Question

Stellar Ltd prepares accounts to 31March every year. Its latest trial balance for the year ended 31 March 2020 is provided below.

Stellar Ltd Trial Balance as at 31 March 2020

	DR	CR
	£ 000's	£ 000's
Ordinary shares of £0.50 each		90,000
Share premium account		60,000
6% £1 preference shares (redeemable in year 2030)		4,000
Preference dividends paid	240
Property at cost	106,000
Plant and equipment at cost	69,500
Bank	32,000
8% Debentures (redeemable in year 2040)		5,000
Retained earnings		21,500
Accumulated depreciation on property at 1 April 2019		15,400
Accumulated depreciation on plant and equipment at 1 April 2019		9,600
Inventories at 1 April 2019	7,960
Purchases	75,500
Trade payables		28,900
Trade receivables	86,000
Sales revenue		190,250
Bad debts written off	2,200
Staff costs	14,650
General expenses	8,600
Rent	14,000
Other expenses	8,000
	424,650	424,650

Additional information as at 31March 2020 is provided below:

1. Inventories at close of business on 31 March 2020 was valued at £17,500,000 at cost.
2. A cash dividend of £0.10 per share was paid to ordinary shareholders on 27 March 2020. No entries have been made in the accounts for this transaction.
3. Due to the contractual obligation to pay preference dividends, the company recognises and accounts for preference shares as a liability.
4. Depreciation is to be provided for the year ending 31March 2020 as follows:
   1. Property at 1% per annum on cost.
   2. Plant and equipment at 5% per annum on a reducing balance basis.
   3. The depreciation charge for the year is to be apportioned to administrative and distribution expenses as per the table below:

Depreciation Charge on	% charged to administrative expenses	% charged to distribution expenses
Property	80%	20%
Plant and equipment	40%	60%

5. Interest on the debentures has not yet been paid and needs to be accrued for the year.
6. To be prudent, the directors wish to create an allowance for receivables equal to 1% of trade receivables. It is company policy to classify all bad debts and any allowances for receivables as distribution expenses.
7. Staff costs outstanding at the financial year end amounted to £500,000 and other expenses included £300,000 which had been paid in advance. Both these expenses are chargeable 60% to administration and 40% to distribution.
8. The amount for rent in the trial balance above relates to the period 1 April 2019 to May 2020. Rent expense is charged 30% to administration and 70% to distribution.
9. Half of the general expenses relate to administration and half to distribution.
10. The corporation tax charge is to be provided at 20% of profits after charging all expenses and interest

Prepare the Statement of Profit and Loss, the Statement of Changes in Equity and the Statement of Financial Position of Stellar Ltd for the financial year end 31 March 2020. (You should show all your workings).

Answer 1

1. Statement of Profit and Loss -

Stellar Ltd
Statement of Profit and loss account
For the financial year end 31 March 2020
Particulars	£
Sales revenue	190,250
(+) Op. Inventory	7,960
Purchases	75,500
(-) Closing Inventory	(17,500)
Cost of Goods Sold	65,960
Gross Profit	124,290
Expenses:
Administrative Expenses	23,656
Distribution Expenses	26,909
Interest on debenture	400
Total Expenses	50,965
Profit before Tax	73,325
(-) Corporation Tax Expenses (20%)	14,665
Net Income	58,660

2. Financial Position of Stellar Ltd for the financial year end 31 March 2020. -

Stellar Ltd
Balance Sheet
31 March 2020
Liabilities	£	Assets	£
Shareholders Equity		Non Current Assets
Ordinary shares of £0.50 each	90,000	Property at cost	106,000
Share premium account	60,000	Accumulated depreciation on property	(16,460)
6% £1 preference shares (redeemable in year 2030)	4,000	Plant and equipment at cost	69,500
Preference dividends paid	(240)	Accumulated depreciation on plant and equipment	(12,595)
Retained earnings	21,500
(+) Net Income	58,660
(-) Dividend	(18,240)
Non Current Liabilities		Current Assets
8% Debentures (redeemable in year 2040)	5,000	Bank	14,000
		Inventories	17,500
		Trade receivables	86,000
Current Liabilities		(-) Allowance for receivable	(860)
Trade payables	28,900	Prepaid Other expenses	300
Preference dividend payable	240	Prepaid Rent	2,000
Interest Payable	400
Staff cost Payable	500
Corporation tax payable	14,665
	265,385		265,385

3.Statement of Changes in Equity -

Stellar Ltd
Statement of Changes in Equity
For the financial year end 31 March 2020
Shareholders Equity
Ordinary shares of £0.50 each	90,000
Share premium account	60,000
6% £1 preference shares (redeemable in year 2030)	4,000
Preference dividends paid	(240)
Retained earnings	21,500
(+) Net Income	58,660
(-) Dividend	(18,240)
Total Shareholder's Equity	215,680

4. Working Notes -

Particulars	£
Administrative Expenses
Depreciation on property	848
Depreciation on plant and equipment	1,198
Staff costs	9,090
Other expenses	4,620
General expenses	4,300
Rent	3,600
Total	23,656
Distribution Expenses
Depreciation on property	212
Depreciation on plant and equipment	1,797
Allowances for receivables	860
Staff costs	6,060
Other expenses	3,080
General expenses	4,300
Rent	8,400
Bad debts written off	2,200
Total	26,909