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 | 300 | |
| ACC DEP PLANT | 60 | |
| MOTOR VEHICLES | 100 | |
| ACC DEP MOTOR VEHICLES | 20 | |
| BANK | 435 | |
| REVENUE | 50,000 | |
| DISCOUNT RECEIVED | 2,000 | |
| PURCHASE | 32,500 | |
| GENERAL EXPENSES | 4,104 | |
| HEATING & LIGHTING | 200 | |
| MARKETING & ADVERTISING | 500 | |
| WAGES | 800 | |
| LOAN INTEREST EXPENSES | 400 | |
| INVENTORY | 4,900 | |
| PAYABLES | 32,400 | |
| RECEIVABLES | 36,000 | |
| SHARE CAPITAL | 42,053 | |
| RETAINED EARNINGS | 1,206 | |
| 5 % LOAN NOTE | 500 | |
| 140,239 | 140,239 |
The following notes are relevant.
1. Inventory at 31 May was valued at $5,880.
2. Marketing and advertising expenses include $875 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 $2,550 for the year ended 31 May 2014.
4. A customer ceased trading owing the company $4,000; 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 $600 is to be provided for the year.
9. The audit fee accrual is estimated to be $2,250.
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 $5,880.
Debit inventory in financial position and Credit inventory in Income statement.$5,880.
2. Marketing and advertising expenses include $875 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 $875
3. There are wages outstanding of $2,550 for the year ended 31 May 2014.
Debit wages and credit Accrual $2,550
4. A customer ceased trading owing the company $4,000; the debt is not expected to be recovered.
Debit Irrecoverable debt expenses and Credit Receivables $4,000
5. An allowance for receivables is to be established amounting to 5% of trade receivables.
(Receivables - debt written off ) X 5 %
( 36,000 - 4,000) X0.05
= $1,600
Debit irrecoverable debt expenses and Credit allowance for receivables $1,600
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
=(100 -20) X0.25
=$20
Debit distribution costs and credit Acc Dep Motor Vehicles $20.
Plant and equipment at 20% per annum of their written down value, allocated to cost of sales.
(plant minus acc plant) X O.2
= $(300 -60) X 0.2
=$48
Debit cost of sales and credit Acc Dep Plant $48
7. No dividends have been paid or declared.
No action to be taken.
8. Income tax of $600 is to be provided for the year.
Debit Income tax expenses and Credit Income tax payable $600.
9. The audit fee accrual is estimated to be $2,250.
Debit audit expenses and credit Accrual $2,250.
Income statement
| REVENUE | 50,000 |
| COST OF SALES | 33,588 |
| GROSS PROFIT | 16,412 |
| DISTRIBUTION COST | 3,327 |
| ADMIN EXPENSES | 10,802 |
| FINANCING COST | 400 |
| PROFIT BEFORE TAX | 1,883 |
| INCOME TAX | 600 |
| PROFIT FOR THE PERIOD | 1,283 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| OPENING INVENTORY | 4,900 | ||
| PURCHASES | 32,500 | ||
| LESS CLOSING INVENTORY | (5,880) | ||
| GENERAL EXPENSES | 4104 | 0.1 | 410.4 |
| HEAT | 200 | 0.5 | 100 |
| WAGES | 800 +2550 | 0.6 | 2,010 |
| DEP BUILDINGS | 3000 | 0.5 | 1,500 |
| DEP PLANT | 48 | 1.0 | 48 |
| LESS DISCOUNT RECEIVED | (2,000) | ||
| FINAL COST OF SALES | 33,588 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| GENERAL EXPENSES | 4104 | 0.4 | 1641.6 |
| HEAT | 200 | 0.3 | 60 |
| WAGES | 800 +2550 | 0.3 | 1,005 |
| DEP BUILDINGS | 3000 | 0.2 | 600 |
| MOTOR VEHICLES | 20 | 1.0 | 20 |
| DISTRIBUTION COST | 3,327 |
| ITEM | AMOUNT | % | APPORTIONED CREDIT |
| GENERAL EXPENSES | 4104 | 0.5 | 2052 |
| HEAT | 200 | 0.2 | 40 |
| WAGES | 800 +2550 | 0.1 | 335 |
| DEP BUILDINGS | 3000 | 0.3 | 900 |
| AUDIT FEE | 2250 | ||
| MARKETING COST | 500 -875 | -375 | |
| IRRECOVERABLE DEBTS AND ALLOWANCE | 4000 +1600 | 5600 | |
| ADMINISTRATIVE EXPENSES | 10,802 |
Financial position
| ACCOUNT | WORKING | DEBIT | CREDIT |
| NON CURRENT ASSETS | 60000 +100 +300 | 60,400 | |
| LESS ACC DEP EQUIPMENT | 40 + 108 +15000 | (15,148) | |
| TOTAL NON CURRENT ASSETS | 45,252 | ||
| CURRENT ASSETS | |||
| INVENTORY | 5,880 | ||
| RECEIVABLES | 36,000 | ||
| less allowance and bad debt for receivables | (1600 + 4000) | ||
| Receivables | 30400 | ||
| PREPAYMENT | 875 | ||
| BANK | 435 | ||
| TOTAL CURRENT ASSETS | 37,590 | ||
| TOTAL ASSETS | 82,842 | ||
| ACCOUNT | WORKING | DEBIT | CREDIT |
| PAYABLES | 32,400 | ||
| ACCRUAL | 4800 | ||
| TAXATION | 600 | ||
| 5% LOAN NOTES | 500 | ||
| TOTAL CURRENT LIABILITY | 38,300 | ||
| $1 Ordinary shares | 42,053 | ||
| Profit | 1,283 | ||
| RETAINED EARNINGS | 1206 | ||
| TOTAL EQUITY | 44,542 | ||
| TOTAL LIABILITIES & EQUITY | 82,842 |