Question

You are given the following information and are asked to use the T-accounts in order to report the statement of financial position (balance sheet) and the income statement:

The capital structure of a business is made of 3,200,000 ordinary shares outstanding at par value of $5 each and capital reserves of $400,000. It also has a million dollar ($1,000,000) long-term loan to be paid in fine (a.k.a. “bullet loan” with the principle amount due at the end of the loan period few years from now) at 10% interest per year. The actual interest payments made over the current reporting period amount at $76,124. The company issues an extra 1,000,000 of its ordinary shares at par value of $5 each and raises $6,000,000 of additional capital.

The reported opening inventory balance is $366,059 and the company purchases a total of $7,570,321 worth of inventories for cash and further $8,765,350 worth of inventory on credit.

The company's fixed assets include land and buildings reported at the end of the previous accounting period at $9,670,500 and is depreciated using the straight-line method over 20 years. The company has also invested $7.5 million in machinery during the current year adding them to the $6 million of reported fittings and fixtures from the previous accounting period. All this equipment is depreciated with a straight-line method over 5 years. In addition, the company owns trademarks and patents worth $1,722,120 which are not subject to depreciation.

In terms of expenses since January 1 of the current year the company rents a warehouse at a monthly fee of $10,000. The total amount of rent paid in cash during the current reporting period is $150,000. The total electricity expenses for the year amount to $134,789 paid in cash with the fourth quarter bill of $28,476 to be paid shortly after year’s end. The general expenses for the year sum up to $4,356,967 paid in cash.

The revenue from sales over the current reporting period to credit customers amounts at $10,098,636 with reported cost of sales $5,673,822. Another $10,500,735 worth of goods have been sold with immediate cash payment for $15,655,322 during the year.

The trade credit balances are as follows: the opening trade payable balance reported is $1,343,287 and the opening trade receivables balance is $1,063,328. During the accounting period the company has paid in cash $6,704,749 for its accounts payable to suppliers. Meanwhile credit customers have paid the company $7,007,564 of cash for sales on credit.

In terms of overdraft granted from the bank the company starts the current reporting period with an overdraft position of $78,720.

The fiscal position of the firm is such that the corporate tax rate is 33%. Half of the taxation amount is paid during the year. The remaining half is due shortly after year’s end.

The management has decided to plow back in the business all the profit for the year. No dividends are to be paid

Answer 1

Income Statement

Income Statement
Sales
Cash	15655322
Credit	10098636
Inc / ( Dec ) in Inv	0
Total Income	25753958
Less: COGS
Cost of Goods Sold	16174557
Rent of wh	120000
Ele bill	134789
Add os	28476
General Exps	4356967
Interest Paid	100000
Dep on L&B	483525
Dep on Mach	1500000
Dep on F&F	1200000
Total Exp	24098314
Operating Profit	1655644

Balance Sheet

	Balance Sheet
Assets
Cash			2091216
Accounts Receivable			4154400
Stock			527173
Trademark & Patent			1722120
Prepaid Rent			30000
Land and buildings	9670500
			9670500
Machinery	7500000
			7500000
Furniture and Fix	6000000
			6000000
Accu dep			-3183525
Total Assets			28511884
Liabilities
Ordinary Shares	3200000	5	16000000
Addl Capital	1000000	5	6000000
Capital Reserve			400000
Long Term Loan			1000000
Accounts Payable			3403888
Accrued Int			23876
O/s liab - ele bill			28476
Overdraft
Net profit taken over			1655644
Total Liabilities			28511884

Working Notes

	Trade Payable
To cash	6704749	by op bal	1343287
To bal cd	3403888	By Pur	8765350
	10108637		10108637
	Trade receivable
To bal	1063328	By cash	7007564
To Sales	10098636	By bal cd	4154400
	11161964		11161964

Op Inv	366059
Pur - Cash'	7570321
Pur - Cr	8765350

Sales
Credit	10098636
Cash	15655322

COGS	5673822
COGS	10500735
Cl stock	527173

Notes : Interest is o/s for 23876

Ele bill is os for 28476

Prepaid Rent 150000-120000 = 30000

Cash Account is as under

	Cash / Bank Account
		By OD	78720
Capital	6000000	Pur cash	7570321
Sale cash	15655322	By Mach	7500000
A/R	7007564	By F&F
		By Rent	150000
		By Ele	134789
		By Gen Ex	4356967
		A/P	6704749
		By Int	76124
To bal c/d
	28662886		26571670		2091216