Question

Q1.     

The following balances have been extracted from the books of Caswell Ltd as at 31 December 2009.                                                                                                                                    

   

	£	£
£1 ordinary shares		600,000
6% preference shares		600,000
5% debentures		480,000
Share premium account		330,000
Debenture interest paid	12,000
Bad debts written off	20,280
Provision for doubtful debts		24,480
Cash in hand	18,960
Debtors & Creditors	207,000	78,000
Bank balance	379,200
Land at cost	540,000
Buildings at cost	1,140,000
Fixtures and fittings at cost	660,000
Accumulated depreciation:             Buildings             Fixtures		180,000 300,000
Retained Earnings		112,920
Purchases	1,315,680
Sales		2,400,000
Stock	427.440
General expenses	384,840
	5,105,400	5,105,400

     You have been given the following additional information:

1. Stock at 31 December 2009 has been valued at £466,380
2. General expenses includes £12,000 paid in respect of the insurance for the year to 30^th June 2010.
3. An invoice of £1,150 for electricity for the quarter period to 31^st December needs to be included in general expenses.
4. Depreciation to be provided as follows:
               10% on cost on buildings

               20% on written down value of fixtures and fittings

5.    The directors wish to write off a further debt of £8,550 and retain a 10% general provision on the remaining debtors
6. The preference shares were issued on 1 October 2009.
7.    The corporation tax for the year has been estimated at £150,000, which is payable on 1^st October 2010
8.    The share premium account arose on the issue of ordinary shares
9.    The directors propose to pay the preference dividend and a 6% ordinary dividend

REQUIRED:

       a)    Prepare a Profit & Loss Account for the year ended 31 December 2009 and a Balance Sheet as at that date.                              

                                                                                                                   

       b)    Explain briefly the objective of depreciation and how the two methods of depreciation used by Caswell Ltd. differ.

Answer 1