Question

Wang Yee is a manufacturer. The following balances were extracted from his books on 31
January 2010.
$
Inventories (stocks) 1 February 2009

Raw materials	14 700
Work in progress	23 570
Finished goods	35 000
Purchases of raw materials	75 600
Purchases of finished goods	15 500
Direct factory wages	62 140
Rent	28 000
Factory management salaries	31 500
Office salaries	41 600
Revenue (sales)	342 500
Revenue (sales returns)	1 250
Distribution costs	28 650
Sundry office expenses	9 870
Non-current liability (8% loan – repayable 31 December 2015)	40 000
Finance costs (loan interest) paid	2 400
Property (land and buildings) (cost)	80 000
Plant and machinery (cost)	90 000
Office equipment (cost)	30 000
Provision for depreciation of plant and machinery	32 000
Provision for depreciation of office equipment	12 000
Provision for doubtful debts	1 550
Trade receivables (debtors)	45 000
Trade payables (creditors) Cash (bank) Equity	60 700 33 030 Cr 110 000
Drawings	17 000

Additional information:
1 Inventories (stocks) at 31 January 2010 were valued as follows:

Raw materials 16 250

Work in progress 18 780

Finished goods 32 500

2 At 31 January 2010

Direct factory wages, $1 120, were accrued.

Sundry office expenses, $630, were prepaid.

3 Rent is to be apportioned on the basis of area occupied. Three fifths of the area is occupied by

the factory and two fifths by the offices.

4 Depreciation is charged on plant and machinery at 20% per annum using the diminishing

(reducing) balance method.

5 Office equipment is depreciated using the straight-line method at 20% on cost. Office equipment, $24 000, was purchased on 31 July 2006.

Additional office equipment, $6 000, was purchased on 30 September 2009.

No other changes in non-current (fixed) assets occurred in the year ended 31 January 2010.

Depreciation is calculated for the time assets are held in the business.

6 The provision for doubtful debts is to be maintained at 4% of trade receivables (debtors).

REQUIRED

(a) Prepare the manufacturing account of Wang Yee for the year ended 31 January 2010. Show

clearly the cost of raw materials consumed, prime cost and cost of production.

(b) Prepare the income statement (trading and profit and loss accounts) of Wang Yee for the year

ended 31 January 2010.

(c) Prepare the Statement of financial position of Wang Yee at 31 January 2010.

Answer 1

Answer to Question 1 (a):

Wang Lee
Manufacturing Account for the year ended 31st Jan,2010
Particulars	Amount($)	Amount($)
Inventory (stock) of raw materials at 1 February 2009	14700
Purchases of raw materials	75600
	90300
Less: Inventory (stock) of raw materials at 31 January 2010	16250
Cost of raw materials consumed	74050
Direct factory wages ($62 140 + $1 120)	63260
Prime cost		137310
Rent(3/5 of $28,000)	16800
Factory managers salary	31500
Provision for depreciation of plant and machinery	11600	59900
		197210
Add decrease in work in progress ($23 570 - $18 780)		4790
Cost of production		202000

Answer to Question 1 (b):

Income Statement of Wang Yee for the year ended 31st Jan , 2010.

Particulars	Amount($)	Amount($)
Revenue (sales)		342500
Less Revenue (sales) returns		1250
		341250
Inventory (stock) of finished goods at 1 February 2009	35000
Cost of production	202000
Raw materials (purchases) of finished goods	15500
	252500
Inventory (stock) of finished goods at 31 January 2010	32500
Cost of sales		220000
Gross profit		121250
Rent	11200
Office salaries	41600
Distribution costs	28650
Sundry office expenses ($9 870 - $630)	9240
Finance costs (loan interest) ($2 400 + $800)	3200
Provision for depreciation of
Office equipment($24 000 × 20%)
($6 000 × 20% × 4 ÷ 12) 400	5200
Increase in provision for doubtful debts	250
		99340
Profit for the year (net profit)		21910

Answer to Question 1 (c):

  Statement of financial position of Wang Yee at 31 January 2010:

Particulars	Cost($)	Depreciation to date($)	Net Book Value
Non-current (fixed) assets
Property (land and buildings)	80000	0	80000
Plant and machinery	90000	43600	46400
Office equipment	30000	17200	12800
	200000	60800	139200
Current assets
Inventory (stock)
Raw materials	16250
Work in progress	18780
Finished goods	32500
		67530
Trade receivables (debtors)	45000
Less: provision for doubtful debt	(1800)
		43200
Other receivables (prepaid expenses)		630
		111360
Less: Current liabilities
Trade payables (creditors)	60700
Other payables
(accrued expenses) ($1 120 + $800)	1920
Loan repayable within 12 months
(bank overdraft)	33030
		(95650)
Net current assets			15710
			154910
Non-current (long term) liabilities
8% loan repayable 31 December 2015			(40000)
			114910
Financed by:
Capital		110000
Plus: Net profit		21910
		131910
Less: Drawings		(17000)
			114910