Question

EcoPak Ltd is a small private company, specialising in the manufacture of takeaway packaging, which offers an environmentally friendly alternative to disposable food containers. The business’s accountant Kate has prepared a draft version of EcoPak’s Balance Sheet and Income Statement for the financial year ended 30 June 2020. Kate knows she has made several mistakes in classifying the elements of the Balance Sheet and Income Statement because the income statement shows EcoPak has made a loss and the Balance Sheet doesn’t balance! Kate’s statements are shown below.

EcoPak Ltd - Draft Income Statement for the year ended 30 June 2020
Cash at Bank	255,000
Accrued Wages	22,000
Gross profit	277,000
Expenses
Bank Loan	320,000
Interest expense	27,000
Prepaid Rent	3,600
Depreciation Expense	43,000
Donations Expense	12,000
Accounts Receivable	14,000
Other expenses	32,000
Earnings before interest and tax	-174,600
Accounts Payable	22,000
Profit before tax	-196,600
Income tax expense	125,000
Profit for the period from continuing operations	-321,600

EcoPak Ltd – Draft Balance Sheet AS AT 30 June 2020
Assets		Liabilities
Current Assets		Current Liabilities
Wages Expense	78,000	Drawings	-25,000
Cost of Sales	376,000	Inventory	108,000
Rent Expense	31,200	Electricity expense	18,000
Sales revenue	1,244,000	Non-current liabilities
Prepaid Utilities	2,100	Trucks	90,000
Property Plant and Equipment	578,000	Advertising Expense	45,000
Non-current Assets		Total Liabilities	236,000
Retained Profits	468,700	Owner’s Equity
Mortgage	63,000	Insurance Expense	72,000
		Contributions	198,000
		Intangibles	18,000
		Total Owner’s Equity	288,000
Total Assets	2,841,000	Total Liabilities and Owner’s Equity	524,000

EcoPak Ltd – CORRECTED Draft Income Statement for the year ended 30 June 2020
Gross profit
Expenses
Earnings before interest and tax
Profit before tax
Profit for the period from continuing operations

EcoPak Ltd – Draft Balance Sheet AS AT 30 June 2020
Assets		Liabilities
Current Assets		Current Liabilities
		Non-current liabilities
Non-current Assets		Total Liabilities
		Owner’s Equity
		Total Owner’s Equity
Total Assets		Total Liabilities and Owner’s Equity

Answer 1