | 7050 | ||
| TAXATION | 400 | ||
| 5% LOAN NOTES | 2500 | ||
| TOTAL CURRENT LIABILITY | 38,300 | ||
| $1 Ordinary shares | 54,679 | ||
| Profit | 75,964 | ||
| RETAINED EARNINGS | 1206 | ||
| TOTAL EQUITY | 131,849 | ||
| TOTAL LIABILITIES & EQUITY | 170,149 |