Question

Gumya Ltd. is a paper producing company in Sheffield. Its draft trial balance at 31 December 2019 is shown below:

	Credit ($000)	Debit ($000)
Administration costs	39
Bank balance	10
Debenture interest	9
Debenture (6% p.a., repayable at par 2025)		300
Discount allowed	12
Discount received		15
Fixtures and fittings – cost	110
Fixtures and fittings - provision for depreciation		24
Inventory (as at 1 January 2019)	78
Land and buildings	1430
Machinery - cost	280
Machinery - provision for depreciation		49
Non-current assets disposal		30
Ordinary dividends (interim paid)	120
Ordinary shares (10p each)		400
Preference dividends (interim paid)	4
Preference shares (redeemable 2030)		200
Provision for doubtful debts		13
Purchases	910
Retained earnings as at 1 January 2019		23
Returns in	31
Returns out		24
Revaluation reserve as at 1 January 2019		240
Sales revenue		1860
Selling distribution costs	135
Trade payables		110
Trade receivables	120
Total	3288	3288

The following additional information should be taken into consideration:

a) Debenture interest and preference dividends are paid every six months – only the payments for the first six months of this accounting period have been booked. The preference shares do not carry voting rights and bear a variable rate of interest, calculated as equivalent to 4% p.a. for the final six months of this accounting period. A final dividend of 3p per ordinary share has been proposed. The directors announced this final dividend on 31 December 2019.

b) On 30 June 2019, some obsolete machinery was sold for £30,000. It had cost £55,000 and £37,000 had been provided as depreciation up to 31 December 2018. In line with the company’s policy, no depreciation charge has been booked for 2019. However, no entries have been made in the accounts relating to the disposal except to debit the bank account and credit a non-current asset disposals account with the proceeds.

c) No provision for depreciation has been made for the year ended 31 December 2019. Company policy is to calculate depreciation on the straight-line method. Machinery is depreciated at 20% p.a. assuming a zero scrap value. Fixtures and fittings are depreciated at 10% p.a. assuming a zero scrap value. Machinery depreciation is charged to cost of sales and fixtures and fittings depreciation is charged to administration costs.

d) Land and buildings are owned freehold and are not depreciated. On 31 December 2019 the buildings were valued by a professional surveyor at £1,500,000. The company would like to incorporate this valuation in its accounts.

e) An internal review revealed that payments totalling £8,000 of insurance costs relating to the month of January 2020 have been charged to administration costs. Furthermore, there has been no recognition of unpaid distribution costs of £10,000 relating to December 2019.

f) On 31 December 2019, the accounts receivable manager learnt that a customer has declared bankruptcy and will not be able to pay the remaining £11,000 balance that it owes Rosa Ltd. The Directors have decided to maintain the provision for doubtful debts at 7% of closing trade receivables. Doubtful debt provisions and bad debts are charged to selling costs.

g) The closing inventories are valued at cost of £83,000.
h) An estimated tax charge for the period of £70,000 has not yet been recorded.

Prepare an income statement for the year ended 31 December 2019 and a Statement of Financial position statement (balance sheet) at that date. Show all your calculations.

Answer 1