Question

You are presented with the following trial balance of Malright, a limited liability company, at 31 October 20X7. Dr Cr $'000 $'000 Buildings at cost 740 Buildings, accumulated depreciation, 1 November 20X6 60 Plant at cost 220 Plant, accumulated depreciation, 1 November 20X6 110 Land at cost 235 Bank balance 50 Revenue 1,800 Purchases 1,105 Discounts received 90 Returns inwards 35 Wages 180 Energy expenses 105 Inventory at 1 November 20X6 160 Trade payables 250 Trade receivables 320 Administrative expenses 80 Allowance for receivables, at 1 November 20X6 10 Directors' remuneration 70 Retained earnings at 1 November 20X6 130 10% loan notes 50 Dividend paid 30 $1 ordinary shares 650 Share premium account 80 ______ ______ 3,280 3,280 5 Additional information as at 31 October 20X7: (a) Closing inventory has been counted and is valued at $75,000. (b) The items listed below should be apportioned as indicated. Cost of Distribution Administrative Sales costs expenses % % % Discounts received – – 100 Energy expenses 40 20 40 Wages 40 25 35 Directors' remuneration – – 100 (c) An invoice of $15,000 for energy expenses for October 20X7 has not been received. (d) Loan note interest has not been paid for the year. (e) The allowance for receivables is to be increased to the equivalent of 5% of trade receivables. Any expenses connected with receivables should be charged to administrative expenses. (f) Plant is depreciated at 20% per annum using the reducing balance method. The entire charge is to be allocated to cost of sales. (g) Buildings are depreciated at 5% per annum on their original cost, allocated 30% to cost of sales, 30% to distribution costs and 40% to administrative expenses. (h) Income tax has been calculated as $45,000 for the year. 6 Required Prepare the following financial statements for Malright in accordance with IAS 1 Presentation of financial statements: (a) The statement of profit or loss for the year ended 31 October 20X7 (b) The statement of changes in equity for the year ended 31 October 20X7 (c) The statement of financial position as at 31 October 20X7

Answer 1

1. Income Statement -

2. Balance Sheet -

Working Note -

(a) Closing inventory has been counted and is valued at $75,000.

(f) Plant is depreciated at 20% per annum using the reducing balance method. The entire charge is to be allocated to cost of sales.

(g) Buildings are depreciated at 5% per annum on their original cost, allocated 30% to cost of sales

(c) An invoice of $15,000 for energy expenses for October 20X7 has not been received.

As this is incurred in october 2017 as per accrual basis rule we have to recognise this expenses in the current financial year and as this is not yet paid we have to consider it as payable

(d) Loan note interest has not been paid for the year.

We have to charged interest expenses on the notes at the rate 10% on Notes payable i.e. $50,000 = $ 5000 is charged to current year income statement and as it is not paid yet hence transfer to interest Payable.

(e) The allowance for receivables is to be increased to the equivalent of 5% of trade receivables. Any expenses connected with receivables should be charged to administrative expenses.

5% of Trade receiveivable = $320,000 x 5% = $16,000 charged to Administrative expenses and added to Allowance for receivables

(g) Buildings are depreciated at 5% per annum on their original cost, 30% to distribution costs and 40% to administrative expenses.

Cost of Buidling = $740,000 x 5% = 37,000 of which 30% Distribution Cost = 11100 and 40% to administrative expenses = $14,800

(b) The items listed below should be apportioned as indicated. Cost of Distribution Administrative Sales costs expenses % % % Discounts received – – 100 Energy expenses 40 20 40 Wages 40 25 35 Directors' remuneration – – 100

Note - Energy Expenses bill not receiveed $15,000 at Cost of Distribution 40%, Administrative 20% and Sales costs expenses 40% ratio in above table.