Question

Wise Ltd. situated in southern province in Zambia has an authorised share capital of K8,
000,000 comprising 20,500,000 ordinary shares of 25 ngwee each and K2, 500,000 of 5%
preference shares of K1 each. The following trial balance was extracted from the books at
31 December, 2019.

K K
Ordinary share capital 3,405,000
6% preference share capital 980,000
4 % Loan Notes 1,350,000
General reserve 430,000
Retained profits at 1 January 2019 590,000
Freehold premises at cost 6,950,000
Plant and machinery at Cost 3,150,000
Motor vehicles at Cost 450,000
Freehold premises Accum Depreciation 380,000
Plant and machinery Accum Depreciation 720,000
Motor vehicles Accum depreciation 220,000
Inventory at 31 December 2019 688,000
Trade receivables and Trade payables 392,000 300,000
Purchases/Sales 6,060,000 13,500,000
Returns 310,000 78,000
Goodwill 300,000
Bank Overdraft 680,000
Long term investments 700,000
Administrative expenses 2,075,000
Distribution expenses 1,283,000
Loan Note Interest paid 24,800
Investment income 17,000
Bank interest paid 70,200
Ordinary dividends paid 132,000
Preference dividends paid 65,000

22,650,000 22,650,000

Additional information
1. On 29 December 2019 Wise bought goods costing K88,000. The purchase was not
accounted for by 31 December 2019.
2. The physical stock count showed closing inventories of K890,000. This figure includes
goods bought on 29 December 2019 as they had been received at the time of the
physical stock take.

3. The long-term investments, owned since 2014, earn an annual fixed rate of interest of
5.5% per annum.

4. Depreciation is to be charged as follows:
a. Freehold premises at 4% on cost. Depreciation of freehold premises should be
included as an administration expense.
b. Plant and machinery at 10% on cost. Depreciation of plant and machinery should be
included as part of cost of sales
c. Motor vehicles at 20% on reducing balance method. Depreciation of motor vehicles
should be included as distribution expenses.

5. There are accrued administration expenses of K175,800 and prepaid distribution expenses
of K16, 230 at 31 December 2019.

6. The charge for corporation tax for the year ended 31 December 2019 is estimated at
K850, 000.

7. The second half year’s loan note interest is yet to be paid. The directors propose to pay a
further dividend to the ordinary shareholders of 5 ngwee per share but this has not been
approved by the board at the year end.

Required:
(a) Prepare Wise Plc’s statement of profit or loss for the year ended 31 December
2019.
(b) Prepare Wise Plc’s statement of financial position 31 December 2019.

Answer 1

(a) Prepare Wise Plc’s statement of profit or loss for the year ended 31 December 2019.

Wise PLC
Profit or loss Account
For the year ended 31 December 2019
Particulars	Amount
Sales	13,500,000
Returns	-310,000
(-) Purchases	-6,261,000
Returns	78,000
Gross Profit	7,007,000
Expenses/ (Income):
Administrative expenses	2,528,800
Distribution expenses	1,312,770
Loan Note Interest paid	54,000
Investment income	-38,500
Bank interest paid	70,200
Total Expenses	3,927,270
Profit before Tax	3,079,730
(-) Corporation Tax	-850,000
Net Income	2,229,730

(b) Prepare Wise Plc’s statement of financial position 31 December 2019.

Wise PLC
Balance Sheet
31 December 2019
Liabilities	Amount	Assets	Amount
Shareholders Equity		Non Current Assets
Ordinary share capital	3,405,000	Freehold premises at cost	6,950,000
6% preference share capital	980,000	Freehold premises Accum Depreciation	(658,000)
General reserve	430,000	Plant and machinery at Cost	3,150,000
Retained profits at 1 January 2019	590,000	Plant and machinery Accum Depreciation	(1,035,000)
Ordinary dividends paid	(132,000)	Motor vehicles at Cost	450,000
Preference dividends paid	(65,000)	Motor vehicles Accum depreciation	(266,000)
Add: Net Income	2,229,730
Non Current Liabilities		Goodwill	300,000
4 % Loan Notes	1,350,000	Long term investments	700,000
		Current Assets
		Inventory at 31 December 2019	890,000
Current Liabilities		Trade receivables	392,000
Trade payables	388,000	Interest receivable	21,500
Bank Overdraft	680,000	Prepaid Expenses	16,230
Accrued Expenses	175,800
Corporation Tax Payable	850,000
Interest Payable	29,200
	10,910,730		10,910,730