C ONTENTS · (a) Trading Account (b) Profit and Loss Account (c) Balance Sheet (d) Balance Sheet (e) Trading account (f) Profit and Loss Account (g) Profit and Loss Account (h)

C

ONTENTS

Chapter 2: Double-Entry Book-keeping and the Trial Balance ......................................................... 1

Chapter 3: Profit Measurement and Balance Sheet Preparation ........................................................ 5

Chapter 4: Value Added Tax and Statutory Deductions..................................................................... 8

Chapter 5: Accruals, Prepayments, Bad Debts, Provisions and Bad Debts Recovered..................... 12

Chapter 6: Depreciation and Revaluation .......................................................................................... 15

Chapter 8: Final Accounts of a Sole Trader with Adjustments .......................................................... 29

Chapter 9: Bank Reconciliation Statements....................................................................................... 44

Chapter 10: Control Accounts.............................................................................................................. 48

Chapter 11: Correction of Errors – Suspense Account ........................................................................ 53

Chapter 12: The Conceptual Framework of Accounting ..................................................................... 66

Chapter 14: Limited Companies .......................................................................................................... 67

Chapter 15: Final Accounts of a Limited Company with Adjustments ............................................... 73

Chapter 16: Manufacturing Accounts .................................................................................................. 96

Chapter 17: Departmental Accounts .................................................................................................... 113

Chapter 18: Published Accounts (Higher Level Only) ........................................................................ 126

Chapter 19: Analysis and Interpretation of Financial Statements........................................................ 148

Chapter 20: Cash Flow Statements ...................................................................................................... 168

Chapter 21: Club Accounts and Accounts of Service Firms................................................................ 181

Chapter 22: Incomplete Records I ....................................................................................................... 206

Chapter 23: Incomplete Records II ...................................................................................................... 232

Chapter 24: Farm Accounts.................................................................................................................. 259

Chapter 25: Tabular Statements ........................................................................................................... 272

Chapter 26: Introduction to Management Accounting......................................................................... 275

Chapter 27: Cost Classification............................................................................................................ 276

Chapter 28: Product Costing ................................................................................................................ 278

Chapter 29: Cost Volume Profit Analysis (Marginal Costing) ............................................................. 288

Chapter 30: Budgeting and Budgetary Control.................................................................................... 299

© Kevin O Riordan 2000

ISBN 1841 31 3750

Folens Publishers, Hibernian Industrial Estate, Greenhills Road. Tallaght, Dublin 24.

The Publisher reserves the right to change, without notice, at any time the specification of thisproduct, whether by change of materials, colours, bindings, format, text revision or any othercharacteristic.

1

Double-Entry Book-keeping andthe Trial Balance: Solutions

2

QUESTION 2.1

Bank Account

July 1 Capital 35,000 July 12 Creditor 10,500July 25 Sales 4,000 July 15 Wages 2,000

July 21 Advertising 1,000July 28 Machinery 15,000July 31 Balance c/d 10,500

39,000 39,000Aug 1 Balance b/d 10,500

Capital Account (Peter Howard)

July 31 Balance c/d 35,000 July 1 Bank 35,00035,000 35,000

Aug 1 Balance b/d 35,000

Purchases Account

July 5 Creditor 12,000July 20 Creditor 8,000 July 31 Balance c/d 20,000

20,000 20,000Aug 1 Balance b/d 20,000

Creditor Account

July 12 Bank 10,500 July 5 Purchases 12,000July 12 Discount Received 1,500 July 20 Purchases 8,000July 22 Purchases Returns 1,000July 31 Balance c/d 7,000

20,000 20,000Aug 1 Balance b/d 7,000

Discount Received Account

July 31 Balance c/d 1,500 July 12 Creditor 1,5001,500 1,500


Purchases Returns Account

July 31 Balance c/d 1,000 July 22 Creditor 1,0001,000 1,000


Sales Account

July 17 Debtor 16,000July 25 Bank 4,000

July 31 Balance c/d 21,500 July 31 Debtor 1,50021,500 21,500


Debtor Account

July 7 Sales 16,000 July 8 Sales Returns 3,000July 31 Sales 1,500 July 31 Balance c/d 14,500

17,500 17,500Aug 1 Balance b/d 14,500

Leaving Certificate Accounting

2

QUESTION 2.2

Sales Returns Account

July 8 Debtor 3,000 July 31 Balance c/d 3,0003,000 3,000


Wages Account

July 15 Bank 2,000 July 31 Balance c/d 2,0002,000 2,000


Advertising Account



Machinery Account



Trial Balance as at 31 July

€ €

Name of Account Debit CreditBank............................................................ 10,500Capital......................................................... 35,000Purchases .................................................... 20,000Creditors ..................................................... 7,000Discount Received........................................ 1,500Purchases Returns........................................ 1,000Sales............................................................ 21,500Debtor......................................................... 14,500Sales Returns ............................................... 3,000Wages ......................................................... 2,000Advertising .................................................. 1,000Machinery ................................................... 15,000

66,000 66,000

Bank Account

Mar 1 Capital 12,000 Mar 3 Rent 150Mar 30 Cash 4,800 Mar 8 Wages 100

Mar 11 Creditor 2,900Mar 16 Wages 100Mar 20 Rates 50Mar 22 Motor Vehicle 5,000Mar 23 Wages 100Mar 25 Rent 150Mar 31 Wages 120Mar 31 Balance c/d 8,130

16,800 16,800Apr 1 Balance b/d 8,130

Solutions

3

Rent Account

Mar 3 Bank 150Mar 25 Bank 150 Mar 31 Balance c/d 300

300 300Apr 1 Balance b/d 300

Creditor Account

Mar 11 Bank 2,900 Mar 7 Purchases 3,000Mar 11 Discount Received 100 Mar 24 Purchases 2,000Mar 26 Purchases Returns 300Mar 31 Balance c/d 1,700

5,000 5,000Apr 1 Balance b/d 1,700

Purchases Account

Mar 7 Creditor 3,000 Mar 29 Drawings 600Mar 24 Creditor 2,000 Mar 31 Balance c/d 4,400

5,000 5,000Apr 1 Balance b/d 4,400

Discount Received Account

Mar 31 Balance c/d 100 Mar 11 Creditor 100100 100

Apr 1 Balance b/d 100


Mar 31 Balance c/d 300 Mar 26 Creditor 300300 300


Wages Account

Mar 8 Bank 100Mar 16 Bank 100Mar 23 Bank 100Mar 31 Bank 120 Mar 31 Balance c/d 420

420 420Apr 1 Balance b/d 420

Sales Account

Mar 10 Cash 2,000Mar 19 Debtor 4,000Mar 27 Debtor 2,700

Mar 31 Balance c/d 13,200 Mar 28 Cash 4,50013,200 13,200

Apr 1 Balance b/d 13,200

Cash Account

Mar 10 Sales 2,000 Mar 15 Advertising 750Mar 28 Sales 4,500 Mar 30 Bank 4,800

Mar 31 Balance c/d 9506,500 6,500


Advertising Account

Mar 15 Cash 750 Mar 31 Balance c/d 750750 750



4

Debtor Account

Mar 19 Sales 4,000 Mar 21 Sales Returns 500Mar 27 Sales 2,700 Mar 31 Balance c/d 6,200

6,700 6,700Apr 1 Balance b/d 6,200


Mar 21 Debtor 500 Mar 31 Balance c/d 500500 500


Rates Account

Mar 20 Bank 50 Mar 31 Balance c/d 5050 50


Motor Vehicle Account

Mar 21 Bank 5,000 Mar 31 Balance c/d 5,0005,000 5,000


Drawings Account

Mar 29 Purchases 600 Mar 31 Balance c/d 600600 600


Capital Account

Mar 31 Balance c/d 12,000 Mar 1 Bank 12,00012,000 12,000


Trial Balance as at 31 March

€ €

Name of Account Debit CreditBank............................................................. 8,130Rent ............................................................. 300Creditor........................................................ 1,700Purchases ..................................................... 4,400Discount Received ........................................ 100Purchases Returns......................................... 300Wages .......................................................... 420Sales............................................................. 13,200Cash............................................................. 950Advertising ................................................... 750Debtor.......................................................... 6,200Sales Returns ................................................ 500Rates ............................................................ 50Motor Vehicles ............................................. 5,000Drawings...................................................... 600Capital ......................................................... 12,000

27,300 27,300

5

Profit Measurement and Balance Sheet Preparation: Solutions

3

QUESTION 3.1

QUESTION 3.2

QUESTION 3.3

(a) Revenue (b) Capital (c) Revenue (d) Capital(e) Capital (f) Revenue (g) Revenue (h) Capital(i) Revenue (j) Capital (k) Capital

(a) Trading Account (b) Profit and Loss Account (c) Balance Sheet (d) Balance Sheet(e) Trading account (f) Profit and Loss Account (g) Profit and Loss Account (h) Profit and Loss Account(i) Balance Sheet (j) Balance Sheet (k) Balance Sheet

Trading and Profit and Loss Account for the year ended 31/12/-0

€ € €

Sales 89,000Less Cost of SalesOpening Stock 4,000Add Purchases 42,000Less Purchases Returns (700)

41,30045,300

Less closing stock (5,000)(40,300)

Gross profit 48,700Add incomeDiscount received 400

49,100Less expensesWages 10,000Discount allowed 600Insurance 1,500Carriage outwards 890Postage and stationery 110Light and heat 1,700

(14,800)Net profit 34,300


6

QUESTION 3.4

Balance Sheet as at 31/12/-0

€ € €

Fixed AssetsPremises 80,000Furniture and fittings 12,000

92,000Current AssetsStock 5,000Debtors 8,000

13,000Less Current LiabilitiesCreditors 4,000Bank Overdraft 2,000

(6,000)7,000

99,000Financed byCapital 71,700Add Net Profit 34,300

106,000Less Drawings (7,000)

99,000

Trading and Profit and Loss Account for the year ended 30/6/-9

€ €

Sales 151,000Less sales returns (1,000)

150,000Less Cost of SalesOpening Stock 20,000Add Purchases 107,000Add carriage inwards 3,000Add custom duties 4,500

134,500Less closing stock (30,000)

(104,500)Gross profit 45,500Add incomeRent received 7,500

53,000Less expensesWages 19,000Light and heat 2,000Advertising 3,000Insurance 7,000General expenses 6,000

(37,000)Net profit 16,000

Solutions

7

Balance Sheet as at 30/6/-9

€ € €

Fixed AssetsLand and buildings 100,000Furniture and equipment 20,000Motor vehicles 12,000

132,000Current AssetsStock 30,000Debtors 20,000Cash 1,000

51,000Less Current LiabilitiesCreditors 25,000Bank Overdraft 16,000

(41,000)10,000



142,000

8

Value Added Tax and Statutory Deductions: Solutions

4

QUESTION 4.1

Purchases Account

May 1 Creditor 15,000May 19 Creditor 5,000 May 31 Balance c/d 20,000

20,000 20,000June 1 Balance c/d 20,000

VAT Account

May 1 Creditor (Purchases) 1,500 May 3 Debtor (Sales) 2,500May 15 Bank (Eircom) 4 May 4 Creditor (Purchases returns) 100May 19 Creditors (Purchases) 500 May 11 Debtor (Sales) 700May 20 Debtors (Sales returns) 50 May 28 Debtor (Sales) 400May 27 Bank (Stationery) 10May 31 Balance c/d 1,636

3,700 3,700June 1 Balance b/d 1,636

Creditor Account

May 4 Purchases returns 1,100 May 1 Purchases 16,500May 22 Bank 15,400 May 19 Purchases 5,500May 31 Balance b/d 5,500

22,000 22,000June 1 Balance b/d 5,500

Sales Account

May 3 Debtor 25,000May 11 Debtor 7,000

May 7 Balance c/d 36,000 May 28 Debtor 4,00036,000 36,000

June 1 Balance b/d 36,000

Debtor Account

May 3 Sales 27,500 May 10 Bank 27,500May 11 Sales 7,700 May 20 Sales returns 550May 28 Sales 4,400 May 31 Balance c/d 11,550

39,600 39,600June 1 Balance b/d 11,550


May 31 Balance b/d 1,000 May 4 Creditor 1,0001,000 1,000


Bank Account

May 10 Debtor 27,500 May 15 Telephone expenses 44May 17 Entertainment expenses 330May 22 Creditor 15,400May 25 Motor vehicles 6,600May 27 Stationery 110May 28 Balance c/d 5,016

27,500 27,500June 1 Balance b/d 5,016

Solutions

9

QUESTION 4.2

Telephone Expenses Account

May 15 Bank 40 May 31 Balance c/d 4040 40

June 1 Balance b/d 40

Entertainment Expenses Account




May 20 Debtor 500 May 31 Balance c/d 500500 500


Motor Vehicles Account

May 25 Bank 6,600 May 31 Balance c/d 6,6006,600 6,600


Stationery Account



The Trading Account for the month will show the following entries:

SalesLess sales returns

€

36,000 (500)

PurchasesLess purchases returns

€

20,000 (1,000)

€

35,500

€

19,000

The Profit and Loss Account at the end of the month will show the following expenses:

TelephoneEntertainmentStationery

€

40

€

330

€

100

The Balance Sheet at the end of the month will show the following:

Fixed assetsMotor vehicle

Current assetsDebtorBank

Current liabilitiesCreditorsVAT

€

6,600

€

11,550

€

5,016

€

5,500

€

1,636

Wages Account

Nov 30 BankPAYEPRSI (EE)VHISavings clubPRSI (ER)

16,02010,3202,310

3504,0004,950 Nov 30 Balance c/d 37,950

37,950 37,950Dec 1 Balance b/d 37,950


10

QUESTION 4.3

Bank Account

Nov 30 Wages 16,020

PAYE/PRSI Account

Nov 30 Wages 10,320Wages (EE) 2,310

Nov 30 Balance c/d 17,580 Wages (ER) 4,95017,580 17,580

Dec 1 Balance b/d 17,580

VHI Account

Nov 30 Balance c/d 350 Nov 30 Wages 350350 350

Dec 1 Balance b/d 350

Savings Club Account

Nov 30 Balance c/d 4,000 Nov 30 Wages 4,0004,000 4,000

Dec 1 Balance b/d 4,000

The Profit and Loss Account for the year will show the following expense:

Wages

€

37,950

The Balance Sheet at the end of the month will show the following:Current liabilities

PAYE/PRSI €17,580VHI €350Savings club €4,000

Trading and Profit and Loss Account for the year ended 31/12/-0€ € €

SalesLess Returns In

45,000(1,000)

Less Cost of SalesOpening StockAdd PurchasesLess Returns Out

21,000(500)

2,000

44,000

Add Carriage In20,500

500

Less Closing Stock23,000(4,000)

(19,000)Gross ProfitAdd IncomeDiscount ReceivedRent Received

25,000

5002,000

Less ExpensesWagesRatesInsuranceDiscount allowedLight and HeatPostage and Stationery

14,000600

1,400300600700

27,500

(17,600)Net Profit 9,900

Solutions

11

Balance Sheet As At 31/12/-0

€ € €

Fixed AssetsPremises 60,000Motor Vehicles 20,000

80,000Current AssetsClosing Stock 4,000Debtors 14,000Cash 1,000

19,000Less Current LiabilitiesCreditors 8,000Bank Overdraft 2,000PRSI/PAYE 2,500VAT 1,800

(14,300)4,700



84,700

12

Accruals, Prepayments, Bad Debts, Provisions and Bad Debts Recovered: Solutions5

QUESTION 5.1

QUESTION 5.2

QUESTION 5.3

QUESTION 5.4

Car Tax Account1/1/-6 Balance b/d 721/4/-6 Bank 168 31/12/-6 Profit and Loss Account 3241/10/-6 Bank 168 31/12/-6 Balance c/d (three months prepaid) 84

408 4081/1/-7 Balance b/d 841/4/-7 Bank 210 31/12/-7 Profit and Loss Account 3991/10/-7 Bank 210 31/12/-7 Balance c/d (three months prepaid) 105

504 5041/1/-8 Balance b/d 105

(a) Bad Debts Account1/10/-7 Debtors 44031/12/-7 Debtors 100 31/12/-7 Profit and Loss Account 540

540 540

(b) Provision for Bad Debts Account1/1/-8 Balance b/d 620

31/12/-7 Balance c/d (5% of 14,000) 700 31/12/-7 Profit and Loss Account 80700 700

1/1/-8 Balance b/d 700

Car Insurance Account1/1/-8 Balance b/d 200 31/12/-8 Profit and Loss Account 9201/4/-8 Bank 960 31/12/-8 Balance c/d (three months prepaid) 240

1,160 1,1601/1/-9 Balance b/d 240 31/12/-9 Profit and Loss Account 1,1401/4/-9 Bank 1,200 31/12/-9 Balance c/d (three months prepaid) 300

1,440 1,4401/1/-0 Balance b/d 300

Rent Receivable Account31/12/-5 Profit and Loss Account 1,350 1/1/-5 Balance b/d 60031/12/-5 Balance c/d (six months prepaid) 750 1/7/-5 Bank 1,500

2,100 2,10031/12/-6 Profit and Loss Account 1,650 1/1/-6 Balance b/d 75031/12/-6 Balance c/d (six months prepaid) 900 1/7/-6 Bank 1,800

2,550 2,5501/1/-7 Balance b/d 900

Solutions

13

QUESTION 5.5

QUESTION 5.6

QUESTION 5.7

QUESTION 5.8

Motor Vehicles Tax Account1/1/-7 Balance b/d 2401/4/-7 Bank 520 31/12/-7 Profit and Loss Account 1,0201/10/-7 Bank 520 31/12/-7 Balance c/d (three months prepaid) 260

1,280 1,2801/1/-8 Balance b/d 2601/4/-8 Bank 600 31/12/-8 Profit and Loss Account 1,1601/10/-8 Bank 600 31/12/-8 Balance c/d (three months prepaid) 300

1,460 1,4601/1/-9 Balance b/d 300

(a) Bad Debts Account1/5/-8 Debtors 550 1/5/-8 Provision for Bad Debts 55031/12/-8 Debtors 200 31/12/-8 Provision for Bad Debts 200

750 750

(b) Provision for Bad Debts Account1/5/-8 Bad Debts 550 1/1/-8 Balance b/d 80031/12/-8 Bad Debts 20031/12/-8 Balance c/d (5% of 18,000) 900 31/12/-8 Profit and Loss Account 850

1,650 1,6501/1/-9 Balance b/d 900

(a) Bad Debts Account1/6/-6 Debtors 48031/12/-8 Debtors 400 31/12/-8 Profit and Loss Account 880

880 880


31/12/-6 Balance c/d (5% of 19,600) 980 31/12/-6 Profit and Loss Account 40980 980


Rent Account1/1/-7 Balance b/d 1501/4/-7 Bank 360 31/12/-7 Profit and Loss Account 6901/10/-7 Bank 360 31/12/-7 Balance c/d (three months prepaid) 180

870 8701/1/-8 Balance b/d 1801/4/-8 Bank 420 31/12/-8 Profit and Loss Account 8101/10/-8 Bank 420 31/12/-8 Balance c/d (three months prepaid) 210

1,020 1,0201/1/-9 Balance b/d 210


14

QUESTION 5.9

QUESTION 5.10

QUESTION 5.11

(a) Bad Debts Account1/6/-8 Debtors 640 1/6/-8 Provision for Bad Debts 64031/12/-8 Debtors 500 31/12/-8 Provision for Bad Debts 500

1,140 1,140

(b) Provision for Bad Debts Account1/6/-8 Bad Debts 640 1/1/-8 Balance b/d 1,68031/12/-8 Bad Debts 50031/12/-8 Balance c/d (5% of 24,000) 1,200 31/12/-8 Profit and Loss Account 660

2,340 2,3401/1/-9 Balance b/d 1,200

(a) Bad Debts AccountDebtors 900 31/12/-8 Profit and Loss Account 900

900 900


31/12/-8 Balance c/d 1,400 31/12/-8 Profit and Loss Account 6001,400 1,400

1/1/-9 Balance b/d 1,400

(c) Provision for Discount Allowed Account31/12/-8 Profit and Loss Account

31/12/-8 Balance c/d 392 (2% of 20,000 – 400) 392392 392


(d) Profit and Loss Account for the year ended 31/12/-8 (Extract)ExpensesBad Debts 900Provision for Bad Debts Increase 600Provision for Discount Allowed Increase 392

(e) Balance Sheet as at 31/12/-8 (Extract)Current AssetsDebtors 26,000Less Provision for Bad Debts (1,400)Less Provision for Discount Allowed (392) 24,208

Rent and Rates Account3/1/-7 Bank 1,800 1/1/-7 Balance c/d (three months rates due) 4207/1/-7 Bank 84020/6/-7 Bank 1,8004/9/-7 Bank 9606/9/-7 Bank 1,80030/12/-7 Bank 960 31/12/-7 Profit and Loss Account 9,06031/12/-7 Balance c/d (three months rent due) 1,800 31/12/-7 Balance c/d (three rates prepaid) 480

9,960 9,9601/1/-8 Balance b/d 480 1/1/-8 Balance b/d 1,800

15

Depreciation andRevaluation: Solutions6

QUESTION 6.1

QUESTION 6.2

(a) Buses Account1/1/-31/7/-3

Balance b/dBank

80,00025,000 31/12/-3 Balance c/d 105,000

105,000 105,0001/1/-4 Balance b/d 105,000 1/1/-4 Disposal 20,000

31/12/-4 Balance c/d 85,000105,000 105,000

(b) Provision for Depreciation Account

31/12/-3 Balance c/d 35,0001/1/-331/12/-3

Balance b/dProfit and loss

25,00010,000

35,000 35,0001/1/-431/12/-4

DisposalBalance c/d

12,50031,000

1/1/-431/12/-4

Balance b/dProfit and Loss

35,0008,500

43,500 43,500

(c) Bus Disposal Account1/1/-4 Bus 20,000 1/1/-4

1/1/-431/12/-4

DepreciationBankLoss

12,5007,000

50020,000 20,000


Balance b/dBank

95,00035,000 31/12/-5 Balance c/d 130,000

130,000 130,0001/1/-6 Balance b/d 130,000 1/7/-6

31/12/-6DisposalBalance c/d

28,000102,000

130,000 130,000


31/12/-5 Balance c/d 64,0001/1/-531/12/-5


40,00024,000

64,000 64,0001/7/-631/12/-6

DisposalBalance c/d

24,10060,900

1/1/-631/12/-6


64,00021,000

85,000 85,000

(c) Bus Disposal Account1/7/-631/12/-6

BusProfit

28,000700

1/7/-61/7/-6

DepreciationBank

24,1004,600

28,700 28,700


16

QUESTION 6.3

QUESTION 6.4

QUESTION 6.5

(a) Lorries Account1/1/-71/4/-7

Balance b/dBank

150,00060,000 31/12/-7 Balance c/d 210,000

210,000 210,0001/1/-8 Balance b/d 210,000 1/9/-8

31/12/-8DisposalBalance c/d

40,000170,000

210,000 210,000


31/12/-7 Balance c/d 66,0001/1/-731/12/-7


45,00021,000

66,000 66,0001/9/-831/12/-8

DisposalBalance c/d

28,50056,500

1/1/-831/12/-8


66,00019,000

85,000 85,000

(c) Lorry Disposal Account1/9/-8 Lorries 40,000 1/9/-8

1/9/-831/12/-8

DepreciationBankLoss

28,5009,0002,500

40,000 40,000


Balance b/dBank

175,00070,000

1/4/-831/12/-8

DisposalBalance c/d

45,000200,000

245,000 245,0001/1/-9 Balance b/d 200,000 31/12/-9 Balance c/d 200,000

200,000 200,000

(b) Provision for Depreciation Account1/4/-831/12/-8

DisposalBalance c/d

27,00043,500

1/1/-831/12/-8


54,00017,500

71,500 71,5001/1/-9 Balance b/d 43,500

31/12/-9 Balance c/d 63,500 Profit and Loss 20,00031/12/-963,500 63,500

(c) Bus Disposal Account1/4/-831/12/-8

BusProfit

45,0001,000

1/4/-81/4/-8

DepreciationBank

27,00019,000

46,000 46,000

(a) Truck Account1/1/-61/10/-6

Balance b/dBank

160,00054,000

1/12/-631/12/-6

DisposalBalance c/d

25,000189,000

214,000 214,0001/1/-71/7/-7

Balance b/dBank

189,00036,000

1/9/-731/12/-7

DisposalBalance c/d

30,000195,000

225,000 225,000

Solutions

17

QUESTION 6.6

QUESTION 6.7 (HIGHER LEVEL) (Reference to Calculations in Brackets).


DisposalBalance c/d

14,00051,000

1/1/-631/12/-6


46,00019,000

65,000 65,0001/9/-731/12/-7

DisposalBalance c/d

20,00058,000

1/1/-731/12/-7


51,00027,000

78,000 78,000

(c) Truck Disposal Account1/12/-631/12/-6

TruckProfit

25,0005,000

1/12/-61/12/-6

DepreciationBank

14,00016,000

30,000 30,0001/9/-731/12/-7

TruckProfit

30,0002,000

1/9/-71/9/-7

DepreciationBank

20,00012,000

32,000 32,000

Bus Account1/1/-8 Buses at cost amounted to €145,0001/7/-8 Bus which cost €40,000 was sold31/12/-8 Buses at cost amounted to €105,0001/9/-9 Bus purchased for €25,0001/12/-9 Bus purchased on credit for €27,00031/12/-9 Buses at cost amounted to €157,000

Provision for Depreciation Account1/1/-8 Accumulated balance on depreciation was €30,0001/7/-8 Bus sold on 1/7/-8 had accumulated depreciation of €10,00031/12/-8 Annual depreciation charge was €11,00031/12/-8 Accumulated balance on depreciation was €31,00031/12/-9 Annual depreciation charge was €23,00031/12/-9 Accumulated balance on depreciation was €54,000

Disposal Account1/7/-8 Bus sold cost €40,0001/7/-8 Accumulated depreciation on bus sold was €10,0001/7/-8 Bus was sold for €28,00031/12/-8 Loss on disposal of bus was €2,000

(a) Vehicles Account1/1/-81/4/-8

Balance b/d (1)Trade-inBank

80,00015,00020,000

1/4/-8

31/12/-8

Disposal

Balance c/d

26,000

89,000115,000 115,000

1/1/-91/10/-9

Balance b/dBank

89,00044,000

1/10/-931/12/-9

DisposalBalance c/d

32,000101,000

133,000 133,0001/1/00 Balance b/d 101,000


18

CALCULATIONS (€)

1. Opening balance on Vehicles Account as 1/1/-8No. 1 – 22,000No. 2 – 26,000No. 3 – 30,000Tachograph 2,000

80,000

2. Opening balance on Provision for Depreciation Account as at 1/1/-8

No. 1 – (1/7/-3 – 1/1/-8) = 4 years, 6 months (4 ) x 20% of 22,000 = ...................................... 19,800

No. 2 – (1/10/-5 – 1/1/-8) = 2 years, 3 months (2 ) x 20% of 26,000 = ................................... 11,700

No. 3 – (1/4/-6 – 1/1/-8) = 1 year, 9 months (1 ) x 20% of 30,000 = ....................................... 10,500

Tachograph – (1/1/-7 – 1/1/-8) = 1 year x 20% of 2,000 = ......................................................... 400

Total = ............................................................................................................................. 42,400

3. Depreciation to date of Sale Vehicle No. 2

1/10/-5 – 1/4/-8 = 2 years, 6 months (2 ) x 20% of 26,000 =.................................................... 13,000

4. Annual Depreciation Charge for the year ended 31/12/-8

No. 1 – 1 year x 20% of 22,000 (N.B. – only year remaining) = ........................................... 2,200

No. 2 – 3 months ( ) of 20% of 26,000...................................................................................... 1,300

No. 3 – 1 year x 20% of 32,000 = .............................................................................................. 6,400

No. 4 – 9 months ( ) x 20% of 35,000 = ................................................................................... 5,250

Total = ................................................................................................................................ 15,150


Vehicle – (1/4/-6 – 1/10/-9) = 3 years, 6 months (3 ) x 20% of 30,000 = ................................ 21,000

Tachograph – (1/1/-7 – 1/10/-9) = 2 years, 9 months (2 ) x 20% of 2,000 = ........................... 1,100

Total = ................................................................................................................................ 22,100


Disposal (3)Balance c/d

13,00044,550

1/1/-831/12/-8

Balance b/d (2)Profit and loss (4)

42,40015,150

57,550 57,5501/10/-931/12/-9


22,10036,450

1/1/-931/12/-9

Balance b/dProfit and loss (6)

44,55014,000

58,550 58,5501/1/00 Balance b/d 36,450

(c) Vehicles Disposal Account1/4/-831/12/-8

VehicleProfit and loss

26,0002,000

1/4/-81/4/-8

Depreciation (3)Trade-in

13,00015,000

28,000 28,0001/10/-9 Vehicle 32,000 1/10/-9

1/10/-931/12/-9

Depreciation (5)BankProfit and loss

22,100500

9,40032,000 32,000

12---

14---

34---

12---

12---

14---

34---

12---

34---

Solutions

19

6. Annual Depreciation Charge for the year ended 31/12/-9No. 1 – Fully depreciated = ........................................................................................................ Nil

No. 3 – 9 months ( ) x 20% of 32,000 =.................................................................................... 4,800

No. 4 – 1 year x 20% of 35,000 = ............................................................................................... 7,000

No. 5 – 3 months ( ) x 20% of 44,000 = ................................................................................... 2,200

Total = ................................................................................................................................ 14,000

QUESTION 6.8 (HIGHER LEVEL) (Reference to Calculations in Brackets)

CALCULATIONS (€)

1. Opening balance on Vehicles Account as at 1/1/-8No. 1 – 20,000No. 2 – 24,000No. 3 – 32,000Tachograph 4,000

80,000

2. Opening balance on Provision for Depreciation Account as at 1/1/-9No. 1 – (1/7/-9 – 1/1/-8) = 8 years, 6 months, i.e. fully depreciated =........................................ 20,000

No. 2 – (1/10/-2 – 1/1/-8) = 5 years, 3 months (5 ) x 12 % of 24,000 = ................................ 15,750

No. 3 – (1/4/-5 – 1/1/-8) = 2 years, 9 months 2( ) x 12 % of 32,000 = .................................. 11,000

Tachograph – (1/1/-6 – 1/1/-8) = 2 years x 12 % of 4,000 =..................................................... 1,000

Total = ............................................................................................................................. 47,750


Balance b/d (1)BankTrade-in

80,00031,0009,000

1/10/-8

31/12/-8

Disposal

Balance c/d

20,000

100,000120,000 120,000

1/1/-91/8/-9

Balance b/dBank

100,00048,000

1/7/-931/12/-9

DisposalBalance c/d

36,000112,000

148,000 148,0001/1/-0 Balance b/d 112,000



20,00036,500

1/1/-831/12/-8

Balance b/d (2)Profit and loss (4)

47,7508,750

56,500 56,5001/7/-931/12/-9

Disposal (5)Balance b/d

18,75030,500

1/1/-931/12/-9

Balance b/dProfit and loss (6)

36,50012,750

49,250 49,2501/1/-0 Balance b/d 30,500

(c) Vehicles Disposal Account1/10/-831/12/-8

VehiclesProfit and Loss

20,0009,000

1/10/-81/10/-8

Depreciation (3)Trade-in

20,0009,000

29,000 29,0001/7/-931/12/-9

Vehicles Profit and Loss

36,0001,250

1/7/-91/7/-91/7/-9

Depreciation (5)BankBank (Insurance)

18,7502,500

16,00037,250 37,250

34---

14---

14--- 1

2---

34--- 1

2---

12---


20

3. Depreciation to date of Sale Vehicle No. 11/7/-9 – 1/10/-8 = Fully Depreciated = ....................................................................................... 20,000

4. Annual Depreciation Charge for the year ended 31/12/-8No. 1 – Fully Depreciated = ....................................................................................................... Nil

No. 2 – 1 year x 12 % of 24,000................................................................................................ 3,000

No. 3 – 1 year x 12 % of 36,000 = ........................................................................................... 4,500

No. 4 – 3 months ( ) x 12 % of 40,000 = ................................................................................ 1,250

Total = ................................................................................................................................ 8,750


Vehicle – (1/4/-5 – 1/7/-9) = 4 years, 3 months (4 ) x 12 % of 32,000 = ............................... 17,000

Tachograph – (1/1/-6 – 1/7/-9) = 3 years, 6 months (3 ) x 12 % of 4,000 = ........................... 1,750

Total = ................................................................................................................................ 18,750


No. 2 – 1 year x 12 % of 24,000 = ........................................................................................... 3,000

No. 3 – 6 months ( ) x 12 % of 36,000 =................................................................................. 2,250

No. 4 – 1 year x 12 % of 40,000 = ............................................................................................ 5,000

No. 5 – 5 months ( ) x 12 % of 48,000 = ............................................................................. 2,500

Total = ................................................................................................................................ 12,750




128,00036,00018,000

1/9/-0

31/12/-0

Disposal

Balance c/d

48,000

134,000182,000 182,000

1/1/-11/4/-1

Balance b/dBankTrade-in

134,00035,00023,000

1/4/-1

31/12/-1

Disposal

Balance c/d

44,000

148,000192,000 192,000

1/1/-2 Balance b/d 148,000

(b) Provision for Depreciation Account1/9/-031/12/200


28,80047,600

1/1/-031/12/-0

Balance b/d (2)Profit and Loss (4)

50,40026,000

76,400 76,4001/4/-131/12/-1

Disposal (5)Balance b/d

13,20059,100

1/1/-131/12/-1

Balance b/dProfit and Loss (5)

47,60024,700

72,300 72,3001/1/-2 Balance b/d 59,100

12---

12---

14--- 1

2---

14--- 1

2---

12--- 1

2---

12---

12--- 1

2---

12---

512------ 1

2---

Solutions

21

CALCULATIONS (€)


128,000

2. Opening balance on Provision for Depreciation Account as at 1/1/-0

No. 1 – (1/6/-6 – 1/1/-0) = 3 years, 7 months (3 ) x 20% of 36,000 = ..................................... 25,800

No. 2 – (1/8/-7 – 1/1/-0) = 2 years, 5 months (2 ) x 20% of 42,000 = ..................................... 20,300

No. 3 – (1/10/-9 – 1/1/-0) = 3 months ( ) x 20% of 44,000 = ................................................... 2,200

Tachograph – (1/4/-8 – 1/1/-0) = 1 year, 9 months (1 ) x 20% of 6,000 = ............................... 2,100

Total = ............................................................................................................................. 50,400


Vehicle – (1/8/-7 – 1/9/-0) = 3 years, 1 months (3 ) x 20% of 42,000 = .................................. 25,900

Tachograph – (1/4/-8 – 1/9/-0) = 2 years, 5 months (2 ) x 20% of 6,000 = ............................. 2,900

Total = ............................................................................................................................. 28,800

4. Annual Depreciation Charge for the year ended 31/12/-0No. 1 – 1 year x 20% of 36,000 .................................................................................................. =7,200

No. 2 – 8 months ( ) x 20% of 48,000 ....................................................................................... =6,400

No. 3 – 1 year x 20% of 44,000 = .............................................................................................. 8,800

No. 4 – 4 months ( ) x 20% of 54,000 = ................................................................................... 3,600

Total = ................................................................................................................................ 26,000


1/10/-9 – 1/4/-1 = 1 year, 6 months (1 ) x 20% of 44,000 = ..................................................... 13,200


No. 1 – 1 year (only 5 months chargeable) ( ) x 20% of 36,000 =......................................... 3,000

No. 3 – 3 months ( ) x 20% of 44,000 =.................................................................................... 2,200

No. 4 – 1 year x 20% of 54,000 = ............................................................................................... 10,800

No. 5 – 9 months ( ) x 20% of 58,000 = .................................................................................. 8,700

................................................................................................................................ 24,700

(c) Vehicles Disposal Account1/9/200 Vehicles 48,000 1/9/-0

1/9/-031/8/-0

Depreciation (3)Trade-inProfit and Loss

28,80018,0001,200

48,000 48,0001/4/-1 Vehicles 44,000 1/4/-1

1/4/-11/4/-131/12/-1

Depreciation (5)Trade-inBank (insurance)Profit and Loss

13,20023,0004,0003,800

44,000 44,000

712------

512------

14---

34---

112------

512------

23---

13---

12---

512------

14---

34---


22


CALCULATIONS (€)


127,000

2. Opening balance on Provision for Depreciation Account as at 1/1/-0No. 1 – (1/1/-5 – 1/1/-8) = 3 years

Year 1 – 40,000 x 20% = ............................................................. 8,000Year 2 – (40,000 – 8,000) = 32,000 x 20% =............................... 6,400Year 3 – (32,000 – 6,400) = 25,600 x 20% =............................. 5,120 ................19,520

No. 2 – (1/1/-6 – 1/1/-8) = 2 yearsYear 1 – 39,000 x 20% = ............................................................ 7,800Year 2 – (39,000 – 7,800) = 31,200 x 20% = ............................. 6,240 ................14,040

No. 3 – (1/1/-7 – 1/1/-8) = 1 yearYear 1 – 42,000 x 20% = ........................................................... 8,400 ..................8,400

Tachograph – (1/1/-6 – 1/1/-8) = 2 years, Year 1 – 6,000 x 20% = ............................................................... 1,200Year 2 – (6,000 – 1,200) = 4,800 x 20%..................................... 960 ..................2,160

Total = .................................................................................................................... 44,120



127,00038,00016,000

1/9/-8

31/12/-8

Disposal

Balance c/d

46,000

135,000181,000 181,000

1/1/-91/4/-9


135,00053,00011,000

1/4/-9

31/12/-9

Disposal

Balance c/d

42,000157,000

199,000 199,0001/1/-0 Balance b/d 157,000



24,92337,752

1/1/-831/12/-8


44,12018,555

62,675 62,6751/4/-931/12/-9


16,46446,306

1/1/-931/12/-9


37,75225,018

62,770 62,7701/1/-0 Balance b/d 46,306

(c) Vehicles Disposal Account1/9/-8 Vehicles 46,000 1/9/-8

1/9/-831/12/-8


24,92316,0005,077

46,000 46,0001/4/-9 Vehicles 42,000 1/4/-9

1/4/-91/4/-931/12/-9

Depreciation (5)Trade-inBank (Insurance)Profit and Loss

16,46411,0008,0006,536

42,000 42,000

Solutions

23


Vehicle – (1/1/-5 – 1/9/-8) = 3 years, 8 months (3 )

Years 1, 2 and 3 (as above calculation 2) = .............................. 19,520

Year 4 (25,600 – 5,120) = 20,480 x 20% x ( ) = .................... 2,731 ................22,251

Tachograph – (1/1/-6 – 1/9/-8) = 2 years, 8 months (2 )

Years 1 and 2 (as above calculation 2) = ..................................... 2,160

Year 3 (4,800 – 960) = 3,840 x 20% x ( ) = .............................. 512 ..................2,672

Total = .....................................................................................................................24,923


No. 1 – year (as above calculation 3) .............................................................................3,243

No. 2 – 1 year x 20% of (31,200 – 6,240) = 24,960 = .......................................................4,992No. 3 – 1 year x 20% of (42,000 – 8,400) = 33,600 = ......................................................6,720

No. 4 – year x 20% of 54,000 = ....................................................................................3,600

Total = .................................................................................................................... 18,555


(1/1/-7 – 1/4/-9) = 2 years, 3 months (2 )

Year 1 Calculation 2 = .................................................................. 8,400Year 2 Calculation 4 = .................................................................. 6,720

Year 3 – year x 20% of (33,600 – 6,720 = 26,880) ............................. 1,344

Total = ........................................................................................ 16,464

6. Annual Depreciation Charge for the year ended 31/12/-9No. 2 – 1 year x 20% of (24,960 – 4,992) = 19,968 = .................................... ..................3,994

No. 3 – year (as above calculation 5) .......................................................... ..................1,344

No. 4 – 1 year x 20% of (54,000 – 3,600) = 50,400 = .................................... ................10,080

No. 5 – year x 20% of 64,000 = ................................................................. ..................9,600

Total = .................................................................................................... ................25,018


(a) Trucks Account1/1/-41/8/-4


170,50048,00017,000

1/8/-4

31/12/-4

Disposal

Balance c/d

55,500

180,000235,500 235,500

1/1/-51/4/-5


180,00042,00026,000

1/5/-4

31/12/-4

Disposal

Balance c/d

60,000

188,000248,000 248,000

1/1/-6 Balance b/d 188,000

23---

23---

23---

23---

23---

13---

14---

14---

14---

34---


24

CALCULATIONS (€)

1. Opening balance on Trucks Account as at 1/1/-4No. 1 – 50,000No. 2 – 55,000No. 3 – 60,000Tachograph 5,500

170,500

2. Opening balance on Provision for Depreciation Account as at 1/1/-4No. 1 – (1/1/-0 – 1/1/-4) = 4 years

Year 1 – 50,000 x 20% = ........................................................... 10,000Year 2 – (50,000 – 10,000) = 40,000 x 20% =............................. 8,000Year 3 – (40,000 – 8,000) = 32,000 x 20% =............................... 6,400Year 4 – (32,000 – 6,400) = 25,600 x 20% =.............................. 5,120 ................29,520

No. 2 – (1/1/-1 – 1/1/-4) = 3 yearsYear 1 – 55,000 x 20% = .......................................................... 11,000Year 2 – (55,000 – 11,000) = 44,000 x 20% =............................. 8,800Year 3 – (44,000 – 8,800) = 35,200 x 20% = ............................ 7,040 ................26,840

No. 3 – (1/1/-2 – 1/1/-4) = 2 yearsYear 1 – 60,000 x 20% = .......................................................... 12,000Year 2 – (60,000 – 12,000) = 48,000 x 20% =........................... 9,600 ................21,600

Tachograph – (1/1/-6 – 1/1/-8) = 2 years, Year 1 – 5,500 x 20% = ............................................................... 1,100Year 2 (5,500 – 1,100) = 4,400 x 20%............................................ 880 ..................1,980

Total = .................................................................................................... ................79,940

3. Depreciation to date of Sale: Truck No. 1

Vehicle – (1/1/-0 – 1/8/-4) = 3 years, 7 months (3 )

Years 1, 2 and 3 (as above calculation 2) = .............................. 29,520

Year 4 (25,600 – 5,120) = 20,480 x 20% x ( ) = .................. 2,389 ................31,909

Tachograph – (1/1/-2 – 1/8/-4) = 2 years, 7 months (2 )

Years 1 and 2 (as above calculation 2) = ..................................... 1,980

Year 3 (4,400 – 880) = 3,520 x 20% x ( ) = ............................ 411 ..................2,391

Total = .................................................................................................... ................34,300



34,30067,169

1/1/-431/12/-4


79,94021,529

101,469 101,4691/5/-531/12/-5


31,32863,379

1/1/-531/12/-5


67,16927,538

94,707 94,7071/1/-6 Balance b/d 63,379

(c) Trucks Disposal Account1/8/-4 Trucks 55,500 1/8/-4

1/8/-431/12/-4


34,30017,0004,200

55,500 55,5001/5/-5

31/12/-5

Trucks

Profit and Loss

60,000

7,328

1/5/-51/5/-51/5/-5

Depreciation (5)Trade-inBank (Insurance)

31,32826,00010,000

67,328 67,328

712------

712------

712------

712------

Solutions

25


No. 1 – year (as above calculation 3) = ....................................................... ..................2,800

No. 2 – 1 year x 20% of (35,200 – 7,040) = 28,160 = .................................... ..................5,632No. 3 – 1 year x 20% of (48,000 – 9,600) = 38,400 = ................................... ..................7,680

No. 4 – year x 20% of 65,000 = ................................................................. ..................5,417

Total = .................................................................................................... ................21,529

5. Depreciation to date of Sale Truck No. 3

(1/1/-2 – 1/5/-5) = 3 years, 4 months (3 )

Year 1 and 2 – Calculation 2 =............................................................. ................21,600Year 3 – Calculation 4 = ....................................................................... ..................7,680

Year 4 – year x 20% of (38,400 – 7,680) = 30,720 = ........................ ..................2,048

Total = .................................................................................................... ................31,328

6. Annual Depreciation Charge for the year ended 31/12/-5No. 2 – 1 year x 20% of (28,160 – 5,632) = 22,528 = .................................... ..................4,506

No. 3 – year (as above calculation 5) .......................................................... ..................2,048

No. 4 – 1 year x 20% of (65,000 – 5,417) = 59,583 = .................................... ................11,917

No. 5 – year x 20% of 68,000 = ................................................................. ..................9,067

Total = .................................................................................................... ................27,538

QUESTION 6.12 (HIGHER LEVEL)

(a) Land and Buildings Account1/1/-71/1/-7

Balance b/dRevaluation reserve

800,000614,000

1/1/-731/12/-7

DisposalBalance c/d

200,0001,214,000

1,414,000 1,414,0001/1/-8 Balance b/d 1,214,000

(b) Provision for Depreciation Account1/1/-71/1/-731/12/-7

Disposal (2)Revaluation ReserveBalance c/d

15,00022,50022,000

1/1/-731/12/-7


37,50022,000

59,500 59,5001/1/-7 Balance b/d 22,000

(c) Buildings Disposal Account1/1/-731/12/-7

Land and BuildingsProfit and Loss

200,000265,000

1/1/-71/1/-7

Depreciation (2)Bank

15,000450,000

465,000 465,000

(d) Revaluation Reserve Account

31/12/-7 Balance c/d 636,5001/1/-71/1/-7

Land and BuildingsDepreciation

614,00022,500

636,500 636,5001/1/-8 Balance b/d 636,500

712------

512------

13---

13---

13---

23---


26

CALCULATIONS (€)

1. Opening Balance on Provision for Depreciation Account as at 1/1/-7

1/1/-4 – 1/1/-7 = 3 years x = .......................................................................................37,500

2. Depreciation to date of Sale of buildings on 1/1/-7

1/1/-4 – 1/1/-7 = 3 years x = .......................................................................................15,000

3. Annual Depreciation charge for the year ended 31/12/-7

1 year x = ....................................................................................................................22,000


CALCULATIONS (€)

1. Opening Balance on Provision for Depreciation Account as at 1/1/-7

1/1/-2 – 1/1/-7 = 5 years x = .......................................................................................80,000

2. Depreciation to date of sale of buildings on 1/1/-7

1/1/-2 – 1/1/-7 = 5 years x = .......................................................................................20,000

3. Annual Depreciation charge for the year ended 31/12/-7

1 year x = ................................................................................................35,000

(a) Land and Buildings Account1/1/-71/1/-7

Balance b/dRevaluation reserve

1,300,0001,225,000

1/1/-731/12/-7

DisposalBalance c/d

200,0002,325,000

2,525,000 2,525,0001/1/-8 Balance b/d 2,325,000

(b) Provision for Depreciation Account1/1/-71/1/-731/12/-7

Disposal (2)Revaluation ReserveBalance c/d

20,00060,00035,000

1/1/-731/12/-7


80,00035,000

115,000 115,0001/1/-8 Balance b/d 35,000

(c) Buildings Disposal Account1/1/-731/12/-7

Land and BuildingsProfit and Loss

200,00050,000

1/1/-71/1/-7

Depreciation (2)Bank

20,000230,000

250,000 250,000

(d) Revaluation Reserve Account

31/12/-7 Balance c/d 1,285,0001/1/-71/1/-7

Land and BuildingsDepreciation

1,225,0060,000

1,285,000 1,285,0001/1/-8 Balance b/d 1,285,000

500,00040

-------------------

200,00040

-------------------

814,00037

-------------------

800,00050

-------------------

200,00050

-------------------

2 325,000 750,000–,45

---------------------------------------------------

Solutions

27


Land and Buildings Account1/1/-4 Balance b/d 250,0001/1/-4 Revaluation reserve 230,000 31/12/-4 Balance c/d 480,000

480,000 480,0001/1/-5 Balance b/d 480,0001/1/-5 Bank 200,000 31/12/-5 Balance c/d 680,000

680,000 680,0001/1/-6 Balance b/d 680,0001/1/-6 Revaluation reserve (4) 140,000 31/12/-6 Balance c/d 820,000

820,000 820,0001/1/-7 Balance b/d 820,000 1/1/-7 Disposal (7) 450,000

31/12/-7 Balance c/d 370,000820,000 820,000

Depreciation Land and Buildings Account1/1/-4 Revaluation Reserve 36,000 1/1/-4 Balance b/d (1) 36,00031/12/-4 Balance c/d 7,200 31/121/-4 Profit and Loss (2) 7,200

43,200 43,2001/1/-5 Balance b/d 7,200

31/12/-5 Balance c/d 18,400 31/12/-5 Profit and Loss (3) 11,20018,400 18,400

1/1/-6 Revaluation reserve 18,400 1/1/-6 Balance b/d 18,40031/12/-6 Balance c/d 14,000 31/12/-6 Profit and Loss (5) 14,000

32,400 32,4001/1/-7 Disposal (6) 9,000 1/1/-7 Balance b/d 14,00031/12/-7 Balance c/d 10,000 31/12/-7 Profit and Loss (8) 5,000

19,000 19,000

Revaluation Reserve Account1/1/-4 Land and Buildings 230,000

31/12/-4 Balance c/d 266,00 1/1/-4 Depreciation 36,000266,000 266,000

31/12/-5 Balance b/d 266,000 1/1/-5 Balance b/d 266,000266,000 266,000

1/1/-6 Balance b/d 266,0001/1/-6 Land and Buildings 140,000

31/12/-6 Balance c/d 424,400 1/1/-6 Depreciation 18,400424,400 424,000

31/12/-7 Profit and Loss (9) 300,400 1/1/-7 Balance b/d 424,00031/12/-7 Balance c/d 124,000

424,400 424,400

Disposal Account1/1/-7 Land and Buildings 450,000 1/1/-7 Depreciation 9,00031/12/-7 Profit and Loss 79,000 1/1/-7 Bank 520,000

529,000 529,000


28

CALCULATIONS (€)

1. Accumulated Depreciation to date on 1/1/-49 years at 2% of €200,000 = ........................................................................................ €36,000

2. Annual Depreciation charge for year ended 31/12/-41 year at 2% of €360,000 =............................................................................................ €7,200

3. Annual Depreciation charge for year ended 31/12/-41 year at 2% of €560,000 =.......................................................................................... €11,200

4. Revaluation on 1/1/-625% on €560,000 =.................................................................................................... €140,000


6. Accumulated depreciation on buildings sold on 1/1/-71 year at 2% of €450,000 =............................................................................................ €9,000

7. Revalued value of buildings sold on 1/1/-7Purchased 1/1/-5 = €200,000Revalued 1/1/-4 = €160,000Revalued 1/1/-6 = 90,000

€450,000


9. Revalued amount of buildings disposed of on 1/1/-7 transferred to Profit and Loss Account.Revaluation 1/1/-4 = 160,000Accumulated depreciation on 1/1/-4 = 36,000Revaluation 1/1/-6 (25% of 360,000) = 90,000Accumulated depreciation on 1/1/-6

(2 years at 2% of 360,000) = 14,400 300,400

29

Final Accounts of a Sole Trader with Adjustments: Solutions8

QUESTION 8.1

Schedule of Adjustments (€)Trading Account P+L Account Balance Sheet

1. Closing Stock 15,000 15,000 – 15,0002. Light and Heat 6,000 + 410 – 6,410 4103. Rent and Rates 12,000 + 12,000 – 24,000 12,0004. Insurance 9,000 – 3,000 – 6,000 3,0005. Advertising 10,000 + 3,000 – 13,000 3,0006. Carriage Out 5,000 + 1,500 – 6,500 1,5007. Depreciation Land and Buildings 12,000 + 3,600 – 3,600 15,6008. Depreciation Motor Vehicles 40,000 + 16,000 – 16,000 56,0009. Depreciation Furniture and Equipment 6,000 + 1,000 – 1,000 7,000

(a) Trading and Profit and Loss Account for the year ended 31/12/-9Sales 8. 400,000Less Cost of SalesOpening Stock 12,000Add Purchases 210,000– Returns Out (400)

209,600Add Carriage In 6,000

227,600Less Closing Stock 1. (15,000)

(212,600)Gross Profit 187,400Add Income –

187,400Less ExpensesLight and Heat 2. 6,410Rent and Rates 3. 24,000Insurance 4. 6,000Advertising 5. 13,000Carriage Out 6. 6,500Depreciation Land and Buildings 7. 3,600Depreciation Motor Vehicles 8. 16,000Depreciation Furniture and Equipment 9. 1,000Wages 24,000

(100,510)Net Profit 86,890


30

QUESTION 8.2

(b) Balance Sheet as at 31/12/-9Cost Depreciation Value

Fixed AssetsLand and Buildings 7. 180,000 15,600 164,400Motor Vehicles 8. 80,000 56,000 24,000Furniture and Equipment 9. 10,000 7,000 3,000

270,000 78,600 191,400Current AssetsClosing Stock 1. 15,000Insurance Prepaid 4. 3,000Debtors 40,000

58,000Less Current LiabilitiesLight and Heat Due 2. 410Rent and Rates Due 3. 12,000Advertising Due 5. 3,000Carriage Out Due 6. 1,500Creditors 18,000Bank 5,600

(40,510)17,490

208,890Financed ByCapital 120,000Add Net Profit 86,890


188,890Long-Term Liabilities15-Year Loan 20,000

208,890

Schedule of Adjustments (€)Trading a/c P+L a/c Bal. Sheet

1. Closing Stock 100,000 100,000 – 100,0002. Rates 6,800 – 3,400 – 3,400 3,4003. Postage and Stationery 4,500 – 500 – 4,000 5004. Bad Debts 500 – 500 –5. Debtors 70,000 – 500 – – 69,5006. Provision for Bad Debts 3,475 – 3,475 3,4757. Depreciation on Buildings 4,000 – 4,000 4,0008. Depreciation on Delivery Vans 24,000 + 12,000 – 12,000 36,0009. Fixtures and Fittings 24,000 + 12,000 – 12,000 36,000

Solutions

31

(a) Trading and Profit and Loss Account for the year ended 31/12/-0Sales– Returns In

520,000(4,000)

Less Cost of SalesOpening StockAdd Purchases– Returns Out

300,000(5,000)

90,000

516,000

295,000

Less Closing Stock 1.385,000

(100,000)(285,000)

Gross ProfitAdd IncomeRent ReceivedDiscount Received

231,000

18,0003,800

Less ExpensesRatesPostage and StationeryBad DebtsProvision for Bad DebtsDepreciation on BuildingsDepreciation on Delivery VansDepreciation on Fixtures, FittingsDiscount AllowedLoan InterestGeneral ExpensesInsurance

2.3.4.6.7.8.9.

3,4004,000

5003,4754,000

12,00012,0002,5001,9208,000

11,200

252,800

(62,995)Net Profit 189,805


Fixed AssetsBuildingsDelivery VansFixtures and Fittings

7.8.9.

200,000120,00080,000

4,00036,00036,000

196,00084,00044,000

400,000 76,000 324,000Current AssetsClosing StockRates PrepaidStock of StationeryDebtorsLess Provision for Bad Debts

1.2.3.5.6.

69,500(3,475)

100,0003,400

500

66,025

Less Current LiabilitiesCreditorsBankVAT

28,20027,00016,000

169,925

(71,200)98,725

422,725Financed ByCapitalAdd Net Profit

250,000189,805

Less Drawings439,805(33,080)

Long-Term Liabilities15 Year Loan

406,725

16,000422,725


32

QUESTION 8.3

Schedule of Adjustments (€)Trading Acc P+L Acc Bal. Sheet

1. Closing Stock 12,000 12,000 – 12,0002. Advertising 14,000 – 3,500 – 10,500 3,5003. Carriage In 2,400 – 960 1,440 – –4. Drawings 17,000 + 960 – – 17,9605. Depreciation on Motor Vehicles 20,000 + 12,000 – 12,000 32,0006. Depreciation on Furniture and Equipment 18,000 + 2,800 – 2,800 20,8007. Loan Interest 1,000 + 1,000 – 2,000 1,0008. Provision for Bad Debts 1,000 + 200 – 200 1,200

(a) Trading, Profit and Loss Account for the year ended 31/12/-8Sales 190,000– Returns In (600)

189,400Less Cost of SalesOpening Stock 21,000Add Purchases 74,000– Returns Out (500)

73,500Add Carriage In 3. 1,440


(83,940)Gross Profit 105,460Add IncomeDiscount Received 4,200Rent Received 9,000Patent Royalties 7,000

20,200125,660

Less ExpensesAdvertising 2. 10,500Depreciation on Motor Vehicles 5. 12,000Depreciation on Fixtures + Fittings 6. 2,800Loan Interest 7. 2,000Provision for Bad Debts 8. 200Discount Allowed 3,000Rent 6,500Wages and Salaries 20,000Light and Heat 7,000General Expenses 6,000

(70,000)Net Profit 55,660

Solutions

33

QUESTION 8.4


Fixed AssetsMotor Vehicles 5. 60,000 32,000 28,000Furniture and Equipment 6. 46,000 20,800 25,200

106,000 52,800 53,200Patents 40,000Current Assets 93,200Closing Stock 1. 12,000Advertising Prepaid 2. 3,500Debtors 20,000Less Provision for Bad Debts 8. (1,200)Bank 18,800

7,00041,300

Less Current LiabilitiesLoan Interest Due 7. 1,000VAT 9,000PRSI 2,800Creditors 30,000

(42,800)(1,500)91,700

Financed ByCapital 34,000Add Net Profit 55,660

89,660Less Drawings 4. (17,960)

71,700Long-Term Liabilities10 Year Loan 20,000

91,700


1. Closing Stock 6,000 6,000 – 6,0002. Rent, Rates, Insurance 12,000 – 1,000 – 600 – 10,400 1,6003. Postage and Stationery 6,200 – 400 – 5,800 4004. Advertising 3,000 – 750 – 2,250 7505. Commission 33,000 + 3,000 – 36,000 3,0006. Bad Debts 400 + 600 – 1,000 –7. Debtors 16,000 – 600 – – 15,4008. Provision for Bad Debts 800 + 124 – 124 9249. Depreciation on Motor Vehicles 30,000 + 5,000 – 5,000 35,000

10. Carriage 12,000 – 8,400 3,600 8,400 –11. Wages and Salaries 24,000 – 2,400 – 21,600 –12. Drawings 29,100 + 2,400 – – 31,50013. Loan Interest 18,000 – 18,000 18,000


34

(a) Trading, Profit and Loss Account for the year ended 30/6/-9Sales 225,000– Returns In (500)

224,500Less Cost of SalesOpening Stock 7,000Add Purchases 115,000– Returns Out (1,100)



(118,500)Gross Profit 106,000Add IncomeCommission 5. 36,000Discount Received 1,200Investment Interest Received 4,000

41,200147,200

Less ExpensesRent, Rates, Insurance 2. 10,400Postage and Stationery 3. 5,800Advertising 4. 2,250Bad Debts 6. 1,000Provision for Bad Debts 8. 124Depreciation on Motor Vehicles 9. 5,000Carriage Out 10. 8,400Wages and Salaries 11. 21,600Loan Interest 13. 18,000Discount Allowed 900Light and Heat 7,400Showroom Expenses 4,000Telephone 900

(85,774)Net Profit 61,426

Solutions

35

QUESTION 8.5


Fixed AssetsBuildings 200,000 – 200,000Motor Vehicles 9. 50,000 35,000 15,000

250,000 35,000 215,00010% Investments 40,000

255,000Current AssetsClosing Stock 1. 6,000Rent, Rates Insurance Prepaid 2. 1,600Stock of Stationery 3. 400Advertising Prepaid 4 750Commission Due 5. 3,000Debtors 7. 15,400Less Provision for Bad Debts 8. (924)

14,476Petty Cash 100Bank 3,200

29,526Less Current LiabilitiesLoan Interest Due 13. 18,000Creditors 14,000VAT 1,900PRSI 700

(34,600)(5,074)


161,426Less Drawings 12. 31,500

129,926Long-Term Liabilities15% Loan 120,000

249,926


1. Closing Stock 65,000 65,000 – 65,0002. Stationery 1,400 – 300 – 1,100 3003. Carriage 8,000 – 4,800 3,200 4,800 –4. Wages and Salaries 74,000 – 14,800 – 59,200 –5. Drawings 12,000 + 14,800 – – 26,8006. Depreciation on Buildings 5,000 – 5,000 5,0007. Depreciation on Motor Vehicles 44,000 + 22,000 – 22,000 66,0008. Depreciation on Office Equipment 5,000 + 1,300 – 1,300 6,3009. Loan Interest 3,000 + 3,000 – 6,000 3,000

10. Advertising 3,600 – 1,200 – 2,400 1,20011. Provision for Bad Debts 1,500 – 100 – 100 1,400


36

(a) Trading and Profit and Loss Account for the year ended 31/12/-6Sales 520,000– Returns In (6,000)




(383,000)Gross Profit 131,000Add IncomeCommission 6,700Discount Received 2,100Reduction in Provision for Bad Debts 11. 100

8,900139,900

Less ExpensesStationery 2. 1,100Carriage Out 3. 4,800Wages and Salaries 4. 59,200Depreciation on Buildings 6. 5,000Depreciation on Motor Vehicles 7. 22,000Depreciation on Office Equipment 8. 1,300Loan Interest 9. 6,000Advertising 10. 2,400General Expenses 14,000Showroom Expenses 4,000

(119,800)Net Profit 20,100

Solutions

37

QUESTION 8.6


Fixed AssetsBuildings 6. 250,000 5,000 245,000Motor Vehicles 7. 110,000 66,000 44,000Office Equipment 8. 18,000 6,300 11,700

378,000 77,300 300,700Patents 30,000

330,700Current AssetsClosing Stock 1. 65,000Stock of Stationery 2. 300Advertising Prepaid 10. 1,200Debtors 28,000Less Provision for Bad Debts 11. (1,400)

26,600VAT 1,600

94,700Less Current LiabilitiesLoan Interest Due 9. 3,000Creditors 30,000PRSI 2,900Bank 26,200

(62,100)32,600


300,100Less Drawings 5. (26,800)

273,300Long-Term LiabilitiesTerm Loan 90,000

363,300

Schedule of AdjustmentsTrading Acc P+L Acc Bal. Sheet

1. Closing Stock 83,000 83,000 – 83,0002. Investment Interest 4,000 – 4,000 4,0003. Provision for Bad Debts 600 – 100 – 100 5004. Repairs 20,000 – 15,000 – 5,000 –5. Buildings 100,000 + 15,000 – – 115,0006. Loan Interest 200 + 200 – 400 2007. Depreciation on Buildings 20,000 + 3,450 – 3,450 23,4508. Depreciation on Motor Vehicles 16,000 + 6,000 – 6,000 22,0009. Depreciation on Furniture and Fittings 3,000 + 700 – 700 3,700

10. Wages 58,000 – 18,000 – 40,000 –11. Drawings 49,300 + 18,000 – – 67,30012. Light and Heat 4,100 + 900 – 5,000 90013. Insurance 5,600 – 1,400 – 4,200 1,400


38

(a) Trading, Profit and Loss Account for the year ended 31/5/-0Sales 825,000Less Cost of SalesOpening Stock 80,000Add Purchases 615,000


(612,000)Gross Profit 213,000Add IncomeInvestment Interest 2. 4,000Provision for Bad Debts 3. 100

4,100217,100

Less ExpensesRepairs 4. 5,000Loan Interest 6. 400Depreciation on Buildings 7. 3,450Depreciation on Motor Vehicles 8. 6,000Depreciation on Furniture and Fittings 9. 700Wages 10. 40,000Light and Heat 12. 5,000Insurance 13. 4,200Distribution Expenses 5,000Bad Debts 800

(70,550)Net Profit 146,550

Solutions

39

QUESTION 8.7


Fixed AssetsBuildingsMotor VehiclesFixtures and Fittings

5.7.8.9.

115,00030,00010,000

23,45022,0003,700

91,5508,0006,300

155,000 49,150 105,850Investments

Current AssetsClosing StockInvestment Interest DueDebtorsLess Provision for Bad Debts

1.2.

3.

50,000

10,000(500)

83,0004,000

155,850

Insurance PrepaidPetty Cash

13.9,5001,400

100

Less Current LiabilitiesLoan Interest DueLight and Heat DueCreditorsBankLoan (Repayable in eight months)VATPAYEPRSI

6.12.

200900

9,0003,0004,0001,9003,5002,100

98,000

(24,600)73,400

229,250Financed ByCapitalAdd Net Profit

150,000146,550

Less Drawings 11.296,550(67,300)

229,250


1. Closing Stock 62,000 62,000 – 62,0002. Postage and Stationery 7,200 – 400 – 6,800 4003. Repairs 25,000 – 20,000 – 5,000 –4. Drawings 27,000 + 20,000 + 5,000 – – 52,000

5. Loan Interest 4,000 (2/3 year) – 4,000 4,000

6. Bad Debts 1,000 – 1,000 –7. Debtors 40,000 – 1,000 – – 39,0008. Provision for Bad Debts 1,500 + 450 – 450 1,9509. Carriage 6,700 – 2,680 = 4,020 2,680 4,020 –

10. Rates 6,000 – 2,000 – 4,000 2,00011. Wages and Salaries 75,000 – 5,000 – 70,000 –12. Depreciation on Motor Vehicles 30,000 + 30,000 – 30,000 60,00013. Depreciation on Office Equipment 30,000 + 8,000 – 8,000 38,00014. Rent Received 18,000 – 3,000 – 15,000 3,000


40

i

(a) Trading, Profit and Loss Account for the year ended 31/12/-8Sales 543,550– Returns In (5,000)




(307,380)Gross Profit 231,170Add IncomeRent Received 14. 15,000Commission 4,000Discount Received 3,700

22,700253,870

Less ExpensesPostage and Stationery 2. 6,800Repairs 3. 5,000Loan Interest 5. 4,000Bad Debts 6. 1,000Provision for Bad Debts 8. 450Carriage Out 9. 4,020Rates 10. 4,000Wages and Salaries 11. 70,000Depreciation on Motor Vehicles 12. 30,000Depreciation on Office Equipment 13. 8,000Discount Allowed 2,100Rent Paid 6,000Distribution Expenses 4,800General Expenses 14,000

(160,170)Net Profit 93,700

Solutions

41

QUESTION 8.8


Fixed AssetsPremises 150,000 – 150,000Motor Vehicles 12. 120,000 60,000 60,000Office Equipment 13. 70,000 38,000 32,000

340,000 98,000 242,000Current AssetsClosing Stock 1. 62,000Stock of Stationery 2. 400Debtors 7. 39,000Less Provision for Bad Debts 8. (1,950)

37,050Rates Prepaid 10. 2,000Petty Cash 150VAT 1,400

103,000Less Current LiabilitiesLoan Interest Due 5. 4,000Rent Received Prepaid 14. 3,000Creditors 30,000Bank 22,500PRSI 3,800

(63,300)39,700


293,700Less Drawings 4. (52,000)

241,700Long-Term Liabilities10 Year Loan 40,000

281,700


1. Closing Stock 21,000 21,000 – 21,0002. Rent 6,500 + 500 – 7,000 5003. Depreciation on Delivery Vans 18,000 + 9,600 – 9,600 27,6004. Depreciation on Office Equipment 11,000 + 1,950 – 1,950 12,9505. Carriage 4,000 – 1,600 = 2,400 1,600 2,400 –6. Wages and Salaries 40,000 – 6,000 – 34,000 –7. Drawings 17,500 + 6,000 + 600 – – 24,100

8. Loan Interest 1,000 (5/12 year) – 1,000 1,000

9. Commission 3,000 – 750 – 2,250 75010. Light and Heat 7,000 + 300 – 7,300 30011. Bad Debts 700 – 700 –12. Debtors 16,000 – 700 – – 15,30013. Provision for Bad Debts 300 + 465 – 465 76514. General Expenses 8,000 – 600 – 7,400 –


42

(a) Trading and Profit and Loss Account for the year ended 31/5/-2Sales 311,000Less Cost of SalesOpening Stock 27,000Add Purchases 198,000– Returns Out (400)



(205,200)Gross Profit 105,800Add IncomeCommission 9. 2,250Discount Received 1,100

3,350109,150

Less ExpensesRent 2. 7,000Depreciation on Delivery Vans 3. 9,600Depreciation on Office Equipment 4. 1,950Carriage Out 5. 2,400Wages and Salaries 6. 34,000Loan Interest 8. 1,000Light and Heat 10. 7,300Bad Debts 11. 700Provision for Bad Debts 13. 465General Expenses 14. 7,400Repairs 36,000Distribution 11,000Insurance 2,800

(121,615)Net Loss (12,465)

Solutions

43


Fixed AssetsDelivery Vans 3. 48,000 27,600 20,400Office Equipment 4. 24,000 12,950 11,050

72,000 40,550 31,450Current AssetsClosing Stock 1. 21,000Debtors 12. 15,300Less Provision for Bad Debts 13. (765)

14,53535,535

Less Current LiabilitiesRent Due 2. 500Loan Interest Due 8. 1,000Commission Prepaid 9. 750Light and Heat Due 10. 300Creditors 14,000VAT 1,300PAYE and PRSI 1,700Bank 20,000

(39,550) (4,015)27,435

Financed ByCapital 40,000Less Net Loss (12,465)

27,535Less Drawings 7. (24,100)

Long-Term Liabilities 3,435Term Loan 24,000

27,435

44

Bank ReconciliationStatements: Solutions9

QUESTION 9.1

QUESTION 9.2

QUESTION 9.3

(a) Adjusted Bank AccountBalance b/d 165 Standing Order 106Dividends Received 550 Bank Charges 14Interest Received 250 J. Brady (r/d) 205

Balance c/d 640965 965

Balance b/d 640

(b) Bank Reconciliation StatementBalance as per adjusted bank account 640Add cheques not yet presented for payment – 019415 310

– 019417 130– 019418 290– 019422 105 835

1,475Less lodgements not yet credited by the bank (1,225)Balance which should be on statement 250Add bank error 50Balance as per bank statement 300

(a) Adjusted Bank AccountBalance b/d 850 R/D (iii) 410Dividends (iv) 200 Error (ii) 296Credit Transfer (iv) 320 Charges (iv) 40

Balance c/d 6241,370 1,370

Balance b/d 624

(b) Bank Reconciliation StatementBalance as per adjusted Bank Account 624Add Cheques not yet presented for payment (i) 630Less Lodgement not yet credited by the bank (vi) (80)Balance which should be on bank statement 1,174Add error at Bank (v) 90Less error at Bank (vii) (350)Balance as per bank statement 914

(a) Adjusted Bank AccountBalance b/d 800 Error on cheque No. 019328 27Dividends 120 R/D 140

Charges 30Standing Order 180Balance c/d 543

900 920Balance b/d 543

Solutions

45

QUESTION 9.4

QUESTION 9.5

(b) Bank Reconciliation StatementBalance as per adjusted Bank Account 543Add cheques not yet presented for payment – 019326 110

– 019329 120230

Less Lodgements not yet credited by the bank (350)Balance which should be on bank statement 423Less error at Bank 123Balance as per bank statement 300

(a) Adjusted Bank AccountBalance b/d 1,500 Error (i) 840Interest (iii) 120 R/D (ii) 200

Charges (iii) 60Interest (iii) 160ATM (iii) 100Balance c/d 260

1,620 1,620Balance b/d 260

(b) Bank Reconciliation StatementBalance as per adjusted Bank Account 260Add Cheques not yet presented for payment (iv) 205Less Lodgements not yet credited by the bank (iv) (430)Balance which should be on bank statement 35Add error at bank (v) 80Less error at Bank (vi) 115Balance as per bank statement 230

(a) Adjusted Bank AccountBalance b/d 1,520 R/D (i) 234Dividends (ii) 217 Standing Order (ii) 124Error (iv) 1,176 Charges (ii) 29

Balance c/d 2,5262,913 2,913

Balance b/d 2,526

(b) Bank Reconciliation StatementBalance as per adjusted Bank Account 2,526Add Cheques not yet presented for payment (vi) 312Less Lodgements not yet credited by the bank 597 (iv)

450 (v)(1,047)

Balance which should be on bank statement 1,791Add error at Bank (iii) 154Less error at Bank (vii) (140)Balance as per bank statement 1,805


46

QUESTION 9.6

QUESTION 9.7


(a) Adjusted Bank AccountBalance b/d 2,065 R/D 130Interest 80 Charges 45

Standing Order 280Balance c/d 1,690

2,145 2,145Balance b/d 1,690

(b) Bank Reconciliation StatementBalance as per adjusted Bank Account 1,690Add Cheques not yet presented for payment – 567894 120

– 567897 140260

Less Lodgements not yet credited by the bank (750)Balance which should be on bank statement 1,200Less error at Bank (160)Balance as per bank statement 1,040

(a) Adjusted Bank AccountBalance b/d 1,340 R/D (ii) 110Error (i) 718 Standing Order (v) 124Credit Transfer (v) 230 Charges (v) 22

Balance c/d 2,0322,288 2,288

Balance b/d 2,032

(b) Bank Reconciliation StatementBalance as per adjusted Bank Account 2,032Add Cheques not yet presented for payment (iv) 642Less Lodgements not yet credited by the bank (iii) (740)Balance which should be on bank statement 1,934Add error at Bank (vi) 190Less error at Bank (vii) 650Balance as per bank statement 2,774

(a) Adjusted Bank AccountBalance b/d 1,868 Standing Order 140Lodgement Error (22/9) 80 Direct Debit 284Dividends 129 Charges 17Credit Transfer 28 R/D 24

Balance c/d 1,6402,105 2,105

Balance b/d 1,640

Solutions

47


(b) Bank Reconciliation StatementBalance as per adjusted Bank Account 1,640Add Cheques not yet presented for payment – 000130 123

– 000133 25– 000135 119– 000137 402– 000138 117

786Less Lodgements not yet credited by the bank – 1,100

– 380(1,480)

Balance which should be on bank statement 946Add bank error (cheque No. 000134) 90Less bank error (cheque No. 019384) (310)Add error at Bank (c/t to be refunded) 28Balance as per bank statement 754

(a) Adjusted Bank AccountBalance b/d 6,310 Error (i) 1,176Credit Transfer (ii) 28 Standing Orders (ii) 118Cancelled cheque (v) 103 Direct Debits (ii) 72Lodgement Error (viii) 3 R/D (iv) 109

Balance c/d 4,9696,444 6,444

Balance b/d 4,969

(b) Bank Reconciliation StatementBalance as per adjusted Bank Account 4,969Add Cheques not yet presented for payment (2,605 – 103) (v) 2,502Less Lodgements not yet credited by the bank (784)Balance which should be on bank statement 6,687Add Bank error (ii) 300Add Bank error (vi) 165Balance as per bank statement 7,152

48

Control Accounts10QUESTION 10.1

QUESTION 10.2

QUESTION 10.3

Debtors Ledger Control Account1/3/-3 Balance b/d 612 1/3/-3 Balance b/d 18

Credit Sales 3,800 Returns In 150Cheques 2,111Discount Allowed 29Bad Debts 120

31/3/-3 Balance c/d 18 31/3/-3 Balance c/d 2,0024,430 4,430

1/4/-3 Balance b/d 2,002 1/4/-3 Balance b/d 18

Creditors Ledger Control Account1/3/-3 Balance b/d 19 1/3/-3 Balance b/d 290

Returns Out 27 Credit Purchases 2,700Cheques 1,527Discount Received 121Bills Payable 300

31/3/-3 Balance c/d 1,015 31/3/-3 Balance c/d 193,009 3,009

1/4/-3 Balance b/d 19 1/4/-3 Balance b/d 1,015

Debtors Control Account1/9/-6 Balance b/d 3,500 Bad Debts 50

Credit Sales (11,500 – 2,500) 9,000 Cheques 9,800Interest Charged 30 Contras 280

Returns In 510Discount Allowed 270



Debtors Ledger Control Account1/1/-1 Balance b/d 8,000 1/1/-1 Balance b/d 300

Credit Sales 34,000 Discount Allowed 1,000R/d cheques 100 Returns In 350

Bills Receivable 3,200Cheques 24,000Bad Debts 400Contras 560



Solutions

49

QUESTION 10.4

QUESTION 10.5

Creditors Ledger Control Account1/1/-1 Balance b/d 150 1/1/-1 Balance b/d 7,000

Returns Out 700 Credit Purchases 25,000Discount Received 300 Interest Charged 105Bills Payable 1,510Cheques 18,200Contras 560




Interest 40 Bills Receivable 400Credit Sales 6,120 Returns In 210Cheques Dishonoured 100 Discount Allowed 130

Cash 3,700Bad Debts 60Contras 125




Returns Out 120 Credit Purchases 4,900Discount Received 290Payments 4,300Contras 125



Debtors Ledger Control Account1/1/-9 Balance b/d 4,300 Returns In 220

Cheques Dishonoured 120 Discount Allowed 370Interest 60 Bills Receivable 1,200Credit Sales (11,400 – 500) 10,900 Cheques 5,200Discount Disallowed 20 Bad Debts 110

Contras 19031/1/-9 Balance c/d 80 31/1/-9 Balance c/d 8,190

15,480 15,4801/2/-9 Balance b/d 8,190 1/2/-9 Balance b/d 80

Creditors Ledger Control AccountBills Payable 400 1/1/-9 Balance b/d 3,800Discount Received 410 Credit Purchases 8,200Returns Out 180Cash 4,000Contras 190




50

QUESTION 10.6

QUESTION 10.7



Sales 32,000 Discount Allowed 960Interest 70 Returns In 340Cheques Dishonoured 330 Bills Receivable 1,300

Cheques 22,780Bad Debts 220Contras 410




Returns Out 610 Credit Purchases (24,900 – 1,800) 23,100Discount Received 280Bills Payable 1,320 Discount Disallowed 100Cash 17,300Contras 410



(a) Adjusted Creditors Ledger Control AccountReturns to P.Burke (III) 160 31/12/-5 Balance b/d 8,560Contra (V) 220 Discount Disallowed (ii) 40Balance c/d 8,510 Error (VII) 290

8,890 8,89031/12/-5 Balance b/d 8,510

(b) Adjusted Schedule (List) of Creditors’ BalancesOriginal Total of Schedule: 8,422Less J. Barry (I) (60)Less P. Burke (II) (160)Add Interest (IV) 48Less Dr. Balance (VI) (30)Add Error (VII) 290Adjusted Total 8,510

(a) Adjusted Creditors Ledger Control Account31/12/-1 Balance b/d 190 31/12/-1 Balance b/d 11,450

Credit Note (V) 120 Returns to J. Arnold (I) 90Capital (VI) 1,000 Discount Disallowed (II) 70

J. Barry (III) 640Interest (IV) 30

Balance c/d 11,160 Balance c/d 19012,470 12,400

Balance b/d 190 Balance b/d 11,160

Solutions

51



(b) Schedule (List) of Creditors’ BalancesOriginal Total of Schedule: 11,634Add J. Arnold (I) 90Add J. Barry (III) 640Less Interest (IV) (34)Less Credit Note (V) (360)Less Capital (VI) (1,000)Adjusted Total 10,970

(a) Adjusted Debtors Ledger Control Account31/12/-9 Balance b/d 15,430 31/12/-9 Balance b/d 230

Error (III) 92 Error (I) 180Discount Disallowed (VII) 46 Interest (II) 35

Credit Note (IV) 75Balance c/d 230 Balance c/d 15,278

15,798 15,798Balance b/d 15,278 Balance b/d 230

(b) Schedule (List) of Debtors’ BalancesOriginal Total of Schedule: 14,878Add Invoice (I) 790Less Interest (II) (25)Add Error (III) 92Less Credit Note (IV) (132)Add Cash Sales (V) 245Less Bills Payable (VI) (800)Adjusted Total (15,278 – 230) 15,048

(a) Adjusted Debtors Ledger Control Account31/12/-0 Balance b/d 18,840 31/12/-0 Balance b/d 390

Discount Disallowed (II) 30 Interest (I) 10Invoice (III) 90 Credit Note (V) 105Credit Note (VII) 16Balance c/d 390 Balance c/d 18,861


(b) Adjusted Schedule (List) of Debtors’ BalancesOriginal Total of Schedule: 18,202Less Interest (I) (28)Add Invoice (III) 870Less Bills Payable (IV) (750)Less Credit Note (V) (120)Add Cash Sales (VI) 425Less Restocking (VII) (128)Adjusted Total (18,861 – 390) 18,471


52



(a) Adjusted Debtors Control Account31/12/-9 Balance b/d 14,280 31/12/-9 Balance b/d 280

Discount Disallowed (II) 96 Credit Note (I) 123Bills payable (V) 100Interest (VI) 81Balance c/d 280 Balance c/d 14,434


(b) Adjusted Schedule (List) of Debtors’ BalancesOriginal Total of Schedule: 13,685Less Credit Note (I) (444)Less Cash Sales (III) (300)Add Invoice (IV) 1,024Add Interest (VI) 189Adjusted Total 14,154

(a) Adjusted Debtors Control Account30/6/-1 Balance b/d 48,370 30/6/-1 Balance b/d 280

Due to Debtor (V) 280 Returns In (I) 3,820Interest (VI) 63 Contras (II) 65Cheque Dishonoured (VII) 392Discount Disallowed (VII) 8 Balance c/d 44,948

49,113 49,113Balance b/d 44,948

(b) Adjusted Schedule (List) of Debtors’ BalancesOriginal Total of Schedule: 45,206Less Returns In (I) (3,820)Add Balance Omitted (IV) 45Add Invoice (VI) 2,770Add Cheque Dishonoured (VII) 721Add Discount Disallowed (VII) 26Adjusted Total 44,948

53

Correction of Errors –Suspense Account: Solutions11

QUESTION 11.1

QUESTION 11.2

(a) Journal EntriesDetails Debit Credit

(i) Sales ReturnsDebtor

7070

(ii) InterestSuspense

1616

(iii) CreditorsBank

150150

(iv) RentSuspense

9090

(v) RepairsMachinery

170170

(b) Suspense AccountOriginal Balance 106 Interest (II) 16

Rent (IV) 90106 106


(i) CreditorPurchases Returns

6060

(ii) E. HarveyE. Harley

190190

(iii) SuspenseRent Received

9090

(iv) DebtorsSuspense

99

(v) AssetPurchases

3,0003,000

(b) Suspense AccountRent Received (iii) 90 Original Balance 81

Debtors (iv) 990 90


54

QUESTION 11.3

QUESTION 11.4


(i) SuspensePurchases

1919

(ii) AdvertisingBank

240240

(iii) Carriage InSuspense

6363

(iv) DebtorSales

180180

(v) SuspenseBank

8080

(vi) Rent ReceivedDiscount Allowed

2323

(vii) DrawingsRepairs

148148

(viii) S.KingS. Kidd

2828

(ix) DrawingsPurchases

140140

(b) Suspense AccountPurchases (I) 19 Original Balance 36Bank (V) 80 Carriage In (III) 63

99 99

(c) Statement of Revised ProfitOriginal Net Profit 16,700Add Purchases (I) 19Less Advertising (II) (240)Less Carriage In (III) (63)Add Sales (IV) 180Less Rent Received (VI) (23)Add Discount Allowed (VI) 23Add Repairs (VII) 148Add Purchases (IX) 140Revised Net Profit 16,884


(i) SuspenseInterest Received

168168

(ii) Bad DebtsJ. McDonagh (Debtor)

120120

(iii) EquipmentPurchasesSuspenseJ. Treacy (Creditor)

250

500250

500(iv) J. O Toole (Creditor)

Suspense176

176(v) Sales

Suspense89

89(vi) Drawings

Motor Expenses3,000

3,000

Solutions

55

QUESTION 11.5

QUESTION 11.6

(b) Suspense AccountInterest Received (I) 168 Balance 403J. Treacy (III) 500 J. O Toole (IV) 176

Sales (V) 89668 668


(i) Bad DebtsJ. Agnew

120120

(ii) SuspenseInterest Received

320320

(iii) CreditorPurchases Returns

110110

(iv) DebtorSuspense

180180

(v) SuspenseSales

9292

(vi) ExpensesSuspense

4545

(b) Suspense AccountInterest (II) 320 Debtor (IV) 180Sales (V) 92 Expenses (VI) 45

Original Balance 187412 412


(i) InterestSuspense

240240

(ii) Sales ReturnsDebtor

180180

(iii) PurchasesSuspense

7070

(iv) SuspenseCreditor

9090

(v) Motor RepairsMotor Vehicles

6060

(vi) DrawingsSuspense

150150

(b) Statement of Revised ProfitOriginal Net Profit 10,000Less Interest (I) (240)Less Sales Returns (II) (180)Less Purchases (III) (70)Less Motor Repairs (V) (60)Revised Net Profit 9,450


56

QUESTION 11.7


(i) Sales ReturnsSuspense

300300

(ii) EquipmentSuspenseRepairs

23090

320(iii) Discount Allowed

Suspense180

180(iv) Suspense

Purchases200

200(v) Drawings

Suspense100

100

(b) Suspense AccountRepairs (II) 90 Sales Returns (I) 300Purchases (IV) 200 Discount All. (III) 180Original Balance 290 Drawings (V) 100

580 580

(c) Ledger Accounts(i)

Equipment AccountCorrection 230

Bank AccountOriginal 230

Repairs AccountOriginal 320 Correction 230

Correction – Suspense 90

(ii)

Discount Allowed AccountCorrection – Suspense 180 Original 90

Debtors AccountOriginal 90

(iii)

Purchases AccountOriginal 7,840 Correction – Suspense 200

Creditors AccountOriginal 7,640

Solutions

57

QUESTION 11.8



(i) EquipmentPurchasesSuspenseCreditor

600

1,200600

1,200(ii) Suspense

Rent Received165

165(iii) Creditor

Suspense90

90(iv) Drawings

General Expenses91

91(v) Bank

Bad DebtsDebtor

40120

160(vi) Commission Received

CapitalSuspense

6,0005,0001,000

(b) Suspense AccountCreditor (I) 1,200 Creditor (III) 90Rent Recd. (II) 165 Commission (vi) 1,000

Original Balance 2751,365 1,365

(c) Statement of Revised ProfitOriginal Net Profit 12,360Add Purchases (I) 600Add Rent Recd. (II) 165Add Gen. Exps (IV) 91Less Bad Debts (V) (120)Less Commission (VI) (6,000)Revised Net Profit 7,096


(i) CreditorCapital

320320

(ii) SuspenseP. returnsCreditor

83040

790(iii) Debtor

Discount All.BankBad DebtsDebtor

400

400

20380

400(iv) Creditor

BuildingsRepairsDrawingsSuspense

120300120300

840(v) Sales

DebtorBankCapital

2,600

2,6002,600

2,600


58


(b) Statement of Revised ProfitOriginal Net Profit 30,000Add Purchases Returns (II) 40Add Discount Allowed (III) 20Less Bad Debts (III) (400)Less Repairs (IV) (120)Less Sales (V) (2,600)Revised Net Profit 26,940


(i) PurchasesEquipmentP. Wynne (Creditor)Suspense

8,0008,800

16,000800

(ii) EquipmentSales ReturnsSuspenseDebtorPurchases

40540410

540450

(iii) DrawingsDiscount AllowedDebtor

38020

400(iv) Creditor

Purchases ReturnsCreditorSuspense

11,7006,400

6,40011,700

(v) CreditorCommissionCapitalDiscount Received

1,2001,000

2,000200

(b) Statement of Revised ProfitOriginal Net Profit 24,000Less Purchases (I) (8,000)Less Sales Returns (II) (540)Add Purchases (II) 450Less Discount Allowed (III) (20)Less Purchases Returns (IV) (6,400)Less Commission (V) (1,000)Add Discount Received (V) 200Revised Net Profit 8,690

Solutions

59



(i) SalesLoss on SaleMotor VehiclesJ. Patten (Debtor)Suspense

650100

1,210750

1,210(ii) Creditor

Suspense240

240(iii) Premises

Capital7,000

7,000(iv) Drawings

DebtorSalesPurchases

140

140140

140(v) Bank

Interest Received320

320

(b) Suspense AccountOriginal Balance 1,450 Debtor (I) 1,210

Creditor (II) 2401,450 1,450

(c) Statement of Revised ProfitOriginal Net Profit 8,400Less Sales (I) (650)Less Loss on Sales (I) (100)Less Sales (IV) (140)Add Purchases (IV) 140Add Interest (V) 320Revised Net Profit 7,970

(d) Corrected Balance SheetFixed AssetsPremises (40,000 + 7,000) 47,000Motors (19,000 – 750) 18,250

65,250Current AssetsStock (10,000 – 1,450) 8,550Debtors (4,800 + 1,210 – 140) 5,87010% Deposit Account 3,200

17,620Less Current LiabilitiesCreditors (6,400 – 240) 6,160Bank (5,600 – 320) 5,280

(11,440)6,180

71,430Financed ByCapital (61,000 + 7,000) 68,000Add Net Profit 7,970

75,970Less Drawings (4,400 + 140) (4,540)

71,430


60



(i) SuspensePurchasesEquipmentJ. Delaney (Creditor)

760

670760

670(ii) Suspense

BankMotorsCapital

2,500

3,5002,500

3,500(iii) Creditor

Suspense180

180(iv) Repairs

DrawingsBankCreditorMotorsSuspense

8050

130130

130

160(v) Rent

Rent Due1,000

1,000

(b) Suspense AccountPurchases (I)Bank (II)

7602,500

Creditor (III)Creditor (IV)Motors (IV)Original Difference

180130130

2,8203,260 3,260

(c) Statement of Revised ProfitOriginal Net ProfitAdd PurchasesLess RepairsLess Rent

(I)(IV)(V)

23,000760(80)

(1,000)Revised Net Profit 22,680

(d) Corrected Balance SheetFixed AssetsPremises Motors (5,000 + 3,500 + 130)Equipment (9,000 + 670)

30,0008,6309,670

Current AssetsStock (11,000 + 2,820)DebtorsBank (3,000 – 2,500 – 130)

13,8204,000

370

48,300

Less Current LiabilitiesCreditors (8,000 + 670 – 180 – 130)Rent Due

8,3601,000

18,190

(9,360)8,830

57,130Financed ByCapital (38,000 + 3,500)Add Net Profit

41,50022,680

Less Drawings (7,000 + 50)64,180(7,050)57,130

Solutions

61



(i) J. Collins (Debtor)SalesDelivery VansSuspense

11,0006,400

4,60012,800

(ii) Purchases ReturnsSuspenseCreditor

20680

700(iii) Debtor

BankDiscount AllowedBad DebtsDebtor

500

500

48515

500(iv) Purchases Returns

CreditorsSuspense

36428

464(v) Creditor

CapitalDiscount Received

44040040

(b) Suspense AccountCreditor (II)

Original Balance

680

12,584

Debtor (I)P. Returns (IV)Creditor (IV)

12,80036

42813,264 13,264

(c) Statement of Revised ProfitOriginal Net ProfitLess SalesLess Purchases ReturnsAdd Disc. Allowed Less Bad DebtsLess Purchases ReturnsAdd Disc. Received

(I)(II)(III)(III)(IV)(V)

9,000(6,400)

(20)15

(500)(36)40

Revised Net Profit 2,099

(d) Corrected Balance SheetFixed AssetsPremises Delivery Vans (20,000 – 4,600)

50,00015,400

Current AssetsStock (22,000 – 12,584)Debtors (8,000 + 11,000 + 500 – 500)

9,41619,000

65,400

Less Current LiabilitiesCreditors (12,000 + 700 – 428 – 440)Bank (2,000 + 485)

11,8322,485

28,416

(14,317)14,09979,499

Financed ByCapital (80,000 + 400)Add Net Profit

80,4002,099

Less Drawings82,499(3,000)79,499


62


(a) Journal EntriesDebit Credit

(i) Motor VehiclesPurchasesSuspenseJ. Brady (Creditor)

2,900

4,8002,900

4,800(ii) Suspense

Bank1,600

1,600(iii) Returns In

DebtorStock (Balance Sheet)Stock (Trading Account)

700

600700

600(iv) Debtors

CapitalSalesBank

3,600

3,6003,600

3,600(v) Suspense

Returns OutCreditor

19020

210

(b) Suspense AccountCreditor (I)Bank (II)Creditor (III)

4,8001,600

190

Original Balance 6,950

6,590 6,590

(c) Statement of Revised ProfitOriginal Net ProfitAdd PurchasesLess Returns InAdd Stock (Trading)Less SalesLess Returns Out

(I)(III)(III)(IV)(V)

8,4002,900(700)600

(3,600)(20)

Revised Net Profit 7,580

(d) Corrected Balance SheetFixed AssetsMotor Vehicles (22,000 + 2,900) Equipment

24,90014,000

Current AssetsStock (15,000 + 600)Debtors (7,800 – 700 + 3,600)Bills Receivable

15,60010,7003,000

38,900

Less Current LiabilitiesCreditors (11,000 – 6,590 + 4,800 + 210)Bank (6,800 + 1,600 + 3,600)

9,42012,000

29,300

(21,420)7,880

46,780Financed ByCapital (47,000 + 3,600)Add Net Profit

50,6007,580


46,780

Solutions

63


(a) Journal EntriesDebit Credit

(i) BankDiscount ReceivedCreditorCreditorCash

52040

300560

300(ii) Repairs

DrawingsPremisesSuspense

600360960

1,920(iii) Drawings

Discount AllowedDebtor

39010

400(iv) Creditor

PurchasesCapitalDiscount Received

9,2004,5004,500

200(v) Debtor

Sales ReturnsSuspense

188127

315

(b) Suspense AccountOriginal Balance 2,235 Repairs (II) 600

Drawings (II) 360Premises (II) 960Debtor (V) 188Sales Returns (V) 127

2,235 2,235

(c) Statement of Revised ProfitOriginal Net Profit 42,000Less Discount Received (I) (40)Less Repairs (II) (600)Less Discount Allowed (III) (10)Add Purchases (IV) 4,500Add Discount Received (IV) 200Less Sales Returns (V) (127)Revised Net Profit 45,923


64


(d) Corrected Balance SheetFixed AssetsPremises (165,000 + 960) 165,960Furniture and Equipment 33,000

198,960Current AssetsStock 94,000Debtors (10,600 – 400 + 188) 10,388Cash (400 – 300) 100

104,488Less Current LiabilitiesCreditors (72,000 + 2,235 + 560 – 300 – 9,200) 65,295Bank (19,000 – 520) 18,480

(83,775)20,713

219,673Financed ByCapital (176,000 + 4,500) 180,500Add Net Profit 45,923

226,423Less Drawings (6,000 + 360 + 390) (6,750)

219,673


(i) BankDiscount ReceivedCreditorCreditorCash

61030

400640

400(ii) Repairs

DrawingsPremisesSuspense

800630

1,4302,860

(iii) CreditorCapitalDiscount Received

75705

(iv) DrawingsCreditorPurchases

800800

1,600(v) Sales Returns

SuspenseDebtor

19674

122

(b) Suspense AccountOriginal Balance 2,934 Repairs (II) 800

Drawings (II) 630Premises (II) 1,430Sales Returns (V) 74

2,934 2,934

Solutions

65

(c) Statement of Revised ProfitOriginal Net Profit 43,000Less Discount Received (I) (30)Less Repairs (II) (800)Add Discount Received (III) 5Add Purchases (IV) 1,600Less Sales Returns (V) (196)Revised Net Profit 43,579

(d) Corrected Balance SheetFixed AssetsPremises (180,000 + 1,430) 181,430Machinery 48,000

229,430Current AssetsStock 73,000Debtors (12,000 – 122) 11,878Cash (600 – 400) 200

85,078Less Current LiabilitiesCreditors (27,000 + 2,934 + 640 – 400 – 75 – 800) 29,299Bank (24,000 – 610) 23,390

(52,689)32,389

261,819Financed ByCapital (227,600 + 70) 227,670Add Net Profit 43,579

271,249Less Drawings (8,000 + 630 + 800) (9,430)

261,819

66

The Conceptual Framework of Accounting: Solutions12

QUESTION 12.1

1. Concept of Going Concern – see text for explanation. Example: The accountant values assets in the balancesheet at cost. If the liquidation of the business was imminent, the assets would have to be valued at market value.

2. Concept of Accruals – see text for explanation. Example: Rent due and unpaid for the last two months of thefinancial year is included in the Profit and Loss Account as part of the Expense Rent.

3. Concept of Prudence – see text for explanation. Example: A provision for bad debts of 5% of outstandingdebtors is maintained.

4. Concept of consistency – see text for explanation. Example: Fixed assets are written off each year on areducing balance system.

QUESTION 12.2

QUESTION 12.3

Concept – PrudenceBase – Research expenditure is not to be capitalisedPolicy – Research expenditure appears as an expense in the Profit and Loss Account of the period in which it was incurred.

QUESTION 12.4

Consistent periods of account allow valid comparisons be made between periods.

QUESTION 12.5

1. Principle of realisation – see text for explanation Example: The rise in value of a fixed asset is not recordedas profit in the period of the rise, but is recorded as profit in the period when the asset is sold.

2. Principle of double-entry – see text for explanation Example: A bank loan received to buy a new delivery vanappears as an asset (delivery vans) and a liability (bank loan due).

3. Principle of objectivity – see text for explanation Example: The valuation and ownership of fixed assets doesnot depend upon the judgement of the accountant but on the receipt paid for the asset and the deeds ofownership.

QUESTION 12.6

An item in the accounts is considered immaterial if its omission would not effect the opinion of the users of the accounts.


No, because the accounts, under the money measurement concept, can only show the financial position of the firm. Other factors, relevant or not to the health of the enterprise cannot be shown in the accounts.


(a) Going concern (b) Accruals (c) Consistency(d) Prudence (e) Entity (f) Money measurement(g) Materiality (h) Realisation (i) Accruals(j) Accruals (k) Consistency (l) Double entry

(m) Prudence (n) Going concern

Accounting Concept Going Concern

Accounting Base Historical Cost Basis

Accounting Policy Fixed Assets Valued at Cost

67

Limited Companies: Solutions14QUESTION 14.1

QUESTION 14.2

(a) Profit and Loss Account for the year ended 31/12/-7Net Profit 103,000Less Transfer to General Reserve (24,000)

79,000Less Ordinary DividendsProposed (15,200)Preference DividendsPaid 3,850Proposed 3,850 (7,700)

Retained Profits 56,100

(b) Balance Sheet (Extracts)Current LiabilitiesProposed Dividends 19,050Financed byShare Capital Authorised Issued Paid-up€1 Ordinary Shares 300,000 190,000 190,000€1 11% Preference Shares 100,000 70,000 70,000

400,000 260,000 260,000ReservesGeneral Reserve 67,000Profit and Loss Account 56,100

(a) Profit and Loss Account for the year ended 31/12/-8Net Profit 69,000Less Transfer to General Reserve (10,000)

59,000Less Ordinary DividendsProposed (12,000)Preference DividendsPaid 3,000Proposed 9,000

(12,000)Retained Profits 35,000

(b) Balance Sheet (Extracts)Current LiabilitiesProposed DividendsFinanced byShare Capital€1 Ordinary Shares€1 12% Preference Shares

21,000

Authorised300,000200,000

Issued200,000100,000

Paid-up200,000100,000

500,000 300,000 300,000ReservesGeneral ReservesProfit and Loss Account

90,00035,000


68

QUESTION 14.3

QUESTION 14.4

(a) Profit and Loss Account for the year ended 31/12/-9Net Profit before Taxation 120,000Less Taxation (23,000)Profit after Taxation 97,000Less Transfer to General Reserve (25,000)

72,000Less Ordinary DividendsProposed (17,500)Preference DividendsPaid 3,000Proposed 3,000

(6,000)Retained Profits for the year 48,500Profit and Loss Balance from last year 20,000Profit and Loss Balance to next year 68,500

(b) Balance Sheet (Extracts)Current LiabilitiesProposed Dividends 20,500Taxation Due 23,000Financed byShare Capital Authorised Issued Paid-up€1 Ordinary Shares 300,000 250,000 250,000€1 8% Preference Shares 100,000 75,000 75,000

400,000 325,000 325,000ReservesGeneral Reserves 90,000Profit and Loss Account 68,500

(a) Profit and Loss Account for the year ended 31/12/-9 €

Net Profit before Taxation 210,000Less Taxation (25,000)Profit after Taxation 185,000Less Transfer to General Reserve (15,000)

170,000Less Ordinary DividendsInterim 15,000Proposed 20,000 (35,000)

Preference DividendsInterim 7,000Proposed 7,000


Solutions

69

QUESTION 14.5

(b) Balance Sheet as at 31/12/-9€ € €

Fixed AssetsTangible 800,000 200,000 600,000Intangible 100,000

700,000Current AssetsStock 120,000Debtors less Provision for Bad Debts 100,000Cash on Hand 5,000

225,000Less Current LiabilitiesCreditors 70,000Taxation Due 25,000Proposed Dividends 27,000Bank Overdraft 3,000

(125,000)100,000

Total Assets less Current Liabilities 800,000Financed byShare Capital Authorised Issued Paid-up€1 Ordinary Shares 500,000 300,000 300,000€1 7% Preference Shares 300,000 200,000 200,000

800,000 500,000 500,000ReservesShare Premium 3,000General Reserve 25,000Profit and Loss Account 222,000

250,000Shareholders’ Funds 750,000Long Term Liabilities14% Debentures 50,000

800,000

(a) Profit and Loss Account for the year ended 31/12/-8Net Profit before TaxationLess Taxation

136,000(29,000)

Profit after TaxationLess Transfer to General Reserve

107,000(20,000)

Less Ordinary DividendsPaidProposed

24,00040,000

87,000

Preference DividendsPaidProposed

7,5007,500

(64,000)

(15,000)Retained Profits for the yearProfit and Loss Balance from last year

8,00035,000

Profit and Loss Balance to next year 43,000


70

QUESTION 14.6

(b) Balance Sheet (Extracts)Current LiabilitiesProposed Dividends 47,500Taxation Due 29,000Financed byShare Capital Authorised Issued Paid-up€1 Ordinary Shares 700,000 400,000 400,000€1 10% Preference Shares 300,000 150,000 150,000

1,000,000 550,000 550,000ReservesGeneral Reserve 60,000Profit and Loss Account 43,000

(a) Profit and Loss Account for the year ended 31/12/-7 €

Net Profit before Taxation 170,000Less Taxation (40,000)Profit after Taxation 130,000Less Transfer to General Reserve (10,000)

120,000Less Ordinary DividendsInterim 20,000Proposed 30,000

(50,000)Preference DividendsInterim 6,000Proposed 6,000


Solutions

71

QUESTION 14.7


Fixed AssetsTangible 600,000 100,000 500,000Intangible 100,000Financial 50,000

650,000Current AssetsStock 70,000Debtors less Provision for Bad Debts 40,000Cash on Hand and at Bank 15,000

125,000Less Current LiabilitiesCreditors 50,000Taxation Due 40,000Proposed Dividends 36,000

(126,000)(1,000)

Total Assets less Current Liabilities 649,000Financed byShare Capital Authorised Issued Paid-up€1 Ordinary Shares 400,000 340,000 340,00€1 10% Preference Shares 200,000 120,000 120,000

600,000 460,000 460,000ReservesGeneral Reserve 20,000Share Premium 9,000Profit and Loss Account 100,000Shareholders’ Funds 129,000Long Term Liabilities7% Debentures 60,000

649,000

(a) Profit and Loss Account for the year ended 31/12/-1Net Profit before Taxation 82,500Less Taxation (21,000)Profit after Taxation 61,500Less Transfer to General Reserve (10,000)

51,500Less Ordinary DividendsPaid 17,500Proposed 20,000

(37,500)Preference DividendsPaid 4,500Proposed 4,500



72

(b) Balance Sheet (Extracts)Current LiabilitiesProposed Dividends 24,500Taxation Duei 21,000Financed byShare Capital Authorised Issued Paid-up€1 Ordinary Shares 400,000 250,000 250,000€1 9% Preference Shares 150,000 100,000 100,000


73

Final Accounts of a Limited Company with Adjustments: Solutions15

QUESTION 15.1

Schedule of Adjustments (€)

AdjustmentsTrading Account

Profit and Loss Account

Balance Sheet

1. Closing Stock 30,000 30,000 – 30,0002. General Expenses 20,000 – 8,000 – 12,000 –3. Debenture Interest 8,000 + 8,000 – 16,000 8,0004. Depreciation on Delivery Vans 10,000 + 10,000 – 10,000 20,0005. Depreciation on Furniture and Fittings 6,000 + 1,200 – 1,200 7,2006. Directors’ Fees 6,000 – 6,000 6,0007. Auditors’ Fees 1,000 – 1,000 1,0008. Patents 100,000 – 10,000 – 10,000 90,0009. Rent of Showroom 5,000 – 1,250 – 3,750 1,250

10. Preference Dividend Proposed 10,000 – 10,000 10,00011. Ordinary Dividend Proposed 10,000 – 10,000 10,00012. Corporation Tax – 27,000 27,000

(a) Trading and Profit and Loss Account for the year ended 31/12/-2 (€)Sales– Cost of SalesOpening Stocks+ Purchases

25,000179,000

385,000

– Closing Stock 1.204,000(30,000)

(174,000)Gross Profit+ IncomeInvestment Interest

211,000

1,600

– ExpensesDistributionRent of ShowroomDepreciation on Delivery Vans

9.4.

3,75010,000

212,600

AdministrationGeneral expensesDepreciation on Furniture and FittingsDirectors’ FeesAuditors’ FeesRates and InsuranceAmortisation of PatentSalaries and Wages

2.5.6.7.

8.

12,0001,2006,0001,0004,000

10,00035,000

13,750

FinancialDebenture Interest 3. 16,000

69,200

16,000(98,950)

Net Profit before TaxationTaxation 12.

113,650(27,000)

Profit after TaxationLess Dividends ProposedOrdinaryPreference

11.10.

10,00010,000

86,650

(20,000)Retained Profits+ Profit and Loss Balance from last year

66,65030,000



74


Fixed Assets Cost Depr ValueLand and Buildings 300,000 – 300,000Delivery Vans 4. 40,000 20,000 20,000Furniture and Fittings 5. 12,000 7,200 4,800

352,000 27,200 324,800Patents 8. 90,000Goodwill 60,0008% Investments 20,000

494,800Current AssetsClosing Stock 1. 30,000Debtors 30,000Bank 86,600Showroom Rent Prepaid 9. 1,250

147,850– Current LiabilitiesCreditors 18,000VAT 6,000Debenture Interest Due 3. 8,000Directors’ Fees Due 6. 6,000Auditors’ Fees Due 7. 1,000Preference Dividend Proposed 10. 10,000Ordinary Dividend Proposed 11. 10,000Taxation Due 12. 27,000

(86,000)61,850

Total Assets less Current Liabilities 556,650Financed ByShare Capital Auth. Issued Paid-Up€1 Ordinary Shares 300,000 200,000 200,000€1 10% Preference Shares 200,000 100,000 100,000

500,000 300,000 300,000ReservesProfit and Loss Account 96,650Long Term Liabilities10% Debentures 160,000

556,650

Solutions

75

QUESTION 15.2


AdjustmentsTradingAccount


BalanceSheet

1. Closing Stock 10,000 + 25,000 35,000 – 35,0002. Suspense 1,000 – 250 –750 – – –3. Interim Preference Dividend 2,000 + 250 + 2,250 4,500 2,2504. General Expenses 22,000 + 750 – 22,750 –5. Rent 5,000 – 2,500 – 2,500 2,5006. Land and Buildings 250,000 + 6,000 + 10,000 – – 266,0007. Salaries and Wages 40,000 – 6,000 – 34,000 –8. Purchases 129,000 – 10,000 119,000 – –9. Sales 380,000 – 30,000 350,000 – –

10. Debtors 55,000 – 30,000 – – 25,00011. Depreciation on Land and Buildings 2,920 – 2,920 2,92012. Depreciation on Vans 25,000 + 4,000 – 4,000 29,00013. Depreciation on Fixtures and Fittings 7,000 + 5,000 – 5,000 12,00014. Ordinary Dividend Proposed 15,000 – 15,000 15,00015. Corporation Tax 60,000 – 60,000 60,00016. General Reserve 10,000 + 10,000 – 10,000 20,00017. Debenture Interest 10,000 – 10,000 10,00018. Investment Income 12,100 – 12,100 12,100


76

(a) Trading and Profit and Loss Account for the year ended 31/12/-3 (€)Sales 9. 350,000Less Cost of SalesOpening Stock 15,000+ Purchases 8. 119,000

134,000– Closing Stock 1. (35,000)

(99,000)Gross Profit 251,000+ IncomeRent 5. 2,500Investment Interest 18. 12,100

265,600– ExpensesDistributionDepreciation on Vans 12. 4,000Salesforce Salaries 6,000Carriage Out 2,000

12,000AdministrationGeneral Expenses 4. 22,750Salaries and Wages 7. 34,000Depreciation on Buildings 11. 2,920Depreciation on Furniture and Fittings 13. 5,000Directors’ Fees 10,000Auditors’ Fees 4,000Rent, Rates and Insurance 25,000

103,670FinancialDebenture Interest 17. 10,000

10,000(125,670)

Net Profit before Taxation 139,930– Taxation 15. (60,000)Profit after Taxation 79,930– Transfer to Reserve 16. (10,000)

69,930– Dividends– Ordinary – Proposed 14. 15,000Preference – Paid 3. 2,250– Proposed 3. 2,250

(19,500)Retained Profits 50,430+ Profit and Loss Balance from last year 42,000Profit and Loss Balance to next year 92,430

Solutions

77


Fixed Assets Cost Depr. ValueLand and Buildings 6. 11. 266,000 2,920 263,080Delivery Vans 12. 45,000 29,000 16,000Furniture and Fittings 13. 25,000 12,000 13,000

336,000 43,920 292,080Goodwill 76,00011% Investments 110,000

478,080Current AssetsClosing Stock 1. 35,000Debtors 10. 25,000Bank 16,000Investment Income Due 18. 12,100

88,100– Current LiabilitiesCreditors 45,000VAT 4,000Preference Dividend Due 3. 2,250Ordinary Dividend Due 14. 15,000Taxation Due 15. 60,000Debenture Interest Due 17. 10,000Rent Prepaid 5. 2,500

(138,750)(50,650)


400,000 200,000 200,000ReservesGeneral Reserve 16. 20,000Share Premium 15,000Profit and Loss Account 92,430

127,430Long Term Liabilities10% Debentures 100,000

427,430


78



AdjustmentsTrading Account Profit and

Loss AccountBalance Sheet

1. Closing Stock 80,000 80,000 – 80,0002. Bank (10,000) + 1,750 – – 8,2503. Investment Income 1,750 + 875 – 2,625 8754. Auditors’ Fees 700 – 700 7005. Directors’ Fees 3,000 – 3,000 3,0006. Patents 6,000 + 2,000 – – 8,0007. Interim Preference Dividend 10,000 – 2,000 + 8,000 – 16,000 8,0008. Depreciation on Land and Buildings 5,000 – 5,000 5,0009. Depreciation on Vans 20,000 + 16,000 – 16,000 36,000

10. Ordinary Dividend Proposed 8,000 – 8,000 8,00011. Debenture Interest 3,000 + 3,000 – 6,000 3,00012. Debtors 30,000 – 1,000 – – 29,00013. Bad Debts 1,000 – 1,000 –14. Provision for Bad Debts 1,450 – 1,450 1,45015. Corporation Tax 20,000 – 20,000 20,000

(a) Trading and Profit and Loss Account for the year ended 31/12/-5 (€)SalesLess Cost of SalesOpening Stock+ Purchases

27,000310,000

606,000

– Closing Stock 1.337,000(80,000)

(257,000)Gross Profit+ IncomeRentInvestment Interest 3.

349,000

6,0002,625

– ExpensesDistributionSelling and DistributionDepreciation on Vans

AdministrationAdministration ExpensesAuditors’ FeesDirectors’ FeesDepreciation BuildingsBad Debts Provision for Bad Debts

FinancialDebenture Interest

9.

4.5.8.13.14.

11.

8,00016,000

138,000700

3,0005,0001,0001,450

6,000

24,000

149,150

357,625

6,000(179,150)


178,475(20,000)

Profit after Taxation– DividendsOrdinary – ProposedPreference – Paid– Proposed

10.7.7.

8,0008,0008,000

158,475

(24,000)Retained Profits+ Profit and Loss Balance from last year

134,475(20,000)


Solutions

79


Fixed Assets Cost Depr ValueLand and Buildings 8. 450,000 5,000 445,000Delivery Vans 9. 100,000 36,000 64,000

550,000 41,000 509,000Patents 6. 8,0007% Investments 50,000

567,000Current AssetsClosing Stock 1. 80,000Debtors 12. 29,000– Provision for Bad Debts 14. (1,450) 27,550Investment Income Due 3. 875

108,425– Current LiabilitiesCreditors 10,000Bank 2. 8,250Auditors’ Fees Due 4. 700Directors’ Fees Due 5. 3,000Preference Dividends Due 7. 8,000Ordinary Dividends Due 10. 8,000Debenture Interest Due 11. 3,000Taxation Due 15. 20,000

(60,950)47,475


700,000 400,000 400,000ReservesShare Premium 40,000Profit and Loss Account 114,475


614,475


80





1. Closing Stock 37,400 –1,500 + 7,000 42,900 – 42,9002. Goodwill 9,500 + 3,000 – 2,500 – 2,500 10,0003. Investment Income 3,000 + 9,000 – 12,000 9,0004. Advertising 3,100 – 50 + 200 – 3,250 –5. Debenture Interest 2,050 + 50 + 6,300 – 8,400 6,3006. Debtors 27,200 – 200 – – 27,0007. Salaries and General Expenses 97,200 – 8,500 – 88,700 –8. Purchases 740,000 + 7,000 – 21,500 725,000 – –9. Creditors 35,100 + 7,000 – – 42,100

10. Buildings 401,000 – 25,000 + 30,000 – – 406,00011. Insurance Claim Due 25,000 – – 25,00012. Preference Dividend Proposed 5,500 – 5,500 5,50013. Ordinary Dividend Proposed 52,500 – 52,500 52,50014. Corporation Tax 15,000 – 15,000 15,00015. Depreciation on Vans 30,000 + 13,750 – 13,750 43,75016. Provision for Bad Debts 1,450 – 100 – 100 1,350

(a) Trading and Profit and Loss Account for the year ended 31/12/-8 (€)SalesLess Cost of SalesOpening Stock+ Purchases 8.

35,600725,500

1,020,000

– Closing Stock761,100(42,900)

(718,200)Gross Profit+ IncomeInvestment IncomeReduction in ProvisionDiscount (Net)

3.16.

301,800

12,000100

2,100

– ExpensesDistributionAdvertisingVan Depreciation

AdministrationSalaries and General ExpensesDirectors’ FeesRentAmount Written off GoodwillFinancialDebenture Interest

4.15.

7.

2.

5.

3,25013,750

88,70011,0008,6002,500

8,400

17,000

110,800

316,000

8,400(136,200)


179,800(15,000)

Profit after Taxation– DividendsOrdinary – Paid– ProposedPreference – Paid– Proposed

13.12.

19,50052,5005,5005,500

164,800

(83,000)Retained Profits– Profit and Loss Balance from last year

81,800(6,400)


Solutions

81


Fixed Assets Cost Depr ValueBuildings 10. 406,000 – 406,000Delivery Vans 15. 140,000 43,750 96,250


632,250Current AssetsClosing Stock 1. 42,900Debtors 6. 27,000– Provision for Bad Debts 16. (1,350) 25,650Investment Income Due 3. 9,000Insurance Claim Due 11. 25,000

102,550– Current LiabilitiesCreditors 9. 42,100Bank 18,000Debenture Interest Due 5. 6,300Preference Dividends Due 12. 5,500Ordinary Dividends Due 13. 52,500Taxation Due 14. 15,000

(139,400)(36,850)


850,000 450,000 450,000ReservesProfit and Loss Account 75,400Long Term Liabilities12% Debentures 70,000

595,400


82


Notes

(A) Investment Income = €160,000 @ 12% = €192,200 (€5,300 due)(B) Debenture Interest = €80,000 @ 11% for 1 year = €8,800

€20,000 @ 11% for 3/4 year = €1,650 €10,450 (€8,250 due)




1. Closing Stock 36,900 – 2,000 34,900 – 34,9002. Goodwill 8,800 + 6,400 – 3,800 – 3,800 11,4003. Investment Income 6,400 + 7,500 + 5,300 (A) – 19,200 5,3004. Advertising 4,400 – 200 – 300 + 150 –2,500 – 1,550 –5. Debenture Interest 2,000 + 200 + 8250 (B) – 10,450 8,2506. Creditors 31,100 – 300 – – 30,8007. Sales 932,000 + 150 932,150 – –8. Directors Fees 24,500 + 2,500 – 27,000 –9. Bank (17,000) + 7,500 – 300 – 1,740 – 1,200 – – 12,740

10. Debtors 26,400 + 300 – – 26,70011. Rent 8,700 + 1,740 – 10,440 –12. Salaries and General Expenses 99,800 + 1,200 – 101,000 –13. Preference Dividend Proposed 9,000 – 9,000 9,00014. Ordinary Dividend Proposed – 4,000 4,00015. Provision for Bad Debts 1,600 – 265 – 265 1,33516. Corporation Tax 2,000 – 2,000 2,00017. General Reserve 4,000 – 4,000 4,00018. Van Depreciation 38,000 + 28,000 – 28,000 66,000

Solutions

83

(a) Trading and Profit and Loss Account for the year ended 31/12/-9 (€)Sales 7. 932,150Less Cost of SalesOpening Stock 31,700+ Purchases 751,000

782,700– Closing Stock 1. (34,900)

(747,800)Gross Profit 184,350+ IncomeDiscount (Net) 2,700Investment Income 3. 19,200Provision for Bad Debts Decrease 15. 265

206,515– ExpensesDistributionVan Depreciation 18. 28,000 Advertising 4. 1,550

29,550AdministrationAmount Written off Goodwill 2. 3,800Directors’ Fees 8. 27,000Rent 11. 10,440Salaries and General Expenses 12. 101,000


10,450(182,240)

Net Profit before Taxation 24,275Taxation (2,000)Profit after Taxation 22,275Transfer to General reserve 17. (4,000)Retained Profits 18,275– DividendsOrdinary – Paid 22,500– Proposed 4,000 14. (26,500)Preference – Paid 4,500– Proposed 9,000 13. (13,500)Retained Profits (21,725)+ Profit and Loss Balance from last year 25,900Profit and Loss Balance to next year 4,175


84


Fixed Assets Cost Depr. ValueBuildings 414,000 – 414,000Delivery Vans 18. 140,000 66,000 74,000

554,000 66,000 488,000Goodwill 2. 11,40012% Investments 160,000

659,400Current AssetsClosing Stock 1. 34,900Debtors 10. 26,700– Provision for Bad Debts 15. (1,335) 25,365Investment Income Due 3. 5,300

65,565– Current LiabilitiesCreditors 6. 30,800Bank 9. 12,740Debenture Interest Due 5. 8,250Preference Dividends Due 13. 9,000Ordinary Dividends Due 14. 4,000Taxation Due 16. 2,000

(66,790)(1,225)


900,000 550,000 550,000ReservesGeneral Reserve 17. 4,000Profit and Loss Account 4,175


658,175

Solutions

85





BalanceSheet

1. Closing Stock 42,600 – 2,000 + 4,000 – 8,000 36,600 – 36,6002. Goodwill 12,400 + 3,600 – 3,200 – 3,200 12,8003. Investment Income 3,600 + 10,800 – 14,400 10,8004. Sales 875,100 – 6,000 869,100 – –5. Debtors 45,900 – 6,000 – – 39,9006. Purchases 660,000 – 8,000 – 6,000 – 25,500 620,500 – –7. Creditors 43,300 – 8,000 – – 35,3008. Buildings 451,000 – 20,000 + 9,500 + 25,500 – – 466,0009. Salaries and General Expenses 99,800 – 9,500 – 90,300 –

10. Insurance Claim Due 26,000 – – 26,00011. Preference Dividend Proposed 10,000 – 10,000 10,00012. Ordinary Dividend Proposed 40,000 – 40,000 40,00013. Debenture Interest 2,400 + 4,800 – 7,200 4,80014. Corporation Tax 30,000 – 30,000 30,00015. Provision for Bad Debts 1,600 + 395 – 395 1,99516. Van Depreciation 45,000 + 19,000 – 19,000 64,000

(a) Trading and Profit and Loss Account for the year ended 31/12/-9 (€)SalesLess Cost of SalesOpening Stock+ Purchases

4.

6.37,600

620,500

869,100

– Closing Stock 1.658,100(36,600)

(621,500)Gross Profit+ IncomeInvestment IncomeDiscount (Net)

3.

247,600

14,4005,400

– ExpensesDistributionDepreciation on Van Advertising

AdministrationSalaries and General ExpensesRentAmount Written off GoodwillDirectors FeesAudit FeesProvision for Bad Debts Increase


16.

9.

2.

16.

13.

19,0007,500

90,3004,8003,200

24,0005,000

395

7,200

26,500

127,695

267,400

7,200(161,395)

Net Profit before TaxationLess Taxation

106,005(30,000)

Profit after Taxation– DividendsOrdinary – Paid– Proposed 12.

14,00040,000

76,005

(54,000)Preference – Paid– Proposed 11.

10,00010,000 (20,000)

Retained Profits– Profit and Loss Balance from last year

2,005(8,600)

= Profit and Loss Balance to next year (6,595)


86


Fixed Assets Cost Depr ValueBuildings 8. 466,000 – 466,000Delivery Vans 16. 140,000 64,000 76,000

606,000 64,000 542,000Goodwill 2. 12,8009% Investments 160,000

714,800Current AssetsClosing Stock 1. 36,600Debtors 5. 39,900– Provision for Bad Debts 15. (1,995) 37,905Investment Income Due 3. 10,800Insurance Claim Due 10. 26,000VAT 4,300

115,605– Current LiabilitiesCreditors 7. 35,300Preference Dividends Proposed 11. 10,000Ordinary Dividends Proposed 12. 40,000Debenture Interest Due 13. 4,800Taxation Due 14. 30,000Bank 22,000PAYE 4,900

(147,000)(31,395)


900,000 600,000 600,000ReservesProfit and Loss Account (6,595)Long Term Liabilities8% Debentures 90,000

683,405

Solutions

87


Notes

(A) Debenture Interest = €120,000 at 8% for 1 year = 9,600€60,000 at 8% for 3/4 year = 3,600

€13,200 (€10,800 due)




BalanceSheet

1. Closing Stock 50,000 – 2,000 48,000 – 48,0002. Goodwill 12,000 + 4,800 – 8,400 – 8,400 8,4003. Investment Income 4,800 + 9,600 – 14,400 –4. Patents 20,000 – 4,000 – 4,000 16,0005. Advertising 6,000 + 400 – 200 + 180 – 6,380 –6. Debenture Interest 2,800 – 400 + 10,800 (A) – 13,200 10,8007. Creditors 35,400 – 200 – – 35,2008. Rent 17,000 – 180 – 340 – 16,480 3409. Van Depreciation 66,000 + 32,400 – 32,400 98,400

10. Bank (16,000) + 9,600 + 1,500 – – 4,90011. Debtors 31,500 – 1,500 – 5,000 – – 25,00012. Bad Debts 5,000 – 5,000 –13. Preference Dividend Proposed 6,000 – 6,000 6,00014. Ordinary Dividend Proposed 15,000 – 15,000 15,00015. Corporation Tax 40,000 – 40,000 40,00016. Provision for Bad Debts 1,600 – 350 – 350 1,250


88

(a) Trading and Profit and Loss Account for the year ended 31/12/-0 (€)Sales 906,000Less Cost of SalesOpening Stock 30,000+ Purchases 595,000

625,000– Closing Stock 1. (48,000)

577,000Gross Profit 329,000+ IncomeInvestment Income 3. 14,000Provision for Bad Debts Decrease 16. 350Patent Royalties 3,000

346,750– ExpensesDistributionAdvertising 5. 6,380Van Depreciation 9. 32,400

38,780AdministrationGoodwill Written off 2. 8,400Patents Written off 4. 4,000Rent 8. 16,480Bad Debts 12. 5,000Salaries and General Expenses 102,000Directors’ Fees 40,000Audit Fees 6,000


13,200(233,860)

Net Profit before Taxation 112,890Taxation 15. (40,000)Profit after Taxation 72,890– DividendsOrdinary – Paid 30,000– Proposed 14. 15,000 (45,000)Preference – Paid 2,000– Proposed 13. 6,000 (8,000)Retained Profits 19,890+ Profit and Loss Balance from last year 19,300= Profit and Loss Balance to next year 39,190

Solutions

89



562,000 98,400 463,600Goodwill 2. 8,400Patents 4. 16,0009% Investments 160,000

648,000Current AssetsClosing Stock 1. 48,000Debtors 11. 25,000– Provision for Bad Debts 16. (1,250) 23,750Rent Prepaid 8. 340

72,090– Current LiabilitiesCreditors 7. 35,200Debenture Interest Due 6. 10,800Bank 10. 4,900Preference Dividend Due 13. 6,000Ordinary Dividend Due 14. 15,000Taxation 15. 40,000VAT 5,600PAYE/PRSI 3,400

(120,900)(48,810)


1,000,000 380,000 380,000ReservesProfit and Loss Account 39,190Long Term Liabilities8% Debentures 180,000

599,190


90


Notes

(A) Debenture Interest€30,000 at 8% for 1 year = 2,400€40,000 at 8% for 3/4 year = 2,400

€4,800 (All due)




BalanceSheet

1. Closing Stock 62,000 – 2,000 60,000 – 60,0002. Purchases 670,000 – 25,000 – 4,000 641,000 – –3. Buildings 400,000 + 25,000 + 75,000 – – 500,0004. Van Depreciation 60,000 + 21,000 – 21,000 81,0005. Buildings Depreciation 100,000 + 8,500 – 108,500 – 8,500 –6. Revaluation Reserve 75,000 + 108,500 – – 183,5007. Insurance Claim 3,000 – – 3,0008. Loss by Fire 1,000 – 1,000 –9. Bank 106,200 – 28,000 – – 78,200

10. Patents 28,000 – 2,800 – 2,800 25,20011. Preference Dividend Proposed 12,000 – 12,000 12,00012. Debenture Interest 4,800 (A) – 4,800 4,80013. Ordinary Dividend Proposed 35,000 – 35,000 35,00014. Corporation Tax 30,000 – 30,000 30,00015. Goodwill 180,000 – 12,000 – 12,000 168,00016. Provision for Bad Debts 1,400 – 85 – 85 1,315

Solutions

91

(a) Trading and Profit and Loss Account for the year ended 31/12/-1 (€)Sales 960,000Less Cost of SalesOpening Stock 49,000+ Purchases 2. 641,000

690,000– Closing Stock 1. (60,000)

(630,000)Gross Profit 330,000+ IncomeRent Received 3,560Provision for Bad Debts Decrease 16. 85Discount (Net) 3,800

337,445– ExpensesDistributionVan Depreciation 4. 21,000Carriage Out 8,000

29,000AdministrationBuildings Depreciation 5. 8,500Fire Loss 8. 1,000Patents Amortised 10. 2,800Goodwill Written off 15. 12,000Salaries and General Expenses 92,000Directors’ Fees 21,500


4,800(171,600)

Net Profit before Taxation 165,845Taxation (30,000)Profit after Taxation 135,845– DividendsOrdinary – Paid 25,000– Proposed 13. 35,000 (60,000)Preference – Paid –– Proposed 11. 12,000 (12,000)Retained Profits 63,845+ Profit and Loss Balance from last year 8,140Profit and Loss Balance to next year 71,985


92

(b) Balance Sheet as at 31/12/-1 € € €


770,000 81,000 689,000Goodwill 15. 168,000Patents 10. 25,200

882,200Current AssetsClosing Stock 1. 60,000Debtors 26,300– Provision for Bad Debts 16. (1,315) 24,985Insurance Claim Due 3,000Bank 78,200

166,185– Current LiabilitiesCreditors 27,100Preference Dividend Due 11. 12,000Debenture Interest Due 12. 4,800Ordinary Dividend Due 13. 35,000Taxation Due 14. 30,000VAT 2,100PAYE/PRSI 3,900

(114,900)51,285

933,485Financed ByShare Capital Auth. Issued Paid-Up€1 Ordinary Shares 700,000 400,000 400,000€1 8% Preference Shares 300,000 150,000 150,000

1,000,000 550,000 550,000ReservesRevaluation Reserve 6. 183,500Share Premium 8,000Debenture Redemption Reserve 50,000Profit and Loss Account 71,985


933,485

Solutions

93


Notes

(A) Debenture Interest €60,000 at 10% for one year = €6,000 (€4,500 due)

(B) Depreciation to Date of Disposal on 31/5/-7

1/2/-3 31/5/-7 = 41/3 years at 121/2% of €12,000 = €6,500

(C) Annual Depreciation Charge for the year ended 31/12/-7(i) Van Sold - 5/12 year at 121/2% of €12,000 = €625(ii) Van Bought - 7/12 year at 121/2% of €16,800 = €1,225(iii) Remaining Vans – 1 year at 121/2% of (€120,000 – €12,000) = €13,500

Total = €15,350




Balance Sheet

1. Closing Stock 45,000 – 400 – 700 – 8,800 35,100 – 35,1002. Salaries and General Expenses 79,000 – 400 – 700 – 1,500 76,400 1,1003. Purchases 712,000 – 8,800 – 500 – 11,800 690,900 – –4. Creditors 24,000 – 8,800 – – 15,2005. Delivery Van Expenses 18,000 + 1,500 + 500 – 20,000 –6. Rent 3,000 – 150 + 200 – 3,050 –7. Debenture Interest 1,350 + 150 + 4,500 (A) 6,000 4,5008. Bad Debt Recovered 200 – 200 –9. Van 120,000 – 12,000 + 5,000 + 11,800 – – 124,800

10. Van Depreciation 20,000 – 6,500 (B) + 15,350 (C) – 15,350 28,85011. Van Disposal 12,000 – 6,500 – 5,000 – 500 –12. Preference Dividend Proposed 9,000 – 9,000 9,00013. Ordinary Dividend Proposed 22,500 – 22,500 22,50014. Corporation Tax 3,000 – 3,000 3,00015. Goodwill 180,000 – 12,000 – 12,000 168,00016. Provision for Bad Debts 1,100 + 765 – 765 1,865

→


94

(a) Trading and Profit and Loss Account for the year ended 31/12/-7 (€)Sales 880,000Less Cost of SalesOpening Stock 40,000+ Purchases 3. 690,900

730,900– Closing Stock (35,100)

(695,800)Gross Profit 184,200+ IncomeBad Debt Recovered 8. 200

184,400– ExpensesDistributionDelivery Van Expenses 5. 20,000Van Depreciation 10. 15,350Loss on Van Disposal 11. 500Advertising 1,650

37,500AdministrationSalaries and Gen. Expenses 2. 76,400Rent 6. 3,050Goodwill Written off 15. 12,000Provision for Bad Debts Increase 16. 765Discount (Net) 1,500Audit Fees 4,000Directors’ Fees 8,000


6,000(149,215)

Net Profit before Taxation 35,185Taxation (3,000)Profit after Taxation 32,185– DividendsOrdinary – Paid 25,600– Proposed 22,500 (48,100)Preference – Paid 3,000– Proposed 9,000 (12,000)Retained Profit (27,915)+ Profit and Loss Balance from last year 30,000Profit and Loss Balance to next year 2,085

Solutions

95


Fixed Assets Cost Depr. ValueLand and Buildings 450,000 100,000 350,000Delivery Vans 9.10. 124,800 28,850 95,950

574,800 128,850 445,950Goodwill 15. 168,000

613,950Current AssetsClosing Stock 1. 35,100Debtors 37,300– Provision for Bad Debts (1,865) 35,435Stock of Stationery 2. 400Stock of Fuel 2. 700

71,635– Current LiabilitiesCreditors 4. 15,200Debenture Interest Due 7. 4,500Preference Dividend Due 12. 9,000Ordinary Dividend Due 13. 22,500Taxation Due 14. 3,000VAT 2,800PAYE/PRSI 4,200Bank 300

(61,500)10,135


600,000 550,000 550,000ReservesShare Premium 12,000Profit and Loss Account 2,085


624,085

96

Manufacturing Accounts: Solutions16QUESTION 16.1

Clinical Instruments Ltd

QUESTION 16.2Bracken Fencing Ltd

Manufacturing Account for the year ended 31/12/-2 (€)Opening Stock Raw Materials 16,000

+ Purchases Raw Materials 112,000128,000

– Closing Stock Raw Materials (19,000)Cost of Raw Materials Used 109,000+ Direct Costs

Factory Wages 62,000Hire of Special Equipment 12,000

74,000Prime Cost 183,000+ Indirect Costs

Factory Insurance 8,000Factory Light and Heat 9,000Depreciation on Plant and Machinery 6,000Supervisors’ Salaries 18,000Opening Stock WIP 10,000Closing Stock WIP (8,000)

43,000Cost of Production 226,000


+ Purchases Raw Materials 211,000– Returns Out (4,000)

207,000219,000

– Closing Stock Raw Materials (13,000)Cost of Materials Used 206,000+ Direct Costs

Royalty Fees 9,000Manufacturing Wages 94,000


Factory Rent 7,000Factory Supervisor’s Salary 30,000Depreciation on Plant and Machinery 12,000Factory Light and Heat 7,000Factory Insurance 8,000Factory Rates 6,000Repairs to Plant and Machinery 5,000Opening Stock WIP 18,000Closing Stock WIP (16,000)


Solutions

97

QUESTION 16.3

Curtis Cables Ltd


+ Purchases Raw Materials 316,000– Returns Out (4,000)

312,000+ Carriage In 2,000

336,000– Closing Stock Raw Materials (24,000)

Cost of Raw Materials Used 312,000+ Direct Costs

Factory Direct Wages 125,000Prime Cost 437,000+ Indirect Costs

Depreciation on Plant and Machinery 13,000Depreciation on Factory Buildings 6,000Factory Indirect Wages 24,000Factory Insurance 12,000Factory Rent and Rates 8,000Factory Light and Heat 17,000Opening Stock Work in Progress 15,000Closing Stock Work in Progress (17,000)


Trading Account for the Year Ended 31/12/-4 (€)Sales of Finished Goods 728,000

Less Cost of SalesOpening Stock Finished Goods 17,000

+ Cost of Production 515,000532,000

– Closing Stock Finished Goods (21,000)(511,000)

Gross Profit 217,000


98

QUESTION 16.4

Clemence Tiles Ltd

Manufacturing Account for the year ended 31/12/-6 Opening Stock Raw Materials 12,000

+ Purchases Raw Materials 285,000+ Carriage In 3,000+ Customs Duty 13,000



Factory Direct Wages 120,000Hire of Special Equipment 10,000Royalty Fees 12,000


Factory Light and Heat 8,000Factory Supervisor’s Salary 25,000Depreciation on Plant and Machinery 20,000Depreciation on Factory Buildings 2,000Factory Insurance 8,000Opening Stock WIP 24,000Closing Stock WIP (25,000)

62,000501,000

– Sales of Scrap Materials (13,000)Cost of Production 488,000

Trading Account for the Year Ended 31/12/-6 (€)Sales of Finished Goods 627,000


+ Cost of Production 488,000499,000

– Closing Stock Finished Goods (9,000)(490,000)


Solutions

99

QUESTION 16.5

Barlow Engineering Limited

QUESTION 16.6

Polymer Fabrications LtdSchedule of Adjustments (€)


+ Purchases Raw Materials 97,000+ Carriage In 7,200



Factory Wages 51,000Prime Cost 153,000+ Indirect Costs

Depreciation on Plant and Machinery 10,000Factory Rent 19,100Factory Insurance 7,300Factory Rates 3,400Indirect Wages 11,500Indirect Materials 17,700Opening Stock WIP 19,000Closing Stock WIP (15,000)

73,000226,000


Gross Manufacturing Profit 10,500Current Market Value 230,000

Trading Account for the year ended 31/12/-8 (€)Sales of Finished Goods 272,400


+ Current Market Value 230,000241,000

– Closing Stock Finished Goods (14,100)226,900

Gross Trading Profit 45,500Gross Manufacturing Profit 10,500

Total Gross Profit 56,000

Adjustments

Trading/Manufacturing

Account

Profit and LossAccount

Balance Sheet

1. Carriage 6,000 4,500 1,500 –2. Wages 48,000 32,000 16,000 –3. Insurance 5,000 4,000 1,000 –4. Rates 2,000 1,600 400 –5. Debenture Interest 7200 – 7,200 7,2006. P+M Depreciation 10,000+4,500 20,000 – 60,0007. Office Equipment Depreciation 10,000+4,500 4,500 14,5008. Advertising 5,000–1,250 3,750 1,250


100

(a) Manufacturing Account for the year ended 31/12/-3 (€)

++

Opening Stock Raw MaterialsPurchases Raw MaterialsCarriage In 1.

27,000230,000 4,500

– Closing Stock Raw Materials261,500 (31,000)

+Cost of Raw Materials UsedDirect CostsDirect WagesHire of Special Equipment

2. 32,00010,000

230,500

42,000

+Prime Cost

Indirect CostsFactory InsuranceFactory RatesP+M DepreciationFactory Light and HeatOpening Stock WIPClosing Stock WIP

3.4.6.

4,0001,600

20,0006,000

14,000(18,000)

272,500

27,600

– Sales of Scrap Materials300,100 (6,600)

Cost of ProductionGross Manufacturing Loss

293,500(43,500)

Current Market Value 250,000

(b) Trading and Profit and Loss Account for the year ended 31/12/-3 (€)

+

Sales of Finished GoodsLess Cost of SalesOpening Stock Finished GoodsCurrent Market Value

12,000250,000

340,000

– Closing Stock Finished Goods262,000(14,000)

(248,000)

–Gross Trading ProfitGross Manufacturing Loss

92,000 (43,500)

+Total Gross Profit

IncomeRent Received

48,500

5,000

– ExpensesDistributionCarriage OutAdvertisingShowroom Expenses

1.8.

1,5003,750

3,000

53,500

AdministrationAdministration WagesOffice InsuranceOffice RatesEquipment DepreciationDiscount AllowedStationeryDirectors Fees

2.3.4.7.

16,0001,000

4004,5002,900

80030,000

8,250


5.

7,200

55,600

7,200(71,050)

+Net Profit Before TaxationProfit and Loss Balance from last year

(17,550)4,500

= Profit and Loss Balance to next year (13,050)

Solutions

101

(d) The company should cease production and concentrate on retailing only, as its trading profit would be€92,000 if it bought in finished goods at current market value of €250,000


O’Hara Extrusions LtdSchedule of Adjustments (€)

(c) Balance Sheet as at 31/12/-3 € € €

Fixed Assets Cost Depr Value BuildingsPlant And MachineryOffice Equipment

6.7.

190,000140,000 30,000

– 60,000 14,500

190,00080,000 15,500

360,000 74,500 285,500Goodwill 25,000

–

Current AssetsClosing Stocks – Raw Materials

– Work-in-Progress– Finished Goods

DebtorsProvision for Bad Debts

18,0001,000

31,00018,00014,000

17,000

310,500

Advertising Prepaid VAT

8. 1,250 700

– Current LiabilitiesCreditorsPAYE / PRSIBankDebenture Interest Due 5.

81,950

26,000800

11,500 7,200

(45,500) 36,450

Total Assets less Current Liabilities 346,950Financed By

Share Capital Auth Issued Paid-up€1 Ordinary Shares 450,000 300,000 300,000

ReservesProfit and Loss Account

Long-Term Liabilities12% Debenture

(13,050)

60,000 346,950

Adjustments Trading/Manufacturing

Account


Balance Sheet

1. Bank (2,000)+2,500+120+660 – – 1,2802. Creditors 14,000+2500 – – 16,5003. Debtors 28,000–120–180 – – 27,7004. Bad Debts 180 – 180 –5. Investment Income 1,320+660 – 1,980 –6. P+M Depreciation 40,000+36,000 36,000 – 76,0007. Office Equip. Depreciation 30,000+6,000 – 6,000 36,0008. Buildings Depreciation 80,000+15,000 8,250 6,750 95,0009. Preference Dividend Proposed 9,000 – 9,000 9,000

10. Ordinary Dividend Proposed 10,000 – 10,000 10,00011. Corporation Tax – 45,000 45,00012. Debenture Interest 6,000 – 6,000 6,00013. Provision for Bad Debts 1,500–115 – 115 1,385


102


+Opening Stock Raw MaterialsPurchases Raw Materials

28,000184,000

– Closing Stock Raw Materials212,000(29,000)

+Cost of Raw Materials UsedDirect CostsManufacturing WagesHire of Special EquipmentOpening Stock WIPClosing Stock WIP

42,00014,00032,000(34,000)

183,000

54,000

+Prime CostIndirect CostsDepreciation on Plant and MachineryFactory Buildings DepreciationFactory Light and HeatFactory InsuranceFactory Supervisor’s Salary

6.8.

36,0008,2501,8002,700

22,000

237,000

70,750


Cost of ProductionGross Manufacturing Profit

304,950 45,050

Current Market Value 350,000

Trading Account for the year ended 31/12/-2 (€)

+

Sales of Finished GoodsLess Cost of SalesOpening Stock Finished GoodsCurrent Market Value

37,000350,000

466,680

– Closing Stock Finished Goods387,000(36,000)

(351,000)

+Gross Trading ProfitGross Manufacturing Profit

115,680 45,050

Total Gross Profit 160,730+ Income

Investment IncomeReduction in Provision

5.13.

1,980 115 2,095

– ExpensesDistributionDistribution ExpensesAdministrationAdministration ExpensesBad DebtsOffice EquipmentOffice Buildings Depreciation

7.8.

2,800180

6,000 6,750

8,400

162,825


40,930

6,000 (55,330)

Net Profit Before TaxationTaxation

107,495 (45,000)

–Profit After TaxationDividendsOrdinary – Paid

– ProposedPreference – Paid

– Proposed

10.–

–10,000

9,000

62,495

(10,000)

(9,000)

+Retained Profits

Profit and Loss Balance from last year43,495

20,000Profit and Loss Balance to next year 63,495

Solutions

103


Fixed Assets Cost Depr Value Buildings 8. 300,000 95,000 205,000Plant and Machinery 6. 220,000 76,000 144,000Office Equipment 7. 60,000 36,020 24,000


432,000Current AssetsClosing Stocks – Raw Materials 29,000

– Work-in-Progress 34,000– Finished Goods 36,000

Debtors 3. 27,700– Provision for Bad Debts 13. (1,385) 26,315

Bank 1. 1,280VAT 1,400

127,995– Current Liabilities

Creditors 2. 16,500Preference Dividend Due 9. 9,000Ordinary Dividend Due 10. 10,000Taxation Due 11. 45,000Debenture Interest Due 12. 6,000PAYE/PRSI 10,000

(96,500)31,495

Total Assets Less Current Liabilities 463,495Financed byShare Capital Auth Issued Paid-up€1 Ordinary Shares 300,000 200,000 200,000€1 9% Preference Shares 200,000 100,000 100,000


113,495Long-Term Liabilities12% Debenture 50,000

463,495


104


Boxel Plastics Ltd



Account


Balance Sheet

1. Sales of Scrap 6,500–4,000 2,500 – –2. Office Equipment 63,000–6,000 – – 57,0003. Office Equipment Depreciation 26,000–1,650+6,300 – 6,300 30,6504. Disposal 6,000–1,650–4,000 – 350 –5. Land and Building Depreciation 100,000+15,000–115,000 15,000 – –6. Plant and Machinery Depreciation 60,000+40,000 40,000 – 100,0007. Rent Recd. 6,000–200+7,000+5,000–8,000 – 9,800 –8. Debenture Interest Paid 4,700–200+4,500 – 9,000 4,5009. Debtors 30,000+7,000 – – 37,000

10. Purchases Finished Goods 5,000 5,000 – –11. VAT 3,000+8,000 – – 11,00012. Land and Buildings 400,000+200,000 – – 600,00013. Revaluation Reserve 200,000+115,000 – – 315,00014. Preference Dividend Proposed 4,500 – 4,500 4,50015. Ordinary Dividend Proposed 9,500 – 9,500 9,50016. Corporation Tax – 1,500 1,50017. Provision for Bad Debts 900+950 – 950 185018. General Reserve 28,000–20,000 – 20,000 8,000

(a) Manufacturing Accounts for the year ended 31/12/-3 (€)Opening Stock Raw Materials 22,000

+ Purchases Raw Materials 170,000192,000

– Closing Stock Raw Materials (24,000)Cost of Raw Materials Used 168,000+ Direct Costs

Manufacturing Wages 80,500Hire of Special Equipment 3,100

83,600Prime Cost 251,600

+ Indirect CostsLand and Buildings Depreciation 5. 15,000Plant and Machinery Depreciation 6. 40,000Factory Supervisor’s Salary 10,000Factory General Expenses 4,400Opening Stock WIP 13,500Closing Stock WIP (14,000)

68,900320,500


Solutions

105

Trading and Profit and Loss Account for the year ended 31/12/-3 (€)Sales of Finished Goods 360,000

Less Cost of SalesOpening Stock Finished Goods 21,000Cost of Production 318,000Purchases of Finished Goods 10. 5,000

344,000– Closing Stock Finished Goods (23,000)

(321,000)Gross Profit 39,000

+ IncomeRent Received 7. 9,800

48,800– Expenses

DistributionDistribution Expenses 11,200

AdministrationAdministration Expenses 13,700Depreciation Office Equipment 3. 6,300Loss on Disposal 4. 350Increase in Provision for Bad Debts 17. 950


9,000(41,500)

Net Profit Before Taxation 7,300Taxation 16. (1,500)Profits After Taxation 5,800

+ Transfer from General Reserve 18. 20,000 25,800

Ordinary – Paid 18,500– Proposed 15. 9,500 (28,000)

Preference – Paid 1,500– Proposed 14. 4,500 (6,000)Retained Profits (8,200)

+ Profit and Loss Balance from last year 10,500Profit and Loss Balance to next year 2,300


106


Fixed Assets Cost Depr Value Land and Buildings 5.12. 600,000 – 600,000Plant and Machinery 6. 260,000 100,000 160,000Office Equipment 2.3. 57,000 30,650 26,350

917,000 130,650 786,350Current AssetsClosing Stocks – Raw Materials 24,000

– Work-in-Progress 14,000– Finished Goods 23,000

Debtors 9. 37,000– Provision for Bad Debts 17. (1,850) 35,150


Creditors 44,700Bank 9,000Debenture Interest Due 8. 4,500VAT 11. 11,000Preference Dividend Due 14. 4,500Ordinary Dividend Due 15. 1,500Taxation Due 16. 1,500PAYE / PRSI 2,500

(87,200) 8,950

Total Assets Less Current Liabilities 795,300Financed byShare Capital Auth Issued Paid-up

€1 Ordinary Shares 400,000 280,000 280,000€1 6% Preference Shares 200,000 100,000 100,000

600,000 380,000 380,000Reserves

General Reserve 18. 8,000Revaluation Reserve 13. 315,000Profit and Loss Account 2,300

325,300Long-Term Liabilities10% Debentures 90,000

795,300

Solutions

107

QUESTION 16.9

Cameron Engineering Ltd.Schedule of Adjustments (€)

Notes

A Depreciation to Date of Sale1/2/-1 → 31/ /-4 = 3 1/6 yrs. at 20% of €12,000 =7,600

B Annual Depreciation ChargeVan sold – 1/4 year at 20% of €12,000 = 600Van bought – 3/4 year at 20%of €30,000 = 4,500Remaining vans – 1 year at 20% of €30,000 = 9,600

Total =14,700


Account

Profitand LossAccount

Balance Sheet

1. Closing Stock Finished Goods 14,000 – 2,400 11,600 – 11,6002. Goodwill 11,500 + 1800 – 2660 – 2,660 10,6403. Vans 60,000 – 12,000 + 6,000 + 24,000 – – 78,000

4. Van Depreciation 21,000 – 7,600A + 14,700B – 14,700 28,100

5. Disposal 12,000 – 7,600 – 6,000 – 1,600 –6. Purchases 100,000 – 24,000 – 7,000 – 7,000 62,000 – –7. Buildings 295,000 – 30,000 + 18,000 + 7,000 – – 290,0008. Manufacturing Wages 67,000 – 18,000 49,000 – –9. Insurance Claim Due 35,000 – – 35,000

10. Loss by Fire 2,000 – 2,00011. Preference Dividend Proposed 5,000 – 5,000 5,00012. Ordinary Dividend Proposed 5,000 – 5,000 5,00013. Investment Income 1,800 + 5,400 – 7,200 5,40014. Administration Expenses 14,900 – 2,400 – 12,500 –15. Debenture Interest 2,400 + 7,200 – 9,600 7,20016. Provision for Bad Debts 700 + 750 – 750 1,45017. Plan and Mach. Depr. 25,000 + 10,000 10,000 – 35,00018. Corporation Tax – 50,000 50,000


108


+Opening Stock Raw MaterialsPurchases Raw Materials 6.

12,00062,000

– Closing Stock Raw Materials (15,000)74,000

Cost of Raw Materials UsedDirect CostsManufacturing WagesDirect Factory ExpensesOpening Stock WIPClosing Stock WIP

8. 49,00014,60020,000

(25,000)

59,000

58,600Prime Cost 117,600

+ Indirect ExpensesDepreciation on Plant and MachineryIndirect Factory Expenses

17. 10,000 4,800

14,800


Cost of Production 128,100

Trading and Profit and Loss Account for the year ended 31/12/-4 (€)Sales of Finished Goods

Less Cost of SalesOpening Stock Finished GoodsCost of ProductionPurchases of Finished Goods

11,000128,100 6,000

379,000

– Closing Stock Finished Goods 1.145,100(11,600)

(133,500)Gross Profit 245,500

+ IncomeProfit on DisposalInvestment IncomeDiscount (Net)

5.13.

1,6007,200

600

– ExpensesDistributionDistribution ExpensesVan Depreciation 4.

8,730 14,700

254,900

AdministrationAdministration ExpensesAmount Written off GoodwillLoss by FireProvision for Bad Debts

14.2.

10.16.

12,5002,6602,000

750

23,430


17,910

9,600(50,940)

Net Profit Before TaxationTaxation

203,960(50,000)

–

Profits After Taxation

DividendsOrdinary – Paid

– Proposed 12.10,000 5,000 (15,000)

153,960

Preference – Paid– Proposed 11.

5,000 5,000 (10,000) (25,000)

Retained ProfitsProfit and Loss Balance from last year

128,96020,900


Solutions

109

(b) Balance Sheet at 31/12/-4 € € €

Fixed Assets Cost Depr Value Buildings 7. 290,000 – 290,000Plant and Machinery 17. 100,000 35,000 65,000Delivery Vans 3.4. 78,000 28,100 49,900

486,000 63,100 404,900Goodwill 2. 10,64016% Investment 45,000

460,540Current AssetsClosing Stock – Raw Materials 15,000

– Work-in-Progress 25,000– Finished Goods 1. 11,600

Debtors 29,000– Provision for Bad Debts 16. (1,450) 27,550

Insurance Claim Due 9. 35,000Investment Income Due 13. 5,400


Creditors 47,000Bank 10,030VAT 6,000PAYE/ PRSI 3,000Preference Dividend Due 11. 5,000Ordinary Dividend Due 12. 5,000Debenture Interest Due 15. 7,200Taxation Due 18. 50,000

(133,230)(13,680)

Total Assets Less Current Liabilities 446,860

Financed byShare Capital Auth Issued Paid-up€1 Ordinary Shares 200,000 100,000 100,000€1 10% Preference Shares 200,000 100,000 100,000

400,000 200,000 200,000Reserves

General Reserve 17,000Profit and Loss Account 149,860

166,860Long-Term Liabilities12% Debenture 80,000

446,860

(c) Unit Cost of ProductionProduction

+Opening StockProduction commenced

26307

– Closing Stock333(33)

= Units Produced 300

Unit Cost = = €427Cost of ProductionNumber of Units Produced------------------------------------------------------------- 128,100

300-------------------=


110

QUESTION 16.10

Garfield Pumps Ltd



Account

Profit andLoss

Account

Balance Sheet

1. Purchases Raw Materials 270,000+5,600 275,600 – –2. Creditors 24,200+5,600 – – 29,8003. Stock Raw Materials 17,500+5,600 23,100 – 23,1004. Sales Finished Goods 495,000–10,000 485,000 – –5. Debtors 22,800–10,000 – – 12,8006. Stock Finished Goods 18,200+8,000 26,200 – 26,2007. Plant and Machinery 160,000–8,000 – – 152,0008. Repairs to Plant and Machinery 8,000 8,000 – –9. Rent 6,800+400+3,240–2,250 – 8,190 –

10. Discount 900–400 – 500 –11. Factory Rates 5,000+3,240 8,240 – –12. Preference Dividend 4,500–2,250+2,250 – 4,500 2,25013. Plant and Machinery Depreciation 40,000+30,400 30,400 – 70,40014. Office Furniture Depreciation 6,000+3,000 – 10,000 4,50015. Buildings Depreciation 40,000+10,000 6,000 4,000 50,,00016. Ordinary Dividend 5,500+4,500 – 10,000 4,50017. Debenture Interest 3,250 – 3,250 3,25018. Corporation Tax – 12,000 12,00019. Provision for Bad Debts 400+240 – 240 640

(a) Manufacturing Account for the year ended 31/12/-6 (€)Opening Stock Raw Materials 16,000

+ Purchases Raw Materials 1. 275,600291,600

– Closing Stock Raw Materials 3. (23,100)Cost of Raw Materials Used 268,500+ Direct Costs

Direct Wages 62,000Hire of Special Equipment 13,600Opening Stock WIP 16,000Closing Stock WIP (21,000)

70,600Prime Cost 339,100

+ Indirect CostsFactory Rates 11. 8,240Factory Insurance 8,000Indirect Wages 18,000Depreciation Plant and Machinery 13. 30,400Depreciation Factory Buildings 15. 6,000Repairs Plant and Machinery 8. 8,000Factory Light and Heat 14,100

92,740431,840

– Sales of Scrap (13,500)Cost of Production 418,340

Gross Manufacturing Profit 11,660Current Market Value 430,000

Solutions

111

Trading, Profit and Loss Account for the year ended 31/12/-6 (€)Sales of Finished Goods 4. 485,000

– Cost of SalesOpening Stock Finished Goods 19,400+ Current Market Value 430,000

449,400– Closing Stock Finished Goods 6. (26,200)

(423,200)Gross Trading Profit 61,880

+ Gross Manufacturing Profit 11,660Total Gross Profit 73,460

+ IncomeRent Received 8,190Discount(Net) 500

82,150– Expenses

Distribution 10,900AdministrationExpenses 15,600Depreciation Office Furniture 14. 3,000Depreciation Office Buildings 15. 4,000Provision for Bad Debts 19. 240

22,840Financial

Debenture Interest 17. 3,250 3,250

(36,990)Net Profit Before Taxation 45,160

Taxation (12,000)Profit After Taxation 33,160

– DividendsOrdinary 16. 10,000Preference 12. 4,500

(14,500)Retained Profits 18,660

+ Profit and Lass Balance from last year 13,000Profit and Loss Balance to next year 31,660


112

(b) Balance Sheet at 31/12/-6 € € €

Fixed Assets Cost Depr Value Buildings 15. 200,000 50,000 150,000Plant and Machinery 7.13. 152,000 70,400 81,600Office Furniture 14. 30,000 9,000 21,000

382,000 129,400 252,600Current Assets

Closing Stocks – Raw Materials 3. 23,100– Work-in-Progress 21,000– Finished Goods 6. 26,200

Debtors 5. 12,800Provisions for Bad Debts 19. (640)

12,160 82,460

– Current LiabilitiesCreditors 2. 29,800VAT 4,000Bank 7,600Preference Dividend Due 12. 2,250Ordinary Dividend Due 16. 4,500Debenture Interest Due 17. 3,250Taxation Due 18. 12,000

(63,400) 19,060

Total Assets less Current Liabilities 271,660Financed byShare Capital Auth Issued Paid–up

€1 Ordinary Shares 200,000 100,000 100,000€2 9% Preference Shares 200,000 50,000 50,000

400,000 150,000 150,000Reserves

Revaluation Reserve 25,000Profit and Loss Account 31,660


271,660

113

Departmental Accounts: Solutions17QUESTION 17.1

P. Ganley Ltd

Trading Account for the year ended ... (€)

QUESTION 17.2

T. Printle Ltd

Trading Account for the year ended ... (€)

Grocery Hardware Total Grocery Hardware TotalSales 150,000 275,000 425,000Less Cost of SalesOpening Stock 22,000 31,000 53,000+ Purchases 80,000 110,000 190,000+ Carriage In – 8,000 8,000+ Import Duty 10,000 – 10,000

112,000 149,000 261,000– Closing Stock (19,000) (33,000) (52,000)

(93,000) (116,000) (209,000)Gross Profit 57,000 159,000 216,000

Footwear Sportswear Total Footwear Sportswear TotalSales 56,000 70,000 126,000– Returns In (3,000) (2,000) (5,000)

53,000 68,000 121,000Less Cost of SalesOpening Stock 11,000 25,000 36,000+ Purchases 42,000 49,000 91,000– Returns Out (200) (800) (1,000)+ Carriage In 2,000 5,000 7,000

54,800 78,200 133,000– Closing Stock (9,000) (21,000) (30,000)

(45,800) (57,200) (103,000)7,200 10,800 18,000


114

QUESTION 17.3

Younge Ltd

(a) Trading and Profit and Loss Account for the year ended 31/12/-4Grocery Drapery Total Grocery Drapery Total

Sales 180,000 180,000 360,000Less Cost of SalesOpening Stock 25,000 14,200 39,200+ Purchases 140,000 130,000 270,000

165,000 144,200 309,200– Closing Stock (23,000) (12,500) (35,500)

(142,000) (131,700) (273,700)Gross Profit 38,000 48,300 86,300– ExpensesDistributionTailoring Expenses – 200 200Advertising (Sales 1:1) 650 650 1,300Van Depreciation (Sales 1:1) 9,000 9,000 18,000AdministrationRent and Rates (Fl. Space 4:1) 420 1,680 2,100Stationery (Sales 1:1) 450 450 900Cleaning / Repairs (Fl. Space 4:1) 680 2,720 3,400Insurance (Fl. Space 4:1) 152 608 760Light / Heat (Fl. Space 4:1) 640 2,560 3,200Salaries (Sales 1:1) 20,300 20,300 40,600Equipment Depr. (Fl. Space 4:1) 160 640 800FinancialOverdraft Int. (Sales 1:1) 150 150 300Term Loan Int. (Sales 1:1) 1,850 1,850 3,700

(34,452) (40,808) (75,260)Net Profit 3,548 7,492 11,040+ P+L Balance From Last Year 1,200= P+L Balance To Next Year 12,240

Solutions

115

QUESTION 17.4

Berri Ltd



Fixed Assets Cost Depr. Value

Delivery Vans 72,000 28,000 44,000

Equipment 8,000 2,800 5,200

80,000 30,000 49,200

Goodwill 20,000

69,200

Current Assets

Closing Stock – Grocery 23,000

– Drapery 12,500

Debtors 22,800

– Provision for Bed Debts (200) 22,60058,100

– Current LiabilitiesCreditors 7,600VAT 2,600PAYE / PRSI 1,400Bank 3,460

(15,060)

43,040

Total Assets less Current Liabilities 112,240

Financed By

Share Capital Auth Issued Paid-up

€1 Ordinary Shares 100,000 50,000 50,000

Reserves

Profit and Loss Account 12,240

Long-Term Liabilities

Bank Term Loan 50,000

112,240


Profit / LossAccount

Balance Sheet

1. Van Depreciation 30,000 + 14,000 – 14,000 44,0002. Equipment Depreciation 9,000 + 5,200 – 5,200 14,2003. Debenture Interest 5,600 – 5,600 5,6004. Advertising 2,100 – 700 – 1,400 7005. Stationery 1,800 – 400 – 1,400 400


116

(a) Trading and Profit and Loss Account for the year ended 31/12/-9Footwear Sportswear Total Footwear Sportswear Total

SalesLess Cost of SalesOpening Stock+ Purchases+ Carriage In+ Import Duty

17,500155,000

1,300–

21,500167,000

–1,700

39,000322,000

1,3001,700

210,000 280,000 490,000


190,200(18,500)

364,000(35,500)

(156,800) (171,700) (328,500)Gross Profit+ Income – Equipment Repairs

53,200–

108,300490

161,500490

– ExpensesDistributionAdvertising (Sales 3:4)Van Depreciation (Sales 3:4)AdministrationGeneral Expenses (Sales 3:4)Salaries (Sales 3:4)Repairs to Buildings (Fl. Space 3:2)Insurance (Fl. Space 3:2)Bad Debts (Sales 3:4)Stationery (Sales 3:4)Equipment Depr. (Fl. Space 3:2)FinancialDebenture Interest (Sales 3:4)

41

52

3

6006,000

9,00021,0002,1001,680

180600

3,120

2,400

8008,000

12,00028,0001,4001,120

240800

2,080

3,200

1,40014,000

21,00049,0003,5002,800

4201,4005,200

5,600

53,200 108,790 161,990

(46,680) (57,640) (104,320)Net Profit 6,520 51,150 57,670– P+L Balance From Last Year (14,480)= P+L Balance To Next Year 43,190

Solutions

117

QUESTION 17.5

Smith Ltd


Balance Sheet as at 31/12/-9 € € €

Fixed Assets Cost Depr ValueDelivery Vans 1. 142,000 44,000 98,000Equipment 2. 35,000 14,200 20,800

177,000 58,200 118,800Goodwill 44,000

162,800Current AssetsClosing Stocks – Footwear 17,000

– Sportswear 18,500Debtors 23,400Advertising Prepaid 4. 700Stationery 5. 500

60,000- Current Liabilities

Creditors 29,000Bank 8,010Debenture Interest Due 3. 5,600VAT 1,600PAYE / PRSI 1,400

(45,610) 14,390

Total Assets Less Current Liabilities 177,190Financed by

Share Capital Auth. Issued Paid-up€1 Ordinary Shares 150,000 80,000 80,000

ReservesGeneral Reserve 14,000

Profit and Loss Account 43,19057,190

Long-Term Liabilities14% Debentures 40,000

177,190



Balance Sheet

1. Provision for Bad Debts 780 – 300 – 300 4802. Purchases – Grocery 75,000 – 4,000 71,000 – –3. Purchases – Drapery 150,000 + 4,000 154,000 – –4. Debenture Interest 6,000 – 6,000 6,0005. Investment Income 8,200 – 8,200 8,2006. Rent and Rates 4,000 – 1,000 – 3,000 1,0007. Van Depreciation 20,000 + 12,000 – 16,000 32,0008. Equipment Depreciation 4,000 + 1,200 – 1,200 5,200


118

(a) Trading and Profit and Loss Account for the year ended 31/12/-2 (€)Drapery Grocery Total Drapery Grocery Total

Sales 200,000 100,000 300,000– Returns In (400) (200) (600)

199,600 99,800 299,400Less Cost of SalesOpening Stock 29,000 24,000 53,000+ Purchases 2. 154,000 71,000 225,000+ Import Duty 1,000 1,300 2,300

184,000 96,300 280,300– Closing Stock (27,000) (21,000) (48,000)

(157,000) (75,300) (232,300)Gross Profit 42,600 24,500 67,100+ IncomeProvision / Bad Debts (Sales 2:1) 1. 200 100 300

42,800 24,600 67,400– ExpensesDistributionVan Depreciation (Sales 2:1) 7. 8,000 4,000 12,000Advertising (Sales 2:1) 1,600 800 2,400AdministrationRent and Rates (Sales 3:1) 6. 2,250 750 3,000Cleaning (Fl. Space 3:1) 900 300 1,200Discount (Sales 2:1) 1,000 500 1,500Equipment Depr. (Fl. Space 3:1) 8. 900 300 1,200FinancialInterest on Loan (Sales 2:1) 1,000 500 1,500Overdraft Interest (Sales 2:1) 200 100 300Debenture Interest (Sales 2:1) 4. 2,000 4,000 6,000

(17,850) (11,250) (29,100)Net Profit 24,950 13,350 38,300+ Investment Income 5. 8,200

46,500– Dividends (7,000)Retained Profits 39,500

Solutions

119

QUESTION 17.6Modern Fashions Ltd



Cost Depr. ValueFixed AssetsDelivery Vans 7 80,000 32,000 48,000Equipment 8 16,000 5,200 10,800


148,800Current AssetsClosing Stocks – Drapery 27,000

– Grocery 21,000Debtors 12,000– Provision for Bad Debts 1 (480) 11,520Investment Income Due 5 8,200Rent and Rates Prepaid 6 1,000

68,720- Current LiabilitiesCreditors 15,000Bank 3,020VAT 4,000PAYE / PRSI 3,000Debenture Interest Due 4 6,000

(31,020)37,700

Total Assets less Current Liabilities 186,500Financed byShare Capital Auth. Issued Paid-up€1 Ordinary Shares 150,000 70,000 70,000ReservesGeneral Reserve 12,000Profit and Loss Account 39,500

51,500Long-Term LiabilitiesTerm Loan 15,00012% Debentures 50,000

65,000186,500


Profit/Loss Account

Balance Sheet

1. Buildings Depreciation 20,000 + 7,000 – 7,000 27,0002. Vans Depreciation 18,000 + 20,000 – 20,000 38,0003. Equipment Depreciation 10,000 + 1,600 – 1,600 11,6004. Debenture Interest 2,000 – 2,000 2,0005. Rates 500 + 500 – 1,000 5006. Provision for Bad Debts 1,800 + 600 – 600 2,4007. Purchases Childrenswear 140,000 – 10,000 130,000 – –8. Purchases Ladieswear 88,000 + 10,000 – 6,000 92,000 – –9. Repairs to Equipment 6,000 – 6,000 –10. Stationery 1,620 – 100 – 1,520 100


120

(a) Trading and Profit and Loss Account for the year ended 31/12/-4 (€)Ladies Wear

ChildrensWear

Total Ladies Wear

Childrens Wear

Total

Sales 180,000 270,000 450,000Less Cost of SalesOpening Stock 19,000 20,000 39,000+ Purchases 7. 92,000 130,000 222,000+ Import Duty 1,100 1,500 2,600

112,100 151,500 263,600– Closing Stock (21,000) (16,000) (37,000)

(91,100) (135,500) (226,600)Gross Profit 88,900 134,500 223,400+ Income – Alteration Fees 1,000 – 1,000

89,900 134,500 224,400– ExpensesDistributionVan Depreciation (Sales 2:3) 2. 8,000 12,000 20,000Advertising (Sales 2:3) 1,200 1,800 3,000AdministrationBuildings Depreciation (Fl Space 3:1) 1. 5,250 1,750 7,000Equipment Depr. (Fl. Space 3:1) 3. 1,200 400 1,600Rates (Fl. Space 3:1) 5. 750 250 1,000Provision for Bad Debts (Sales 2:3) 6. 240 360 600Equipment Repairs 9. 6,000 – 6,000Stationery (Sales 2:3) 10. 608 912 1,520Salaries (Employees 7:3) 58,660 25,140 83,800Building Repairs (Fl. Space 3:1) 3,375 1,125 4,500Insurance (Fl. Space 3:1) 4,350 1,450 5,800

FinancialDebenture Interest (Sales 2:3) 4. 800 1,200 2,000

(90,433) (46,387) (136,820)Net Profit (Loss) (533) 88,113 87,580– Dividends (10,000)Retained Profits 77,580+ P+L Balance From Last Year 5,000= P+L Balance To Next Year 82,580

Solutions

121

QUESTION 17.7 (HIGHER LEVEL)O’Driscolls Ltd



Cost Depr. ValueFixed AssetsBuildingsDelivery VansEquipment

1.2.3.

140,000100,00026,000

27,00038,00011,600

113,00062,00014,400

266,000 76,600 189,400Goodwill 18,000

Current AssetsClosing Stock – Ladieswear

– ChildrenswearDebtors– Provision for Bad Debts 6.

48,000(2,400)

21,00016,000

45,600

207,400

Stock of Stationery 100

– Current LiabilitiesCreditorsVATPAYE/PRSIBankDebenture Interest DueRates Due

4.5.

35,4001,5003,000

1202,000

500

82,700

(42,520)40,180

Total Assets less Current Liabilities 247,580Financed byShare Capital Auth. Issued Paid-up€1 Ordinary Shares 100,000 65,000 65,000ReservesGeneral ReserveProfit and Loss Account

20,00082,580

Long-Term Liabilities10% Debentures

102,580

80,000247,580


Profit/Loss Account

Balance Sheet

1. Closing Stock – Paint 23,000 – 1,600 21,400 – 21,4002. Bank 5,000 – 20 – 500 – 800 + 540 – – 4,2203. Bank charges 20 – 20 –4. Insurance 2,500 + 500 – 3,000 –5. Rent and Rates 5,200 + 800 – 6,000 –6. Creditors 22,200 + 540 – – 22,7407. Advertising 3,600 – 1,350 – 2,250 1,3508. Van Depreciation 26,000 + 40,000 – 40,000 66,0009. Equipment Depreciation 14,000 + 3,600 – 3,600 17,600

10. Debenture Interest 10,000 + 1,200 – 11,200 1,20011. Preference Dividend 3,500 – 3,500 3,50012. Ordinary Dividend 2,500 – 2,500 2,50013. Goodwill 40,000 + 2,100 – – 42,10014. Discount Received 2,100 – 2,100 –


122

(a) Trading and Profit and Loss Account for the year ended 31/12/-9 (€)Hardware Paint Total Hardware Paint Total

Sales 350,000 350,000 700,000Less Cost of SalesOpening Stock 48,000 24,000 72,000+ Purchases 280,000 210,000 490,000Carriage In 3,000 3,400 6,400

331,000 237,400 568,400– Closing Stock 1. (42,000) (21,400) (63,400)

(289,000) (216,000) (505,000)Gross Profit 61,000 134,000 195,000+ Income Disc. Recd. (Purchases 4:3) 14. 1,200 900 2,100Key Cutting 2,400 – 2,400

64,600 134,900 199,500– ExpensesDistributionAdvertising (Sales 1:1) 7. 1,125 1,125 2,250Van Depreciation (Sales 1:1) 20,000 20,000 40,000AdministrationBank Charges (Sales 1:1) 3. 10 10 20Insurance (Fl. Space 4:1) 4. 2,400 600 3,000Rent and Rates (Fl. Space 4:1) 5. 4,800 1,200 6,000Equipment Depr. (Bk. Value 2:3) 9. 1,440 2,160 3,600Equipment Repairs (Bk. Value 2:3) 3,120 4,680 7,800Stationery (Sales 1:1) 1,400 1,400 2,800Hire of Paint Mixer – 1,400 1,400Wages (Employees 3:1) 61,650 20,550 82,200Light and Heat (Fl. Space 4:1) 5,920 1,480 7,400FinancialDebenture Interest (Sales 1:1) 10. 5,600 5,600 11,200

(107,465) (60,205) (167,670)Net Profit(Loss) (42,865) 74,695 31,830– DividendsOrdinary 12. (2,500)Preference 11. (3,500)Retained Profits 25,830+ P+L Balance From Last Year 6,900= P+L Balance To Next Year 32,730

Solutions

123

(c) Report on the Advisability of Closing Down the Hardware DepartmentThe Hardware Department is suffering a loss of €42,865 on its operations. In accounting terms the net profit on the firm as a whole would rise to €74,695 if the department was shut down but other factors must be considered:

(i) Has the Hardware Department consistently made losses over a number of trading periods or was this just a‘once-off’ loss?

(ii) Can the floor space of the closed department be utilised by the other department or rented out to anotherfirm?

(iii) Can the staff of the closed department be successfully redeployed within the firm?(iv) What, if any, redundancy costs will arise?(v) The closing down of the Hardware Department will not affect the fixed expenses which must be paid, e.g.

debenture interest, rent and rates etc.


Cost Depr. ValueFixed AssetsDelivery Vans 8. 160,000 66,000 94,000Equipment 9. 36,000 17,600 18,400

196,000 83,600 112,400Goodwill 13. 42,100

154,500Current AssetsClosing Stock – Hardware 42,000

– Paint 1. 21,400Debtors 47,600– Provision for Bad Debts (300) 47,300Bank 3. 4,220Advertising Prepaid 7. 1,350

116,270– Current LiabilitiesCreditors 6. 22,740Debenture Interest Due 10. 1,200Preference Dividend Due 11. 3,500Ordinary Dividend Due 12. 2,500VAT 1,700PAYE / PRSI 1,400

(33,040)83,230

237,730Financed byShare Capital Auth. Issued Paid-up€1 Ordinary Shares 200,000 50,000 50,000€1 7% Preference Shares 200,000 50,000 50,000



237,730


124


O’Reilly and Sons Ltd



Profit/Loss Account

Balance Sheet

1. Stock of Footwear 43,000 – 4,000 39,000 – 39,0002. Buildings 400,000 + 5,000 – – 405,0003. Wages 50,000 – 3,000 – 47,000 –4. Purchases Drapery 232,000 – 2,000 230,000 – –5. Advertising 11,500 – 250 – 200 – 11,050 –6. Debenture Interest 1000 +250 + 1,250 – 2,500 1,2507. Bad Debts 200 – 200 –8. Buildings Depreciation 40,000 + 8,100 – 8,100 48,1009. Equipment Depreciation 12,000 + 4,800 – 4,800 16,800

10. Vans Depreciation 22,000 + 11,600 – 11,600 33,60011. Preference Dividend 10,000 – 10,000 10,00012. Ordinary Dividend 15,000 – 15,000 15,00013. Investment Income 1,200 – 1,200 1,20014. Corporation Tax – 12,000 12,000

(a) Trading and Profit and Loss Account for the year ended 31/12/-8 (€)Footwear Drapery Total Footwear Drapery Total

SalesLess Cost of SalesOpening Stock+ Purchases 4.

40,000108,500

39,000230,000

79,000338,500

200,000 300,000 500,000

– Closing Stock 1.148,500(39,000)

269,000(42,000)

417,500(81,000)

(109,500) (227,000) (336,500)Gross Profit– ExpensesDistributionAdvertising (Sales 2:3)Van Depreciation (Sales 2:3)AdministrationWages (Employees 3:2)Bad Debts (Sales 2:3)Buildings Depr. (Fl. Space 1:3)Equipment Depr. (Bk. Value 4:1)Equipment Repairs (Bk. Value 4:1)Tailoring ExpensesRent and Rates (Fl. Space 1:3)Stationery (Sales 2:3)Insurance (Fl. Space 1:3)Directors’ Fees (Sales 2:3)FinancialDebenture Interest (Sales 2:3)

5.10.

3.7.8.9.

6.

4,4204,640

28,20080

2,0253,8401,520–

1,800320450

3,200

1,000

6,6306,960

18,800120

6,075960380

2,0005,400

4801,3504,800

1,500

11,05011,600

47,000200

8,1004,8001,9002,0007,200

8001,8008,000

2,500

90,500 73,000 163,500

(51,495) (55,455) (106,950)Net Profit 39,005 17,545 56,550+ Investment Income 13. 1,200Net Profit Before Taxation– Taxation 14.

57,750(12,000)

– DividendsPreferenceOrdinary

11.12.

45,750

(10,000)(15,000)

Retained Profits+ P+L Balance From Last Year

20,7504,000

= P+L Balance To Next Year 24,750

Solutions

125


Cost Depr. ValueFixed Assets

Buildings 2.8. 405,000 48,100 356,900Equipment 9. 60,000 16,800 43,200Delivery Vans 10. 116,000 33,600 82,400

581,000 98,500 482,50020,000

6% Investments 502,500

Current AssetsClosing Stock – Footwear 1 39,000

– Drapery 42,000Debtors 40,000– Provision for Bad Debts (700) 39,300Investment Income Due 13 1,200

121,500– Current LiabilitiesCreditors 11,000VAT 3,600PAYE / PRSI 400Bank 11,000Debenture Interest Due 6. 1,250Preference Dividend Due 11. 10,000Ordinary Dividend Due 12. 15,000Taxation Due 14. 12,000

(64,250)57,250

Total Assets less Current Liabilities 559,750Financed byShare Capital Auth. Issued Paid-up€1 Ordinary Shares 400,000 300,000 300,000€1 5% Preference Shares 300,000 200,000 200,000



559,750

126

Published Accounts(Higher Level Only): Solutions18

QUESTION 18.1

Published Profit and Loss Account for the Year Ended 31/12/-9€’000

Turnover 932Cost of Sales (748)Gross Profit 184Distribution Costs (30)Administration Expenses (142)Other Operating Income 3Operating Profit 15Interest Receivable 19Interest Payable (10)Profit on Ordinary Activities Before Taxation 24Taxation on Profit on Ordinary Activities (4)Profit on Ordinary Activities After Taxation 20Dividends Paid (7)Dividends Proposed (9)Retained Profits 4Profit and Loss Balance brought forward 4Profit and Loss Balance to be carried forward 8

Published Balance Sheet as at 31/12/-9€’000

Fixed Assets Intangible 12Tangible 488Financial 160Current Assets 660Stocks 34Debtors 30

64Creditors: Amounts falling due within one year (66)Net Current Assets (Liabilities) (2)Total Assets less Current Liabilities 658Financed byCreditors: Amounts falling due after more than one year 100Capital and ReservesCalled up Share Capital 550Profit and Loss Account 8

658

Solutions

127

QUESTION 18.2

Notes to the Financial Statements1. Operating Profit

The Operating Profit is arrived at after charging:

Published Profit and Loss Account for the Year Ended 31/12/-1Note €’000

Turnover 869Cost of Sales (621)Gross Profit 248Distribution Costs (26)Administration Expenses (123)Operating Profit (1) 99Interest Receivable 16Interest Payable (12)Profit on Ordinary Activities Before Taxation 103Tax on Profit on Ordinary Activities (20)Profit on Ordinary Activities After Taxation 83Dividends Paid (2) (24)Dividends Proposed (2) (50)Retained Profits 9Profit and Loss Balance brought forward 21Profit and Loss Balance to be carried forward 30

Published Balance Sheet as at 31/12/-1Note €’000

Fixed Assets Intangible 13Tangible (3) 542Financial 160Current Assets 715

Stocks 36Debtors 60

96Creditors: Amounts falling due within one year (91)Net Current Assets (Liabilities) 5Total Assets less Current Liabilities 720Financed byCreditors: Amounts falling due after more than one year 90Capital and ReservesCalled up Share Capital 600Profit and Loss Account 30

720

Depreciation €19,000Amortisation of Goodwill €3,000Directors’ Remuneration €24,000Auditors’ Remuneration €5,000


128

2. DividendsOrdinary Dividends – Interim Paid (3.5 cent per share) €14,000

– Proposed (10 cent per share) €40,000Preference Dividends – Interim Paid (5 cent per share) €10,000

– Proposed (5 cent per share) €10,0003. Tangible Fixed Assets

QUESTION 18.3

Palace Plc

Buildings Vans TotalCost or Valuation1/1/-1 466,000 140,000 606,000Disposals/Acquisitions – – –Revaluations – – –31/12/-1 466,000 140,000 606,000Depreciation1/1/-1 – 45,000 45,000Charge for the year – 19,000 19,000Revaluation – – –31/12/-1 – 64,000 64,000Net Book Value31/12/-1 466,000 76,000 542,000

Workings (Sources given in Brackets)(A) Cost of Sales

Opening Stock (Trial Balance) 25Purchases (Trial Balance) 179Patents Written Off (Note v) 10

214Closing Stock (Note i) (30)

184(B) Distribution Costs

Rent of Showroom (Trial Balance) 5Depreciation on Vans (Note iii) 10

15(C) Administration Expenses

Salaries and Wages (Trial Balance) 35General Expenses (Trial Balance) 20Rates and Insurance (Trial Balance) 4Depreciation Fixtures and Fittings (Note iii) 3Directors’ Fees (Note iv) 6Auditors’ Fees (Note iv) 1Goodwill written off (Note vi) 3Damages Provision (Note viii) 6

78(D) Interest Payable

Debenture Interest Due (Note iv) 16

(E) Dividends ProposedOrdinary Dividends (Note vii) 10Preference Dividends (Note vii) 10

20

Solutions

129

(F) Intangible Fixed AssetsPatents (Trial Balance) 100Written Off (Note v) (10)Goodwill (Trial Balance) 60Written Off (Note vi) (3)

147(G) Tangible Fixed Assets

Land and Buildings (Trial Balance) 300Revaluation (Note ii) 150 450Delivery Vans (Trial Balance) 40Depreciation Vans (Trial Balance) (10)Profit and Loss Charge (Note iii) (10) 20Fixtures and Fittings (Trial Balance) (12)Depreciation (Trial Balance) (6)Profit and Loss Charge (3) 3

473(H) Creditors: Amounts falling due within one year

Creditors (Trial Balance) 18VAT (Trial Balance) 6Taxation Due (Note iv) 27Debenture Interest Due (Note iv) 16Directors’ Fees Due (Note iv) 6Auditors’ Fees Due (Note iv) 1Proposed Dividends (Note vii) 20

94

Published Profit and Loss Account of Palace Plc for the year ended 31/12/-2Note: €’000 Workings

Turnover 385Cost of Sales (184) (A)Gross Profit 201Distribution Costs (15) (B)Administration Expenses (78) (C)Operating Profit (1) 108Interest Receivable 3Interest Payable (16) (D)Profit on Ordinary Activities Before Taxation 95Tax on Profit on Ordinary Activities (27)Profit on Ordinary Activities After Taxation 68Dividends Proposed (2) (20) (E)Retained Profits 48Profit and Loss Balance brought forward 30Profit and Loss Balance to be carried forward 78


130

(a) Accounting Policy Notes

StockStocks are valued at the lower of cost and net realisable value.Stocks are valued using First In First Out (FIFO).

(b) Notes to the Financial Statements

1. Operating ProfitThe operating profit is arrived at after charging:

2. DividendsOrdinary Dividends – Proposed (5 cent per share) €10,000Preference Dividends – Proposed (10 cent per share) €10,000

3. Tangible Fixed Assets

4. Provisions for Liabilities and ChargesThe company is being sued for breach of contract by one of its customers. The company’s legal advisors considerthe company to be liable for damages of €6,000. Consequently, a provision has been made for this amount.

Balance Sheet of Palace Plc as at 31/12/-2

Fixed AssetsIntangibleTangibleFinancial

Note

(3)

€’000

14747320

Workings

(F)(G)

Current AssetsStocksDebtorsBank

640

303088

Creditors: Amounts falling due within one year148(94) (H)

Net Current Assets 54Total Assets less Current Liabilities 694Financed byCreditors: Amounts falling due after more than one yearProvisions for liabilities and chargesCapital and ReservesCalled up CapitalRevaluation ReserveProfit and Loss Account

1606

30015078

694

DepreciationPatent AmortisedGoodwill AmortisedDirectors’ RemunerationAdvisors’ Remuneration

€13,000€10,000

€3,000€6,000€1,000

Land and Buildings

Delivery Vans

Fixtures andFittings

Total

Cost or Valuation (€)1/1/-2Disposals/AcquisitionsRevaluations31/12/-2

300,000–

150,000450,000

40,000––

40,000

12,000––

12,000

352,000–

150,000502,000

Depreciation (€)1/1/-2Charge for the yearRevaluation31/12/-2

––––

10,00010,000

–20,000

6,0003,000–

9,000

16,00013,000

–29,000

Net Book Value (€)31/12/-2 450,000 20,000 3,000 473,000The Land and Buildings were revalued on 31/12/-2 to €450,000

Solutions

131

QUESTION 18.4Pallisade Plc


Opening Stock (Trial Balance) 15Purchases (Trial Balance) 130

145Closing Stock (Note i) (10)

135(B) Distribution Costs

Salesforce Salaries (Trial Balance) 16Carriage Out (Trial Balance) 2Depreciation Vans (Note ii) 4

22(C) Administration Expenses

Rent, Rates and Insurance (Trial Balance) 25Directors’ Fees (Trial Balance) 10Auditors’ Fees (Trial Balance) 4Salaries and Wages (Trial Balance) 40General Expenses (Trial Balance) 22Depreciation Buildings (Note ii) 4Depreciation Fixtures and Fittings (Note ii) 5Goodwill written off (Note v) 10

120(D) Dividends Proposed

Ordinary Dividends (Note vi) 6Preference Dividends (Note v) 3

9(E) Intangible Fixed Assets

Goodwill (Trial Balance) 76Written Off (Note v) (10)

66(F) Tangible Fixed Assets

Land and Buildings (Trial Balance) 300Revaluation (Note iv) 200Depreciation (Trial Balance) (50)Profit and Loss Charge (Note ii) (4)Revaluation (Note iv) 54 500Delivery Vans (Trial Balance) 45Depreciation (Trial Balance) (25)Profit and Loss Charge (Note ii) (4) 16Fixtures and Fittings (Trial Balance) 25Depreciation (Trial Balance) (7)Profit and Loss Charge (Note ii) (5) 13

529(G) Creditors: Amounts falling due within one year

Creditors (Trial Balance) 45VAT (Trial Balance) 7Taxation Due (Note iii) 60Debenture Interest Due (Note iii) 10Dividends Due (Note vi) 9

131(H) Revaluation Reserve

Land and Buildings (Note iv) 200Depreciation (Note iv) 54

254


132

(a) Accounting Policy NotesStocksStocks are valued at the lower of cost and net realisable value. Stocks are valued using First In First Out (FIFO).

Tangible Fixed AssetsFreehold land is not depreciated. Other tangible fixed assets are depreciated at the following rates:

Published Profit and Loss Account of Pallisade Plc for the year ended 31/12/-3Note €’000 Workings

Turnover 380Cost of Sales (135) (A)Gross Profit 245Distribution Costs (22) (B)Administration Expenses (120) (C)Other Operating Income 5Operating Profit (1) 108Interest Payable (10)Profit on Ordinary Activities Before Taxation 98Tax on Profit on Ordinary Activities (60)Profit on Ordinary Activities After Taxation 38Dividends Paid (2) (15)Dividends Proposed (2) (9) (D)Retained Profits 14Profit and Loss Balance brought forward 42Profit and Loss Balance to be carried forward 56

Published Balance Sheet of Pallisade Plc as at 31/12/-3Note €’000 Workings

Fixed Assets Intangible 66 (E)Tangible (3) 529 (F)Financial 110

705Current Assets

Stocks 10Debtors 55Bank 6

71Creditors: Amount falling due within one year (131) (G)Net Current Assets (Liabilities) (60)Total Assets less Current Liabilities 645Financed byCreditors: Amount falling due after more than one year 100Capital and ReservesCalled up Capital 210Revaluation Reserve 254 (H)General Reserve 10Share Premium 15Profit and Loss Account 56

645

Buildings – 2% on costVans – 20% on reduced valueFixtures and fittings – 20% on cost.

Solutions

133

(b) Notes To The Financial Statements


2. DividendsOrdinary dividends – Paid (8 cent per share) €12,000

– Proposed (4 cent per share) €6,000Preference dividends – Paid (5 cent per share) €3,000

– Proposed (5 cent per share) €3,0003. Tangible Fixed Assets

4. Contingent LiabilitiesThere exists a liability not provided for in the accounts. The company is being sued for €30,000 but the company’slegal advisors believe the suit will be unsuccessful.

Depreciation €13,000Goodwill amortised €10,000Directors’ remuneration €10,000Auditors’ remuneration €4,000

Land and Buildings

Delivery Vans

Fixtures andFittings

Total

Cost or Valuation (€)1/1/-3 300,000 45,000 25,000 370,000Disposals/Acquisitions – – – –Revaluations 200,000 – – 200,00031/12/-3 500,000 45,000 25,000 570,000Depreciation (€)1/1/-3 50,000 25,000 7,000 82,000Charge for the year 4,000 4,000 5,000 13,000Revaluation (54,000) – – (54,000)31/12/-3 – 29,000 12,000 41,000Net Book Value (€)31/12/-3 500,000 16,000 13,000 529,000

The Land and Buildings were valued by Selby, Auctioneers and Valuers on 31/12/-3 on an existing use, open market basis.


134

QUESTION 18.5Plimpton Plc


Opening Stock (Trial Balance) 1,600Purchases (Trial Balance) 17,000Amortisation of Patent (Note v) 10

18,610Closing Stock (Note i) (1,800)

16,810(B) Administration Expenses

Administration Expenses (Trial Balance) 1,800Depreciation Buildings (Note ii) 10Depreciation Equipment (Note ii) 56Goodwill Written Off (Note vi) 18Directors’ Remuneration (Note iv) 50Auditors’ Remuneration (Note iv) 15

1,949(C) Interest Payable

Debenture Interest Paid (Trial Balance) 16Debenture Interest Due (Note iv) 16

32(D) Intangible Fixed Assets

Patents (Trial Balance) 100Written Off (Note v) 10 90Goodwill (Trial Balance) 180Written Off (Note vi) (18) 162

252(E) Tangible Fixed Assets

Buildings (Trial Balance) 200Revaluation (Note iii) 150Depreciation (Trial Balance) (100)Profit and Loss Charge (Note ii) (10)Revaluation (Note iii) 110 350Equipment (Trial Balance) 280Depreciation (Trial Balance) (100)Profit and Loss Charge (Note ii) (56) 124

474(F) Debtors

Debtors (Trial Balance) 1,700Provision for Bad Debts (Trial Balance) (60)VAT (Trial Balance) 9

1,649(G) Creditors: Amounts falling due within one year

Creditors (Trial Balance) 1,000PAYE / PRSI (Trial Balance) 7Directors’ Remuneration Due (Note iv) 50Auditors’ Remuneration Due (Note iv) 15Taxation Due (Note iv) 190Debenture Interest Due (Note iv) 16Dividends Due (Note vii) 22

1,300(H) Revaluation Reserve

Buildings (Note iii) 150Depreciation (Note iii) 110

260

Solutions

135

Published Profit and Loss Account of Plimpton Plc for the year ended 31/12/-4Note €’000 Workings

Turnover 22,000Cost of Sales (16,810) (A)Gross Profit 5,190Distribution Costs (2,000)Administration Expenses (1,949) (B)Other Operating Income 190Operating Profit (1) 1,431Interest Payable (32) (C)Profit on Ordinary Activities Before Taxation 1,399Tax on Profit on Ordinary Activities (190)Profit on Ordinary Activities After Taxation 1,209Dividends Paid (2) (24)Dividends Proposed (2) (22)Retained Profits 1,163Profit and Loss Balance brought forward 400Profit and Loss Balance to be carried forward 1,563

Published Balance Sheet of Plimpton plc as at 31/12/-4Note: €’000 Workings

Fixed Assets Intangible 252 (D)Tangible (3) 474 (E)Financial (4) 80

806Current AssetsStocks 1,800Debtors 1,649 (F)Bank 12

3461Creditors: Amounts falling due within one year (1,300) (G)Net Current Assets 2,161Total Assets less Current Liabilities 2,967Financed byCreditors: Amount falling due after more than one year 400Capital and ReservesCalled up Capital 500General Reserve 44Share Premium 200Revaluation Reserve 260 (H)Profit and Loss Account 1,563

2,967


136

(a) Accounting Policy NotesStocksStocks are valued at the lower of cost and net realisable value. Stocks are valued using First In First Out (FIFO)

Tangible Fixed AssetsTangible Fixed Assets are depreciated at the following rates:



2. DividendsOrdinary dividends – Paid (4.75p per share) €19,000

– Proposed (4.25p per share) €17,000Preference dividends – Paid (5p per share) €5,000

– Proposed (5p per share) €5,0003. Tangible Fixed Assets

4. Listed InvestmentsInvestments held are quoted on the Irish Stock Exchange.The market value of these investments at 31/12/-4 was €95,000.(At 31/12/-3: €92,000)

Buildings – 5% on costEquipment – 20% on cost.

Depreciation €66,000Intangible assets amortised €28,000Directors’ remuneration €50,000Auditors’ remuneration €15,000

Buildings Equipment TotalCost or Valuation (€)1/1/-4 200,000 280,000 480,000Disposals/Acquisitions – – –Revaluation 150,000 – 150,00031/12/-4 350,000 280,000 630,000Depreciation (€)1/1/-4 100,000 100,000 200,000Charge for the year 10,000 56,000 66,000Revaluation (110,000) – (110,000)31/12/-4 – 156,000 156,000Net Book Value (€)31/12/-4 350,000 124,000 474,000

Solutions

137

QUESTION 18.6Proofrock Plc


Opening Stock (Trial Balance)Purchases (Trial Balance)

702,100

Closing Stock (Note i)2,170

(90)2,080

(B) Administration ExpensesAdministration Expenses (Trial Balance)Depreciation Buildings (Note ii)Depreciation Equipment (Note ii)Auditors’ Remuneration (Note iv)Directors’ Remuneration (Note iv)Goodwill Written Off (Note v)Provision for Damages (Note viii)

700264010408

12836

(C) Dividends ProposedOrdinary Dividends (Note vi)Preference Dividends (Note vi)

304

34(D) Tangible Fixed Assets

Land and Buildings (Trial Balance)Depreciation (Trial Balance)Profit and Loss Charge (Note ii)

1,600(400)(26) 1,174

Equipment (Trial Balance)Depreciation (Trial Balance)Profit and Loss Charge (Note ii)

400(200)(40) 160

1,334(E) Creditors: Amounts falling due within one year

Creditors (Trial Balance)Bank (Trial Balance)VAT (Trial Balance)PAYE/PRSI (Trial Balance)Taxation Due (Note iv)Auditors’ Remuneration Due (Note iv)Directors’ Remuneration Due (Note iv)Dividends Due (Note vi)

120301218

150104034

414

Published Profit and Loss Account of Proofrock Plc for the year ended 31/12/-5Note €’000 Workings

TurnoverCost of Sales

3,900(2,080) (A)

Gross ProfitDistribution CostsAdministration Expenses

1,820(50)

(836) (B)Operating ProfitProfit on Sale of LandInterest Payable

(1) 93420

(10)Profit on Ordinary Activities Before TaxationTax on Profit on Ordinary Activities

944(150)

Profit on Ordinary Activities After TaxationDividends PaidDividends Proposed

(2)(2)

794(40)(34) (C)

Retained ProfitsProfit and Loss Balance brought forward

720210

Profit and Loss Balance to be carried forward 930


138


Tangible Fixed AssetsFreehold land is not depreciated. Other tangible assets are depreciated at the following rates:





– Proposed (4 cent per share) €4,000


Published Balance Sheet of Proofrock as at 31/12/-5Note €’000 Workings

Fixed Assets IntangibleTangibleFinancial

(3)(4)

721,334

120(D)

Current AssetsStocksDebtors

1,526

90240

Creditors: Amounts falling due within one year330

(414) (E)Net Current Assets (Liabilities) (84)Total Assets less Current Liabilities 1,442Financed byCreditors: Amounts falling due after more than one yearProvisions for Liabilities and ChargesCapital and ReservesCalled up CapitalProfit and Loss Account

(5)10012

400930

1,442

Buildings – 2% on costEquipment – 10% on cost.

Depreciation €66,000Directors’ remuneration €40,000Auditors’ remuneration €10,000Goodwill amortised €8,000

Land andBuildings Equipment Total

Cost or Valuation (€)1/1/-5Disposals/AcquisitionsRevaluation31/12/-5

1,620,000(20,000)

–1,600,000

400,000––

400,000

2,020,000(20,000)

–2,000,000

Depreciation (€)1/1/-5Charge for the yearRevaluation31/12/-5

400,00026,000

–426,000

200,00040,000

–240,000

600,00066,000

–666,000

Net Book Value (€)31/12/-5 1,174,000 160,000 1,334,000

Solutions

139

4. Financial Fixed AssetsListed investments, cost €75,000, have an Irish Stock Exchange market value of€94,000 at 31/12/-5 (31/12/-4: €78,000)Unlisted investments, cost €45,000, are valued by the directors at €51,000 at31/12/-5 (31/12/-4: €50,000)There were no purchases or sales of investments during the year.

5. Provisions for Liabilities and ChargesA claim for breach of contract of €12,000 has been made against the company by one of its customers. Our legaladvisors believe the company to be liable, so a provision has been made in this year’s accounts.

QUESTION 18.7

Principals Plc


Opening Stock (Trial Balance) 1,936Purchases (Trial Balance) 20,000Amortisation of Patent (Note v) 25


19,963(B) Distribution Costs

Distribution Costs (Trial Balance) 1,660Buildings Depreciation (Note iii) 6Machinery Depreciation (Note iii) 4

1,670(C) Administration Expenses

Administration Expenses (Trial Balance) 1,000Buildings Depreciation (Note iii) 24Machinery Depreciation (Note iii) 36Directors’ Remuneration (Note vi) 60Auditors’ Remuneration (Note vi) 20

1,140(D) Interest Payable

Debenture Interest Paid (Trial Balance) 35Debenture Interest Due (Note vi) 35

70(E) Dividends Proposed

Ordinary Dividends (Note vii) 36Preference Dividends (Note vii) 18

54(F) Intangible Fixed Assets

Patents (Trial Balance) 250Amortised (Note v) (25)

225(G) Tangible Fixed Assets

Land and Buildings (Trial Balance) 400Revaluation (Note iv) 250Depreciation (Trial Balance) (50)Profit and Loss Charge (Note iii) (30)Revaluation (Note iv) 80 650Machinery (Trial Balance) 200Depreciation (Trial Balance) (60)Profit and Loss Charge (Note iii) (40) 100

750


140

(H) DebtorsDebtors (Trial Balance)Provision for Bad Debts (Trial Balance)VAT (Trial Balance)

3,500(60)42

(I) Creditors: Amounts falling due within one yearCreditors (Trial Balance)Directors’ Remuneration Due (Note vi)Auditors’ Remuneration Due (Note vi)Taxation Due (Note vi)Debenture Interest Due (Note vi)Dividends Due (Note vii)

3,482

1,8516020

4003554

(J) Revaluation ReserveLand and Buildings (Note iv)Depreciation (Note iv)

2,420

25080

330

Published Profit and Loss Account for Principals Plc for the year ended 31/12/-6Note €’000 Workings


25,000(19,963) (A)

Gross ProfitDistribution CostsAdministration ExpensesOther Operating Income

5,037(1,670)(1,140)

76

(B)(C)

Operating ProfitInterest Payable

(1) 2,303(70) (D)

Profit on Ordinary Activities Before TaxationTax on Profit on Ordinary Activities

2,233(400)

Profit on Ordinary Activities after TaxationDividends PaidDividends Proposed

(2)(2)

1,833(42)(54) (E)

Retained ProfitsProfit and Loss Balance Brought Forward

1,737708

Profit and Loss Balance to be Carried Forward 2,445

Published Balance Sheet as at 31/12/-6Note €’000 Workings


(3)225750180

(F)(G)

1,155Current Assets

StocksDebtorsBank

1,9983,482

260(H)

Creditors: Amounts falling due within one year5,740

(2,420) (I)Net Current Assets 3,320

Total Assets Less Current Liabilities 4,475Financed ByCreditors: Amounts falling due after one yearCapital and ReservesCalled up Share Capital

Revaluation ReserveProfit and Loss Account

7001,000

3302,445

(J)

4,475

Solutions

141


Tangible Fixed AssetsFreehold land is not depreciated. Other tangible fixed assets are depreciated at the following rates:



An exceptional bad debt of €300,000 was incurred during the year as one of the company’s debtors went intobankruptcy


– Proposed (3 cent per share) €36,000Preference dividends – Paid (4.5 cent per share) €18,000

– Proposed (4.5 cent per share) €18,000


4. Capital CommitmentsThe following capital commitments, authorised by the directors have not been provided for in the financialstatements:

Buildings – 10% on costMachinery – 20% on cost.

Depreciation €70,000Directors’ remuneration €60,000Auditors’ remuneration €20,000

Land andBuildings Machinery Total

Cost or Valuation (€)1/1/-6 400 200 600Disposals/Acquisitions – – –Revaluation 250 – 25031/12/-6 650 200 850Depreciation (€)1/1/-6 50 60 110Charge for the year 30 40 70Revaluation (80) – (80)31/12/-6 – 100 100Net Book Value31/12/-6 650 100 750

Contracted for €300,000Not contracted for €400,000


142

QUESTION 18.8

Shore Plc


Opening Stock (Trial Balance)Purchases (Trial Balance)

1,2805,800

Closing Stock (Note i)7,080

(1,340)

(B) Distribution CostsDistribution Costs (Trial Balance)Depreciation Buildings (Note iv)Depreciation Fixtures and Fittings (Note iv)

5,740

2,9003

44

(C) Administration ExpensesAdministration Expenses (Trial Balance)Directors’ Remuneration (Note ii)Auditors’ Remuneration (Note ii)Depreciation Buildings (Note iv)Depreciation Fixtures and Fittings (Note iv)Goodwill Written Off (Note v)Provision for Liability (Note viii)

2,947

1,4422057

112440

(D) Interest PayableDebenture Interest Paid (Trial Balance)Debenture Interest Due (Note ii)

1,549

1818

(E) Dividends ProposedOrdinary Dividends (Note vi)Preference Dividends (Note vi)

36

245

(F) Tangible Fixed AssetsBuildings (Trial Balance)Revaluation (Note iii)Depreciation (Trial Balance)Revaluation (Note iii)Profit and Loss Charge (Note iv)

300200(50)50

(10)

29

490Fixtures and Fittings (Trial Balance)Depreciation (Trial Balance)Profit and Loss Charge (Note iv)

260(40)(55) 165

(G) DebtorsDebtors (Trial Balance)Provision for Bad Debts (Trial Balance)

655

2,400(115)

(H) Creditors: Amounts falling due within one yearCreditors (Trial Balance)VAT (Trial Balance)Directors’ Remuneration Due (Note ii)Auditors’ Remuneration Due (Note ii)Taxation Due (Note ii)Debenture Interest Due (Note ii)Dividends Proposed (Note vi)

2,285

1,51091205

3001829

(I) Revaluation ReserveBuildings (Note iii)Depreciation (Note iii)

1,973

20050

250

Solutions

143


Tangible Fixed AssetsTangible assets are depreciated at the following rates:

Buildings were revalued on 1/1/-6 by Gant Properties on an open market, existing use basis.

Published Profit and Loss Account for the year ended 31/12/-6

Note €’000 WorkingsTurnover 11,900Cost of Sales (5,740) (A)Gross Profit 6,160Distribution Costs (2,947) (B)Administration Expenses (1,549) (C)Operating Income 55Operating Profit (1) 1,719Interest Payable (36) (D)Profit on Ordinary Activities Before Taxation 1,683Tax on Profit on Ordinary Activities (300)Profit on Ordinary Activities after Taxation 1,383Dividends Paid (2) (23)Dividends Proposed (2) (29) (E)Retained Profits 1,331Profit and Loss Balance Brought Forward 340Profit and Loss Balance to be Carried Forward 1,671

Published Balance Sheet as at 31/12/-6Note €’000 Workings

Fixed AssetsIntangible 216Tangible (3) 655 (F)Financial (4) 200

1,071Current Assets

Stocks 1,340Debtors 2,285 (G)Bank 78

3,703Creditors: Amounts falling due within one year (1,973) (H)Net Current Assets 1,730

Total Assets Less Current Liabilities 2,801Financed ByCreditors: Amounts falling due after more than one year 300Provision for Liabilities and Charges (5) 40Capital and Reserves

Called up Share Capital 500Share Premium 40Revaluation Reserve 250 (I)Profit and Loss Account 1,671

2,801

Buildings – 2% on costFixtures and Fittings – 25% on the reduced value


144



2. DividendsOrdinary dividends – Paid (4.5 cent per share) €18,000



4. Financial Fixed AssetsThese are in listed companies on the Irish Stock Exchange. They are shown at cost. Their market value on 31/12/-6is €280,000

5. Provisions for Liabilities and ChargesA claim has been made against the company by an employee for damages as a result of an accident at work. Thecompany’s legal advisors believe the company to be liable for damages of €40,000. A provision for this amount isincluded in this year’s accounts.

Depreciation €65,000Directors’ remuneration €20,000Auditors’ remuneration €5,000Goodwill Amortised €24,000


BuildingsFixtures

and Fittings TotalCost or Valuation (€)1/1/-6 300,000 260,000 560,000Disposals/Acquisitions – – –Revaluation 200,000 – 200,00031/12/-6 500,000 260,000 760,000Depreciation (€)1/1/-6 50,000 40,000 90,000Revaluation (50,000) – (50,000)Charge for the year 55,000 65,00031/12/-6 – 95,000 105,000Net Book Value31/12/-6 490,000 165,000 655,000

Solutions

145

QUESTION 18.9DOR Plc


Opening Stock (Trial Balance) 1,320Purchases (Trial Balance) 14,120Patent Amortised (Note vii) 20


14,022(B) Distribution Costs

Distribution Costs (Trial Balance) 1,137Depreciation Buildings (Note iv) 1Depreciation Fixtures and Fittings (Note iv) 18

1,156

(C) Administration ExpensesAdministration Expenses (Trial Balance) 689Bad Debts (Trial Balance) 120Directors’ Remuneration (Note iii) 15Auditors’ Remuneration (Note iii) 3Depreciation Buildings (Note iv) 4Depreciation Fixtures and Fittings (Note iv) 42Provision for Liability (Note viii) 65

938(D) Interest Payable

Debenture Interest Paid (Trial Balance) 18Debenture Interest Due (Note iii) 18

36(E) Tangible Fixed Assets

Land and Buildings (Trial Balance) 250Revaluation (Note vi) 250Depreciation (Trial Balance) (46)Profit and Loss Charge (Note iv) (5)Revaluation (Note vi) 51 500Fixtures and Fittings (Trial Balance) 560Depreciation (Trial Balance) (260)Profit and Loss Charge (Note iv) (60) 240

740(F) Debtors

Debtors (Trial Balance) 1,953Provision for Bad Debts (Trial Balance) (39)VAT (Trial Balance) 22

1,936(G) Creditors: Amounts falling due within one year

Creditors (Trial Balance) 1,645Directors’ Remuneration Due (Note iii) 15Auditors’ Remuneration Due (Note iii) 3Taxation Due (Note iii) 355Debenture Interest Due (Note iii) 18Dividends Proposed (Note x) 51

2,087(H) Revaluation Reserve

Land and Buildings (Note v) 250Depreciation (Note v) 51

301


146


Tangible Fixed AssetsFreehold Land is not depreciated. Other tangible assets are depreciated at the following rates:

Published Profit and Loss Account of DOR Plc for the year ended 31/12/-3


Note €’00016,950

(14,022)

Workings

(A)Gross ProfitDistribution CostsAdministration ExpensesOther Operating Income

2,928(1,156)

(938)31

(B)(C)

Operating ProfitProfit on Sale of LandInterest ReceivableInterest Payable

(1)

(2)

86511015

(36) (D)Profit on Ordinary Activities Before TaxationTax on Profit on Ordinary Activities

954(355)

Profit on Ordinary Activities after Taxation 599(10)

Transfer to ReserveDividends PaidDividends Proposed

(3)(3)

(589)(12)(51)

Retained ProfitProfit and Loss Balance Brought Forward

526500

Profit and Loss Balance to be Carried Forward 1,026

Balance Sheet of DOR Plc as at 31/12/-3


Note

(4)(5)

€’000

140740350

Workings

(E)

1,230Current Assets

StocksDebtorsBank

1,4381,936

55(F)

Creditors: Amounts falling due within one year3,429

(2,087) (G)Net Current Assets 1,342

Total Assets Less Current Liabilities 2,572Financed ByCreditors: Amounts falling due after more than one yearProvision for Liabilities and ChargesCapital and Reserves

Called up Share CapitalShare PremiumRevaluation ReserveGeneral ReserveProfit and Loss Account

(6)

(7)

30065

70017030110

1,026

(H)

2,572

Buildings – 2% on costFixtures and Fittings – 20% on the reduced value

Solutions

147


1. Operating ProfitOperating profit is arrived at after charging:

There was an exceptional bad debt of €120,000 because a customer was declared bankrupt.

2. Interest PayableThis is payable on debentures repayable within five years.

3. DividendsOrdinary dividends – Paid (.75 cent per share) €9,000



5. Financial Fixed AssetsListed Investments, cost €350,000, have a market value of €370,000 at 31/12/-3.There were no purchases or sales of investments during the year.

6. Debentures12% Debentures of €300,000 are secured by a fixed charge over the company’s tangible fixed assets. They arerepayable within five years at the company’s option.

7. Called up Share Capital

Capital CommitmentsThe following capital commitments, authorised by the directors have not been provided for in the financialstatements.

8. Contingent LiabilityThe company is being sued by a customer for late delivery of goods. The company’s legal advisors believe thecompany is unlikely to be liable under the terms of the sales contract. They estimate the maximum liability at€25,000.

Depreciation €65,000Patent Amortised €20,000Directors’ remuneration €15,000Auditors’ remuneration €3,000

4. Tangible Fixed AssetsLand and Buildings

Fixtures and Fittings Total

Cost or Valuation (€)1/1/-3 275,000 560,000 835,000Disposals/Acquisitions (25,000) – (25,000)Revaluation 250,000 – 250,00031/12/-3 500,000 560,000 1,060,000Depreciation (€)1/1/-3 46,000 260,000 306,000Charge for the year 5,000 60,000 65,000Revaluation (51,000) – (51,000)31/12/-3 – 320,000 320,000Net Book Value31/12/-3 500,000 240,000 740,000

Authorised Issued Paid-upOrdinary Shares at 50 cent 600,000 600,000 600,0006% Preference Shares at €1 100,000 100,000 100,000

700,000 700,000 700,000

Contracted for €550,000Not contracted for €350,000

148

Analysis and Interpretation of Financial Statements: Solutions19

QUESTION 19.1

(a) (i) Return on Capital Employed

= = 23.5%

(ii) Purchases = 434,000 (iii) Period of Credit allowed to Debtors

=

(iv) Interest Cover

=

(b) (i) Liquid AssetsLiquid Assets are the current assets which are readily convertible into cash. They comprise bank, cash,debtors, short-term investments etc.

(ii) GearingThis is concerned with finance of limited companies. A highly geared company is mainly financed byfixed interest debt (debenture loans and preference shares). a lowly geared company is mainly financedby equity (ordinary shareholders and reserves).

(iii) Rate of Stock TurnoverRate of Stock Turnover measures the frequency with which stock is sold during the trading period. It isgiven by the formula:

For Finn Ltd the rate is given by

If stock turns over 18 times a year then stock is on the shelves for 365/18, or 20 days, on average,between purchase and sale.

Finn Ltd

Sales 516,000– Cost of Sales

Opening Stock 22,000+ Purchases 434,000

456,000– Closing Stock (26,000)

430,000Gross Profit 86,000

– Expenses (51,000)Net Profit 35,000

+ Balance b/f 21,000Balance c/f 56,000

Profit (Before interest and TaxShareholders funds + Long-Term Liabilities-------------------------------------------------------------------------------------------------- 100× 35,000 12,000 100×+

200,000--------------------------------------------------=’

DebtorsCredit sales------------------------- 365× 30 Days=

Operating ProfitInterest

------------------------------------- 35,000 12,000+12,000

------------------------------------= 3.9 times=

Cost of SalesAverage Stock--------------------------------

430,00022,000 26,000+( ) 2÷

-------------------------------------= 18 times

Solutions

149

(iv) Intangible AssetsIntangible Assets are assets which have value but no physical presence, e.g. goodwill, patents andtrademarks, copyrights and capitalised development costs. Trademarks and Copyrights are known asIntellectual Property. Intangible assets have a finite life, in most cases, so they are written off, oramortised, in the Profit and Loss Account in much the same way as tangible assets are depreciated.

(c) Interests of ShareholdersShareholders are interested in:

(i) Profitability

Return on Shareholders’ funds = =

This rate is compared to the rates of interest offered by risk-free investments, i.e. banks, buildingsocieties, etc.

(ii) Liquidity

Both of these ratios are satisfactory as norms are 1.5:1 and 1:1 for current and liquid ratios respectively.Finn Ltd can meet its short-term debts as they become due.

QUESTION 19.2

(a) (i) Percentage Mark-up on Cost

= = 24%

(ii) Closing Stock = €46,000(iii) Period of Credit received from Creditors

=

(iv) Return on Capital Employed

=

(b) (i) Intangible Assets (See solution to question 19.1)(ii) Dividends

Dividends is the portion of company profit given to shareholders. It is the return on their investment inthe company. Preference shareholders get a fixed return and ordinary shareholders’ dividend depends onthe level of profits available in any year.

(iii) Shareholders’ fundsShareholders’ funds is the total investment by shareholders in a company. It is made up of issued sharecapital plus reserves.

(iv) Rate of Stock Turnover (see solution to question 19.1)

Current Ratio = Current Assets: Current Liabilities = 1.68:1Acid Test = Liquid Assets: Current Liabilities = 1.24:1

McCool Ltd

Sales 310,000

– Cost of Sales

Opening Stock 36,000

Purchases on credit 260,000

296,000

– Closing Stock (46,000)

(250,000)

Gross Profit 60,000

Profit (After Tax and Preference Dividends) Ordinary Shares+Reserves

--------------------------------------------------------------------------------------------------- 100× 35,000120,000----------------- 100× 29%=

Gross ProfitCost of Sales---------------------------- 100× 60,000

250,000----------------- 100×=

CreditorsCredit Purchases------------------------------------- 365× 50,000

260,000----------------- 365× 70 days= =

Profit (Before Interest and Tax)Shareholders funds + Long-Term Liabilities-------------------------------------------------------------------------------------------------- 100× =18,000 7,000+

230,000-------------------------------- 100× =10.9%


150

(c) LiquidityThis year’s liquidity ratios are:

Liquidity has disimproved since the previous year. The company is less able to meet its short-term debts as they fall due.

QUESTION 19.3

(a) (i) Sales = €492,000(ii) Return on Capital Employed

(iii) Mark-up on Cost

=

(iv) Interest Cover

=

(b) (i) Liquid AssetsLiquid assets are the current assets which are readily convertible into cash. They comprise bank, cash,debtors, short-term investments etc.

(ii) GearingGearing is concerned with finance of limited companies. A highly geared company is mainly financedby fixed interest debt (debenture loans and preference shares). A lowly geared company is mainlyfinanced by equity (ordinary shares and reserves).

(iii) Rate of Stock TurnoverRate of stock turnover measures the frequency with which stock is sold during the trading period. It isgiven by the formula:

For Calley Ltd, the rate is given by

If stock turns over 17 times a year then stock is on the shelves for 365/17 or 21 days, on average,between purchase and sale.

Current ratio = Current assets : Current liabilities= 104,000 : 68,000= 1.5 : 1

Acid Test = Current assets less Stock : Current Liabilities= 58,000 : 68,000= .85 :1

Calley Ltd

Sales 492,000

– Cost of Sales

Opening Stock 26,000

+ Purchases 406,000432,000

– Closing Stock (22,000)

(410,000)

Gross Profit 82,000

= Profit (Before Interest and Tax)Shareholders funds + Long-Term Liabilities-------------------------------------------------------------------------------------------------- 100× 7,000 9,000 100×+

280,000--------------------------------------------- = 5.7%=

Gross ProfitCost of Sales---------------------------- 100× 82,000

410,000----------------- 100× 20%= =


------------------------------------- 7,000 9,000+9,000

----------------------------- 1.7 times= =


410,00026,000 22,000+( ) 2÷

------------------------------------------------ 17 times=

Solutions

151

(iv) Intangible AssetsIntangible assets are assets which have value but no physical presence, e.g. goodwill, patents andtrademarks, copyrights and capitalised development costs. Trademarks and copyrights are known asintellectual property. Intangible assets have a finite life, in most cases, so they are written off, oramortised, in the Profit and Loss Account in much the same way as tangible assets are depreciated.

(c) Interests of ShareholdersShareholders are interested in:

(i) ProfitabilityReturn on shareholders’ funds

=

=

This rate is compared to the rates of interest offered by risk-free investments, i.e. banks, buildingsocieties etc.

(ii) Liquidity

Both of these rates are unsatisfactory as norms are 1.5:1 and 1:1 for Current Ratio and Acid Testrespectively. Calley Ltd cannot meet its short-term debts as they fall due.

QUESTION 19.4

(a) (i) PurchasesPurchases = €116,000

(ii) Period of Credit given to Debtors

=

(iii) Return on Capital Employed

(iv) Rate of Stock Turnover

=

Current ratio = Current assets : Current liabilities= 74,000 : 67,000= 1.1 : 1

Acid Test = Current assets less Stock : Current Liabilities= (74,000 – 22,000) : 67,000= 0.77 :1

Raltherm LtdSales 145,000 Fixed Assets 168,000– Cost of sales Current Assets 55,000Opening Stock 17,000 Current Liabilities (25,000)+ Purchases 116,000 30,000

133,000 198,000– Closing Stock (23,000) Financed By

(110,000) Share Capital 130,000Gross Profit 35,000 Reserves – Profit and Loss Account 18,000– Expenses 15,000 Long Term LiabilitiesNet Profit for year 20,000 6% Debentures 50,000– Dividends Proposed (6,500) 198,000Retained Profits 13,500Profit and Loss Balance B/F 4,500Profit and Loss Balance C/F 18,000

Profit (After Interest and Tax)Ordinary Shares + Reserves

------------------------------------------------------------------- 100×

7,000 9,000+220,000

----------------------------- 100× 7.2%=

DebtorsCredit Sales-------------------------- 365× 29,000

145,000----------------- 365× 73 days= =

= Profit (Before Interest and Tax)Shareholders funds + Long-Term Liabilities-------------------------------------------------------------------------------------------------- 100× 20,000 3,000 100×+

198,000------------------------------------------------ = 11.6%=

Cost of SalesAverage Stock-------------------------------- 110,000

17,000 23,000+( ) 2÷------------------------------------------------ 110,000

20,000----------------- 5.5 times= = =


152

(b) (i) AuditorsAuditors are independent experts who give their opinion on whether the accounts give a ‘true and fairview’ of the financial position of the company. They are independent accountants appointed by theshareholders.

(ii) Gearing (See solution to question 19.1)(iii) Liquid Assets (See solution to question 19.1)(iv) Shareholders’ funds (See solution to question 19.2)

(c) GearingThe gearing ratio is given by:Equity capital : Fixed Interest Debt = 148,000 : 50,000= 2.96:1, i.e. a lowly geared company as the majority of its finance comes from equity capital.

QUESTION 19.5

(a) (i) PurchasesPurchases = €140,000

(ii) Return on capital employed

=

(iii) Period of Credit given to Debtors

=

(iv) Gross Margin

=

(b) (i) Rate of stock turnover (See solution to question 19.1)(ii) Memorandum of Association

A Memorandum of Association is a document which governs a company’s dealings with the outsideworld. It states the company name, its objects, its limited liability and its authorised share capital.

(iii) Capital EmployedCapital Employed is the total invested in a company. It is made up of shareholders’ funds (capital andreserves) plus long-term liabilities.

(iv) 8% Cumulative Preference SharesThis is a share entitled to a fixed return of 8% per annum. The return is payable before any payment toordinary shareholders. If dividends are unpaid, due to insufficient profits, the dividend is carried forward(or accumulated) to a future date.

(c) Liquidity RatiosThe liquidity ratios are:

(i) Current Ratio = Current Assets : Current liabilities = 1.6:1(ii) Acid Test = Current Assets less Stock : Current Liabilities = .88:1

The firm has liquidity problems as it cannot meet its short-term debts as they fall due.

Moriarty LtdSales 250,000Less Cost of salesOpening Stock 66,000

+ Purchases 140,000206,000

– Closing Stock (18,000)(188,000)

Gross Profit 62,000

Profit (Before Interest and Tax)Shareholders funds + Long-Term Liabilities-------------------------------------------------------------------------------------------------- 100× 40,000 3,600 100×+

160,000------------------------------------------------ = 27.25%=’


200,000----------------- 365× 27 days= =

Gross ProfitSales

-------------------------- 100× 62,000250,000----------------- 100× 25%= =

Solutions

153

QUESTION 19.6

(a) (i) Cost of Sales = €154,000(ii) Rate of Stock Turnover

=

(iii) Acid Test Ratio

(iv) Total Expenses to Sales Ratio

=

(b) (i) Articles of AssociationThe Articles of Association is a document which governs the internal conditions of a company. It statesthe rights of shareholders, the procedure for meetings and any other internal regulations.

(ii) Debenture (See solution to question 19.3)(iii) Shareholders’ funds (See solution to question 19.2)(iv) Gearing (See solution to question 19.1)

(c) Return on Shareholders’ Funds

The return on shareholders’ funds =

= This is far better than the 13% earned by an investment in the financial

institutions.

Durie LtdSales 29000 Fixed Assets 337,000– Cost of sales Current Assets 82,000Opening Stock 21,000 Current Liabilities (39,000)+ Purchases 156,000 43,000

177,000 380,000– Closing Stock (23,000) Financed By

(154,000) Share Capital 250,000Gross Profit 136,000 Reserves – Profit and Loss Account 90,000– Expenses (36,000) Long-Term LiabilitiesNet Profit for year 100,000 6% Debentures 40,000– Dividends Proposed (25,000) 380,000Retained Profits 75,000Profit and Loss Balance B/F 15,000Profit and Loss Balance C/F 90,000

= Current Assets minus stock : Current Liabilities(82,000 – 23,00) : 39,0001.5 : 1

Cost of SalesAverage Stock-----------------------------------

154,00021,000 23,000+( ) 2÷

----------------------------------------------------- = 7 times=

Total ExpensesSales

--------------------------------- 100× 36,000290,000----------------- 100× 12.4%= =

Profit (After Tax and Preference Dividends) 100×Ordinary Shares + Reserves

-----------------------------------------------------------------------------------------------------------------

100,000 100×250,000 90,000+-------------------------------------- 29%=


154

QUESTION 19.7

(a) (i) Closing Stock = €35,000(ii) Period of Credit given to Debtors

=

(iii) Period of Credit Received from Creditors

=

(iv) Return on Shareholders’ Funds

=

(b) (i) Debt / Total Capital PercentageThis shows what percentage of total capital invested in a company is represented by debt capital, i.e.

Borrowings. For Avril Ltd it is

(ii) Auditor (See solution to question 19.4)(iii) Liquid Assets (See solution to question 19.1)(iv) Intangible Assets (See solution to question 19.1)

(c) Interest Cover for Year Ended 31/12/-1

=

The interest cover, which measures a firm’s ability to meet its interest payments has dropped from theprevious year. Thus Avril Ltd is less able to meet its interest repayments this year.

QUESTION 19.8James Ltd

(a) (i) PurchasesPurchases for year ended 31/12/-2 = €106,000Purchases for year ended 31/12/-3 = €102,000

Avril Ltd

Sales 150,000– Cost of Sales

Opening Stock 25,000+ Purchases 120,000

145,000– Closing Stock (35,000)

(110,000)Gross Profit 40,000

31/12/-2 31/12/-3 31/12/-2 31/12/-3Sales 140,000 135,000 Fixed Assets 153,000 170,000– Cost of Sales Current Assets 30,000 36,000Opening Stock 14,000 16,000 Current Liabilities (18,000) 23,000+ Purchases 106,000 102,000 12,000 13,000

120,000 118,000 165,000 183,000– Closing Stock (15,000) (19,000)

(105,000) (99,000) Financed ByGross Profit 35,000 36,000 Share Capital 100,000 100,000– Expenses (20,000) (18,000) Reserves 25,000 43,000Net Profit 15,000 18,000 Long-Term Liabilities 40,000 40,000+ P+L Balance b/f 10,000 25,000 165,000 183,000P+L Balance c/f 25,000 43,000


125,000----------------- 365× 35 days= =

CreditorsCredit Purchases------------------------------------- 365× 22,000

120,000----------------- 365× 66 days= =

Profit (After Tax and Preference Dividends)Ordinary shares+Reserves

-------------------------------------------------------------------------------------------------- 100× 15,00080,000--------------- 100× 18.75%= =

100,000180,000----------------- 100× 56%=


------------------------------------- 25,000 5,000+5,000

-------------------------------- 6 times= =

Solutions

155

(ii) Fixed AssetsFixed Assets as at 31/12/-2 = €153,000Fixed Assets as at 31/12/-3 = €170,000

(iii) Mark-up =

for year ended 31/12/-2 =


(iv) Acid Test Ratio = Current Assets minus stock : Current Liabilitiesfor year ended 31/12/-2 = 30,000 – 15,000 : 18,000 = .83:1for year ended 31/12/-3 = 36,000 – 19,000 : 23,000 = .74:1

(b) (i) DividendDividend is the portion of company profits which is given to shareholders. It is the return on theirinvestment in the company. Preference shareholders get a fixed return and ordinary shareholdersdividend depends on the level of profits available in any year.

(ii) Shareholders' fundsShareholders’ funds is the total investment by shareholders in a company. It is made up of issued sharecapital plus reserves.

(iii) Rate of Stock TurnoverRate of Stock Turnover measures the frequency with which stock is sold during the trading period. It isgiven by the formula:

for James Ltd. The rate is given as:



(iv) AuditorsAuditors are independent experts who give their opinion on whether the accounts are a ‘true and fairview’ of the financial position of the company. They are independent accountants appointed by theshareholders.

(c) ProfitabilityThe return on capital employed is the best measure of the profitability of the company as a whole.The return is calculated by:



James Ltd was more profitable for the year ended 31/12/-3.

Gross ProfitCost of Sales---------------------------- 100×

35,000105,000----------------- 100× 33.3%=

36,00099,000--------------- 100× 36.3%=


105,00014,000 15,000+( ) 2÷

------------------------------------------------ 7.2 times=

99,00016,000 19,000+( ) 2÷

------------------------------------------------ 5.6 times=

Profit (Before Interest and Tax)Shareholders funds Long-Term Liabilities+-------------------------------------------------------------------------------------------------- 100×’

15,000 4,000+165,000

-------------------------------- 100× 11.5%=

18,000 4,000+183,000

--------------------------------- 100× 12%=


156


Smith Plc

(a) (i) Opening StockStock Turnover

=

∴ 9x = 602,000x = 68,000∴ Opening Stock + Closing stock = 2(68,000) = 136,000Opening Stock = 136,000 – 60,000 = 76,000

(ii) Dividend Cover

=

(iii) Dividend Yield

=

(iv) Earnings per share

=

(v) Price Earnings Ratio

=

(b) Advice to Potential ShareholdersA potential shareholder would be interested in the following:

1. Profitability of the firm compared with the borrowing rate of financeReturn on capital employed

Return on shareholders’ funds

These rates compare very favourably with the 10% being charged for the finance.2. Proportion of the Company Owned after the Purchase

The holder of 230,000 of the 400,000 ordinary shares issued would have a controlling interest in thecompany. Thus the holder could change any company policy such as dividend payment etc.

Sales 982,000 Fixed Assets (+ Investments) 682,000– Cost of sales (602,000) Current Assets 212,000Gross Profit 380,000 Current Liabilities– Expenses (136,000) Creditors 45,000Net Profit for year 244,000 Dividends 27,000 (72,000)– Dividends Proposed (27,000) 140,000Retained Profits 217,000 822,000Profit and Loss Balance B/F (20,000) Financed ByProfit and Loss Balance C/F 197,000 Shares – Ordinary 400,000

– Preference 100,000Reserves – Profit and Loss Account 197,000Long Term Liabilities8% Debentures 125,000

822,000

Cost of SalesAverage Stock-------------------------------- 602,000

x----------------- 9= =

Profit (After Tax and Preference Dividend)Total Ordinary Dividend

------------------------------------------------------------------------------------------------ 244,000 7,000–20,000

---------------------------------- 11.85 times= =

Dividend per shareMarket price per share--------------------------------------------------- 100×

20,000/400,0002.50

---------------------------------- 0.052.50--------- 100× 2%= = =

Profit (After Tax and Preference dividend)Number of issued ordinary shares

------------------------------------------------------------------------------------------------ = 244,000 7,000–400,000

---------------------------------- 59 cent=

Market price per shareEarnings per share

--------------------------------------------------- 2.500.59--------- 4.2 years or 4.2:1= =

= Profit (Before Interest and Tax) 100×Shareholders funds + Long-Term Liabilities-------------------------------------------------------------------------------------------------- 244,000 10,000+

822,000-------------------------------------- 100× = 31%=’

= Profit (After Tax and Preference Dividends)Ordinary shares + reserves

-------------------------------------------------------------------------------------------------- 100× 244,000 7,000–400,000 197,000+---------------------------------------- 100× = 40%=

Solutions

157

3. Present Dividend PolicyEPS : DPS = 59 cent : 5 centThe ordinary shareholders only received 5 cent out of 59 cent they have earned. This represents only8% of their earnings. This is a very poor payout ratio.

4. Profit TrendsLast year’s Profit and Loss balance was €20,000 loss and this has been turned around into a€197,000 profit. Good trend.

5. Investment PolicyA good investment policy as they have gained 80% in value.

6. LiquidityCurrent Ratio = 212,000 : 72,000 = 3:1Acid Test = 152,000 : 72,000 = 2:1These are both above acceptable norms of 1.5:1 and 1:1respectively.

7. SectorLeisurewear is a growth sector.

8. Share PriceShare price is 20 cent below market price offering a discount of €46,000 on the purchase.

9. GearingThe Debt/Total capital percentage is 27% making this a low-geared firm which would suit an ordinaryshareholder as interest commitments are not high.

Overall I would advise my friend to buy the shares.


(a) (i) Return on Shareholders’ Funds

=

=

(ii) General Reserve General Reserve at 31/12/-8 was €125,000

(iii) Stock Turnover

= ∴ 8x = 600,000

x = 75,000Opening stock + closing stock = 2(75,000) = 150,000Opening stock = 150,000 – closing stock= 150,000 – 80,000

Sales 950,000 Fixed Assets 666,000– Cost of sales (600,000) Investments 178,000Gross Profit 350,000 Current Assets 270,000– Total Expenses (160,000) Current Liabilities (179,000)Net Profit before tax 190,000 91,000Taxation (50,000) 935,000Profit after tax 140,000 Financed By– Proposed Dividends (86,000) Shares – Ordinary 450,000

54,000 – Preference 200,000– Transfer to Reserve (24,000) Reserves – General Reserve 125,000Retained Profits 30,000 – Profit and Loss Account 50,000Profit and Loss Balance B/F 20,000 Long Term LiabilitiesProfit and Loss Balance C/F 50,000 9% Debentures 110,000

935,000

Profit (After Tax and Preference dividends)Ordinary shares + reserves

-------------------------------------------------------------------------------------------------- 100×

14,000 16,000–450,000 175,000+---------------------------------------- 100× 19.8%=

Cost of salesAverage stock-------------------------------- 600,000

x----------------- 8= =


158

= 70,000(iv) Dividend Yield

= =


=

(b) Report For: Bank requested for loan €300,000By whom prepared: S. OmebodySubject matter: Advisability of granting the loanBody of report:

1. GearingThe debt / total capital percentage of the company is 33%. Thus it is a low geared company. If the loan isgranted the gearing will become high at 65%, making the fixed interest payment on the loan a greater burdenon company profits. The interest cover now is 20 times but this will fall to five times if the loan is granted,unless profits increase.

2. SecurityCollateral is provided by the fixed assets. At the moment the book value of fixed assets available forcollateral is €556,000 (666,000-110,000). The nature of, and depreciation policy on these fixed assets mustbe ascertained.

3. Purpose of the loanThe loan is for productive purposes. This would suit the bank as it is interested in lending for profit-enhancing projects.

4. SectorFurther investigations are necessary to see if Pendrive Plc is performing comparably well with itscompetitors in the pharmaceutical industry. The area of Research and Development is very important.

5. LiquidityCurrent Ratio = 1.51:1Acid Test = 1.06:1These compare favourably with norms of 1.5:1 and 1:1 respectively.

6. ProfitabilityThe return on shareholders’ funds is 19.8%The return on capital employed is 21%Both compare favourably with the 11% charged on the loan.

7. Investment policy – Investments have risen in value by 11%. Good policy.

Recommendations

Grant the loan provided the market value of tangible fixed assets can provide enough collateral for the loan.With increased profits generated by the new machinery, the loan interest should be easily covered.

Dividend per share 100×Market price per share

--------------------------------------------------------- 70,000/450,000 100×1.75

-------------------------------------------------=0.156 100×

1.75-------------------------- 8.9%=

Market Price per ShareEarnings per share

---------------------------------------------------- 1.75140,000 16,000–

450,000-------------------------------------------------------------------------- 1.75

0.28--------- 6.25 years= = =

Solutions

159


(b) Interests of Debenture HoldersDebenture holders would be interested in:

1. Repayment dateDebenture loan is due for repayment on 31/12/-6. This is four years hence and there are noreserves set aside for this repayment.

2. SecurityThe security for the debentures is provided by the fixed assets in the year ended 31/12/-1. Thesecurity cover was 460,000:100,000 (or 4.6:1) and in the year ended 31/12/-2 the cover hasimproved to 487,000:100,000 (or 4.9:1). Security cover is satisfactory provided the assets’ bookvalue is a true reflection of their market value.

3. Interest CoverInterest cover has fallen from 4.6 times to four times. This is a drop in cover of 13% in one year. Avery poor trend.

4. LiquidityCurrent ratio fell from 1.25:1 to 1.04:1Acid test ratio fell from .9:1 to .39:1The firm has severe liquidity problems. It is below the norms of 1.5:1 and 1:1 respectively in bothyears and the situation is worsening.

5. Return on Capital Employed 31/12/-2 31/12/-1

= 6.7% 7.6%

The downward trend in profitability is an unhealthy development.6. Dividend Policy (EPS:DPS)

In the year ended 31/12/-1 the company paid each ordinary shareholder a dividend of 5 centdespite earnings per share of only 3.5 cent. In the year ended 31/12/-2, the situation has worsenedto where ordinary shareholders are still receiving a dividend per share of 5 cent despite earningsper share of only 2.5 cent. The company is using profits and reserves to pay dividends, whichwould better suit debenture holders if they were retained as reserves.

7. GearingThe firm is low geared but any possible advantage to the debenture holders is offset by the poor,and worsening, profit performance.

8. SectorThe construction industry is cyclical. If the industry is heading into the downward part of thecycle, the debenture holders can see no end to the poor profit performance.The debenture holders would be worried about their loan repayment in four years time. If thepresent trends in profitability and liquidity continue, they may consider calling in a receiver.

Watson Plc(a) 31/12/-2 31/12/-1

(i) Interest Cover

=

= 4 times = 4.6 times

(ii) Earnings per Share

=

= 2.5p = 3.5p

(iii) Dividend Yield

=

= 6.7% = 5.6%

Operating ProfitInterest Charges------------------------------------- 33,500 11,000–

11,000-------------------------------------

39,500 11,000+11,000

-----------------------------------

Profit (After tax and preference dividend)Number of issued ordinary shares

-----------------------------------------------------------------------------------------------23,500 13,500–

400,000---------------------------------- 27,500 13,500–

400,000----------------------------------

Dividend per ShareMarket Price per Share---------------------------------------------------- 100×

20,000/400,0000.75

---------------------------------- 20,000/400,0000.9

----------------------------------

Profit (Before interest and tax)Shareholders funds Long-term liabilities+------------------------------------------------------------------------------------------------’


160


McMillan Plc

(a) (i) Cash SalesPeriod of Credit allowed to Debtors

=

∴2x = 636,000∴ x = 318,000

Total Sales = 545,000Cash Sales = Total Sales – Credit Sales

= 545,000 – 318,000= 227,000

(ii) Earnings per Share

=

(iii) Dividend Cover

=

(iv) Interest Cover

=

(v) Market Value of SharesDividend Yield

=

= =

∴10x = 25= 2.50

The market value of one ordinary share is €2.50

Sales 545,000 Fixed AssetsCost of sales (218,500) Tangible 500,000Gross Profit 326,500 Intangible 100,000Operating Expenses (160,000) Investments 100,000Operating Profit 166,500 700,000Interest (16,500) Current Assets 190,000Net Profit for year 150,000 Current LiabilitiesDividends Proposed (74,000) Creditors 41,000

76,000 Dividends due 74,000 (115,000)Transfer to Reserve (40,000) 75,000Retained Profits 36,000 775,000Profit and Loss Balance B/F (11,000) Financed ByProfit and Loss Balance C/F 25,000 Shares – Ordinary 200,000

– Preference 300,000Reserves – General Reserve 100,000– Profit and Loss Account 25,000Long Term Liabilities11% Debentures 150,000

775,000

Debtors 12×Credit Sales

----------------------------- 53,000 12×x

-------------------------- 2= =


----------------------------------------------------------------------------------------------- 150,000 24,000–200,000

-------------------------------------- 63 cent= =

Profit (After tax and preference dividend)Total ordinary dividend

----------------------------------------------------------------------------------------------- 150,000 24,000–50,000

------------------------------------------ 2.5 times= =

Operating profitInterest charges------------------------------------- 166,500

16,500----------------- 10 times= =


---------------------------------------------------------

50,000/200,000x

---------------------------------- 100× 10%=0.25 100×

x------------------------ 10=

Solutions

161

(b) Interests of Potential ShareholderA potential shareholder would be interested in the following:

1. Profitability of the firm Compared with Borrowing Rate of Finance

Return on capital employed

=

Return on Shareholders’ Funds

=

These rates compare favourably with the 13% being charged for finance. Borrowings will amountto €250,000 with annual interest of €32,500.

2. Proportion of the Company Owned after the PurchaseThe holder of 100,000 ordinary shares would be a major, if not the major shareholder in thecompany. As such he/she would exert great influence over dividend policies and policies ingeneral.

3. Present Dividend PolicyEPS:DPS = 63 cent : 25 centThe ordinary shareholders are 25 cent out of the 63 cent they earned. This is a payout rate of 40%.Shareholders would be satisfied with these figures.

4. Profit TrendsMcMillan Plc. increased its reserves (€11,000) last year to a positive balance of €25,000 this year.This is an improving trend.

5. Investment policyA good investment policy as they have risen 10% in value.

6. LiquidityCurrent ratio = 1.6:1Acid test = 0.8:1Current ratio is acceptable but the acid test ratio is below the accepted norm of 1:1.

7. Contingent LiabilityIf this materialises, then an already poor liquidity situation will worsen.

8. SectorComputer software is a successful but highly mobile industry. Unless the Research andDevelopment function is located in Ireland, the company could lose out to lower wage economiesin Eastern Europe or Asia.

9. DebenturesDebentures are repayable in two years time but there are reserves built up and there is enough timeto meet the €150,000 payout.Overall, this is a sound investment, the only worrying point being the liquidity and the contingentliability. As long as the licence is guaranteed, I would advise my friend to buy the shares.


Tinn Plc(a) 31/12/-6 31/12/-5

(i) Return on Shareholders’ Funds

=

= 8.8% = 2.25%

Profit (Before interest and tax) 100×Shareholders funds + Long-Term Liabilities-------------------------------------------------------------------------------------------------- 166,500

775,000----------------- 100× 21%= =

Profit (After tax and preference dividends) 100×Ordinary shares and reserves

--------------------------------------------------------------------------------------------------------------- 150,000 24,000–325,000

------------------------------------- 100× 39%= =

Profit (After tax and preference dividend)Shareholders funds + Long-Term Liabilities( )

--------------------------------------------------------------------------------------------------------’74,000 8,000 100×–

750,000----------------------------------------------- 24,000 8,000 100×–

708,000-----------------------------------------------


162

(b) Interests of Ordinary ShareholdersOrdinary shareholders would be interested in:

1. Profit trendsReturn on shareholders’ funds has improved from 2.25% to 8.8%. This is a healthy trend.The return on capital employed has risen from 5.2% to 13.6% which compares favourablywith returns from risk free investments.

2. DividendsDividend cover has improved from 1.6 times to 2.75 times. The cover is low but improving.Dividend Policy (EPS:DPS) in the year ended 31/12/-5 was to give 62% of earnings toordinary shareholders as dividends. This dropped to 36% for the year ended 31/12/-6. Thecompany is retaining more profits as reserves.Dividend yield has doubled from 1.3% to 2.6%. The yield is low by comparison with yieldsfrom risk-free investments but the trend is good.

3. LiquidityCurrent ratio has improved from 1.03:1 to 2:1Acid test ratio has improved from 0.3:1 to 1.4:1The liquidity position is much healthier and the trend is good.

4. SectorThe current economic health of the industrial sector would be of interest to shareholders.This is linked directly to the health of the economy as a whole.

5. GearingGearing is low at around 25%. This suits ordinary shareholders as less profit is devoted tofixed interest repayments.

6. Interest coverThis has improved from 4.6 times to 12.6 times. This is a healthy trend.

7. SecurityThe book value of fixed assets has fallen, probably due to depreciation charges. The shareholderswould need to know the nature of and depreciation policy for, all fixed assets.

8. Market PriceThe stock market price may be a guide to the general health of the company. The price hasrisen by 23% in the last year. Coupled with a rising P/E ratio, the indications are that themarket has confidence in the company. However share prices are prone to movement due torumours of takeover bids, general economic conditions, political events and many otherfactors which have little to do with the company itself.

(c) Limitations of Ratio Analysis

1. Ratios deal with figures only. Figures in isolation do not give a full picture of the company.2. Comparisons of the company over time may be misleading if conditions have changed.3. Changes in the value of money due to inflation will distort the ratios.4. Comparisons of different companies must take into consideration different accounting

policies adopted by different firms.

(ii) Dividend Yield

=

= =

= 2.6% = 1.3%

(iii) Interest Cover

=

= 12.6 times = 4.6 times

Dividend per ShareMarket Price per Share---------------------------------------------------- 100× 32,000 8,000/500,000–

1.85----------------------------------------------------- 18,000 8,000/500,000–

1.50-----------------------------------------------------

0.048 100×1.85

-------------------------- 0.02 100×1.50

------------------------

Net profit Interest+Interest

-----------------------------------------------94,000 8,100+

8,100--------------------------------- 29,000 8,100+

8,100---------------------------------

Solutions

163


Fryere Plc

(b) Would the Bank grant the Loan?A bank which has been asked for a loan would be interested in:

1. GearingThe firm is low geared but the rate is rising from 30% to 34%. If the loan is granted, the gearingwould rise to 65% making it a highly geared firm. This would make fixed interest repayments agreater burden on company profits. The interest cover is good at 20 times but this would fall if theloan is granted, unless profits increase.

2. Purpose of the LoanThe loan is for productive purposes. This would suit the bank as it is interested in lending for profitgenerating projects.

3. CollateralCollateral is provided by the fixed assets. At the moment, the book value of fixed assets availablefor collateral is €778,000 (898,000 – 120,000). The nature of, and depreciation policy for, thesefixed assets must be ascertained.

4. LiquidityCurrent ratio has improved from 1.03:1 to 1.3:1Acid test ratio has improved from .6:1 to 1.1:1These are healthy trends.

31/12/-7 31/12/-6 31/12/-7 31/12/-6Sales 1,072,000 806,000 Fixed Assets 898,000 728,000Cost of Sales (692,000) (430,000) Current Assets 210,000 200,000Gross Profit 380,000 376,000 Current LiabilitiesOperating Expenses (190,000) (170,000) Creditors (93,200) (136,600)Operating Profit 190,000 206,000 Dividends due (64,000) (57,000)Interest (9,600) (9,600) 950,800 734,400Net Profit 180,400 196,400 Financed byDividends (64,000) (57,000) 8% Debentures 120,000 120,000Retained 116,400 139,400 Shares – Ordinary 500,000 500,000P+L Balance B/F 14,400 (125,000) Shares – Preference 200,000 100,000P+L Balance C/F 130,800 14,400 Reserves 130,800 14,400

950,800 734,400

(a) 31/12/-7 31/12/-6

(i) Earnings per Share

=

= 33 cent = 38 cent

(ii) Return on Shareholders’ Funds x 100

=

= 26% = 37%

(iii) Interest Cover

=

= 20 times = 21 times

(iv) Debt/Total Capital Percentage

= 34% = 30%


----------------------------------------------------------------------------------------------- 180,400 14,000–500,000

------------------------------------- 196,400 7,000–500,000

----------------------------------

Profit (After tax and preference dividend)Ordinary shares Reserves+

----------------------------------------------------------------------------------------------- 180,400 14,000–500,000 130,800+---------------------------------------- 196,400 7,000–

500,000 14,000+--------------------------------------

Operating profitInterest

-------------------------------------190,0009,600

----------------- 206,0009,600

-----------------

Debt capitalTotal capital---------------------------- 100×

120,000 200,000+950,800

---------------------------------------- 120,000 100 000,+734,400

------------------------------------------


164

5. SectorThe fast food sector is bouyant and with increased leisure time will probably expand.

6. ProfitabilityReturn on capital employed has dropped from 28% to 19%.Return on shareholders funds has dropped from 37% to 26%.While the rates of profitability are high, the falling trend is unhealthy.

The bank would grant the loan after careful examination of the security available.


(b) Interests of Ordinary ShareholdersOrdinary shareholders would be interested in the following:

1. Profit trendsReturn on shareholders’ funds has improved from 19% to 27%. This is a very healthy trend .Return on capital employed has improved from 18% to 24% which compares favourably with risk-free investments.

2. DividendsDividend cover has dropped slightly from 2 times to 1.58 times. This is low cover.Dividend Policy/(EPS:DPS) in the year ended 31/12/-2 was to give 49% of earnings toshareholders in the form of dividends. This rose to 63% in the year ended 31/12/-3. Shareholderswould be happy with this trend.Dividend yield has risen from 6.7% to 12%. This is a good yield by comparison with most risk-free investments. The trend is rising.

Clodagh Fashions Plc(a) 31/12/-3 31/12/-2

(i) Dividend Yield

=

= =

= 12% = 6.7%

(ii) Return on Shareholders’ Funds

=

= 12% = 6.7%

(iii) Calculation of PurchasesPurchases = Cost of sales+ Closing Stock– Opening stock

579,00078,000

(63,000)

527,00063,000

(58,000)

594,000 532,000

(iv) Cash Purchase FiguresAverage Period of Credit Received

x = 120,000 x = 518,400Cash purchases = Total purchases 594,000 532,000– Credit purchases (120,000) (518,400)

474,000 13,600


--------------------------------------------------------- 68,000 18,000/250,000–1.65

------------------------------------------------------- 43,000 18,000/250,000–1.50

-------------------------------------------------------

0.2 100×1.65

--------------------- 0.1 100×1.50

---------------------

Profit (After tax and preference dividend)Ordinary shares reserves+

----------------------------------------------------------------------------------------------- 97,000 18,000–250,000 43,000+-------------------------------------- 69,000 18,000–

250,000 14,000+--------------------------------------

Creditors 12×Credit purchases-------------------------------------

20,000 12×x

-------------------------- 2= 108,000 12×x

----------------------------- 2.5=

Solutions

165

3. LiquidityCurrent ratio has improved from 1.05 to 1.48:1Acid test ratio has improved from .7:1 to .9:1Liquidity is improving but still remains below the norms of 2:1 and 1:1 for current ratio and acidtest ratio respectively.

4. Debenture Repayment DateDebenture loan is repayable in five years time. Reserves are increasing.

5. SectorHigh quality women’s clothing is a profitable but volatile market. The huge increase in cashpurchases (€13,600 in year ended 31/12/-2 to €474,000 in the year ended 31/12-3) shows areluctance amongst suppliers to grant credit to Clodagh Fashions Plc. What has caused this?

6. GearingGearing has moved from 53% to 50%, i.e. neutral gearing.

7. Interest CoverThe cover has improved from 10.4 times to 14.5 times. This is a healthy trend.

8. SecurityThe book value of fixed assets has fallen, probably due to depreciation charges. The shareholderswould need to know the nature of, and depreciation policy for, these fixed assets.

9. Market PriceSee solution to question 19.13


Penn Plc

Sales 870,000 Fixed Assets 715,000Cost of Sales (710,000) Current Assets 190,000Gross Profit 160,000 Current Liabilities (158,000)Operating Expenses (95,600) 32,000Operating Profit 64,400 747,000Interest Charges (14,400) Financed ByNet Profit before Taxation 50,000 Long Term LiabilitiesTaxation (25,000) 12% Debentures 120,000Profit after Taxation 25,000 Share Capital –Ordinary 350,000Proposed Dividends (25,000) – Preference 200,000Retained Profits – ReservesProfit and Loss Balance B/F 60,000 Revaluation Reserve 17,000Profit and Loss Balance C/F 60,000 Profit and Loss Account 60,000

747,000

(a) (i) Interest Cover

=

(ii) Return on Shareholders’ Funds

=

(iii) Opening StockStock Turnover

=

Opening Stock + Closing Stock = 2(71,000) = 142,000Opening stock = 142,000 – Closing Stock

= 142,000 – 112,000= 30,000

Operating profitInterest

------------------------------------- 64,40014,400--------------- 4.47 times= =

Profit (After tax and preference dividend) 100×Ordinary shares Reserves+

-------------------------------------------------------------------------------------------------------------- 25,000 18,000–350,000 77,000+-------------------------------------- 1.6%==

Cost of salesAverage stock-------------------------------- 710,000

x----------------- 10 x∴ 71,000= = =


166

(b) Report

For: Bank requested for loan €200,000By whom prepared: A. StudentSubject matter: Advisability of granting the loan

Body of report:

1. GearingThe debt/total capital percentage of the company is 16%. Thus it is a low geared company. If the loan isgranted, the gearing will rise to 43% which is still low. The interest cover is 4.47 times at the moment but atthe present profit level, the €26,000 annual interest would reduce the cover to 2.2 times, which is too low forcomfort.

2. SecurityCollateral is provided by the fixed assets. At the moment, the book value of the fixed assets available forcollateral is €595,000 (715,000 – 120,000). The nature of and depreciation policy for these fixed assets mustbe ascertained. The presence of a revaluation reserve in the Balance Sheet shows assets have been revaluedin the past and they may need to be revalued again.

3. Purpose of the LoanThe loan is to finance new technology. The bank would be interested in lending for profit-generatingventures.

4. ProfitabilityThe return on shareholders’ funds is 1.6%The return on capital employed is 8.6%These compare unfavourably with the 13% being charged on the loan. If the profit trend is falling, the loaninterest would become an increasing burden on the company, eventually becoming unsustainable. Projectedprofit figures would be required from the company.

5. LiquidityThe current ratio is 1.2:1 and the acid test is 0.5:1. These are poor when compared with norms of 2:1 and 1:1respectively.

6. SectorThe ice-cream market is seasonal and dependent on good summer weather. The fact that closing stock isnearly four times greater than opening stock suggests that the company may have had a poor year and that itis producing goods that are not selling and being stored. The closing stock may be overvalued.

Recommendation: Refuse the loan.

(iv) Earnings per Share

=


=


----------------------------------------------------------------------------------------------- 25,000 18,000–350,000

---------------------------------- 2 cent= =


------------------------------------------------------ 2.000.02---------- 100= =

Solutions

167

QUESTION 19.17

(b) Interests of Ordinary ShareholdersOrdinary shareholders would be interested in the following:

1. Profit TrendsReturn on shareholders’ funds has improved from 21% to 24%. This is a healthy trend. Return oncapital employed has improved from 24.6% to 27%. This is a healthy trend and comparesfavourably with returns from risk-free investments.

2. DividendsDividend cover has dropped slightly from 5.6 times to 5.3 times. Dividend policy (EPS:DPS) inthe year ended 31/12/-6 was to give 18% of earnings to shareholders in the form of dividends. Thishas remained fairly constant at 18.5% in the year ended 31/12/-7. Shareholders would be satisfiedwith this policy. Dividend yield has risen from 3.08% to 4.76%. The trend is positive.

3. LiquidityCurrent ratio has improved from 1.3:1 to 1.4:1Acid test has improved from 0.8:1 to 1.04:1The current ratio is below the accepted norm of 1.5:1 minimumThe acid test is above the accepted norm of 1:1Both ratios have a positive trend.

4. Revaluation ReserveThe revaluation reserve increased by €60,000 over the year. This indicates that a fixed asset,probably land, had a market value in excess of its book value. The increase in the value of the assetrepresents unrealised profits for the shareholders. They would be satisfied with this.

5. SectorFoldups Plc serves the computer industry. This is a growth sector.

6. GearingThe debt/total capital has fallen from 33 1/3% to 26%.The gearing is becoming lower. Coupled with the rising interest cover, this is a healthy trend.

7. Market PriceSee solution to question 19.13

(c) Ratio ComparisonRatios may be compared with the same ratios for 1) a budgeted period, 2) competitors and 3) industry normsor averages.

Foldups Plc(a) 31/12/-7 31/12/-6

(i) Dividend Yield

=

=

= 4.76%

=

= 3.08%(ii) Return on Shareholders’ Funds

=

=

= 24%

=

= 21%

(iii) Price Earnings Ratio

=

=

= 3.9:1

=

= 5.7:1(iv) Interest Cover

=

= 12.6 times = 9 times


--------------------------------------------------------- 27,500/275,000 100×2.10

-------------------------------------------------

0.10 100×2.10

------------------------

16,500/275,000 100×1.95

-------------------------------------------------

0.06 100×1.95

------------------------

Profit (After tax and preference dividends) 100×Ordinary shares Reserves+

--------------------------------------------------------------------------------------------------------------- 159,500 12,000 100×–275,000 345,000+

----------------------------------------------------

147,500 100×620,000

--------------------------------

105,000 12,000 100×–275,000 165,000+

----------------------------------------------------

93,000 100×440,000

-----------------------------


--------------------------------------------------- 2.10147,500/275,000-------------------------------------

2.100.54---------

1.9593,000/275,000----------------------------------

1.950.34---------

Operating profitInterest charges------------------------------------- 209.500 18,000+

18,000-------------------------------------- 145,000 18,000+

18,000--------------------------------------

168

Cash Flow Statements20QUESTION 20.1

QUESTION 20.2

Mayhope Ltd(a) Reconciliation of Operating Profit to Net Cash Flow

Operating Profit 79,000Depreciation 40,000Stock Decrease 30,000Debtors Increase (20,000)Creditors Increase 21,000Net Cash Inflow from Operating Activities 150,000

(b) Cash Flow StatementOperating ActivitiesNet Cash Inflow from Operating Activities 150,000Returns on Investments and Servicing of FinanceDividends Paid (27,000)TaxationCorporation Profits Tax Paid (41,000)Investing ActivitiesPayments to Acquire Tangible Fixed Assets (100,000)Net Cash Outflow Before Financing (18,000)FinancingShares Issued 20,000Increase in Cash 2,000ProofOpening Bank Balance 5,000Closing Bank Balance 7,000Increase in Cash 2,000

Grimm Ltd(a) Reconciliation of Operating Profit to Net Cash Flow

Operating Profit 91,000Depreciation 11,000Stock Increase (12,000)Debtors Increase (7,000)Creditors Increase 21,000Net Cash Inflow from Operating Activities 104,000

Solutions

169

QUESTION 20.3

Firestal Ltd

(b) Cash Flow StatementOperating ActivitiesNet Cash Inflow from Operating Activities 104,000Returns on Investments and Servicing of FinanceDividends Paid (37,000)TaxationCorporation Profits Tax Paid (31,000)Investing ActivitiesPayments to Acquire Fixed Assets (70,000)Net Cash Outflow Before Financing (34,000)FinancingShares Issued 20,000Decrease in Cash (14,000)ProofOpening Bank Balance 16,000Closing Bank Balance 2,000Decrease in Cash (14,000)

(a) Reconciliation of Operating Profit to Net Cash FlowOperating Profit 430,000Depreciation 30,000Stock Decrease (30,000)Debtors Increase (20,000)Creditors Increase (40,000)Net Cash Inflow from Operating Activities 370,000

(b) Cash Flow StatementOperating ActivitiesNet Cash Inflow from Operating Activities 370,000Returns on Investments and Servicing of FinanceDividends Paid (140,000)Interest Paid (10,000)

(150,000)TaxationCorporation Profits Tax Paid (150,000)Investing ActivitiesPayments to Acquire Fixed Assets (100,000)Net Cash Outflow Before Financing (30,000)FinancingLoans Repaid (30,000)Shares Issued 100,000

70,000Increase in Cash 40,000ProofOpening Bank Balance 20,000Closing Bank Balance 60,000Increase in Cash 40,000


170

QUESTION 20.4


Tuxedo Plc

Sliotar Ltd(a) Reconciliation of Operating Profit to Net Cash Flow

Operating Profit 44,000

Depreciation 27,000Stock Decrease 18,000Debtors Decrease 5,000Creditors Increase 21,000Net Cash Inflow from Operating Activities 115,000

(b) Cash Flow StatementOperating ActivitiesNet Cash Inflow from Operating Activities 115,000Returns on Investments and Servicing of FinanceDividends Paid (35,000)TaxationCorporation Tax Paid (53,000)Investing ActivitiesPayments to Acquire Fixed Assets (70,000)Net Cash Outflow Before Financing (43,000)FinancingShares Issued 50,000Increase in Cash 7,000ProofOpening Bank Balance 16,000Closing Bank Balance 23,000Increase in Cash 7,000

Preparatory Notes (in €’000s) Discovered Items marked with AsteriskNote 1 Land and Buildings Account Note 4 Plant and Machinery AccountBalance b/d 320 Disposal 100 Balance b/d 290Bank * 80 Balance c/d 300 Bank * 120 Balance c/d 410

400 400 410 410

Note 2 Depreciation Account Note 5 Depreciation AccountDisposal * 70 Balance b/d 79 Balance b/d 150Balance c/d 75 Profit and Loss 66 Balance c/d 190 Profit and Loss 40

145 145 190 190

Note 3 Disposal Account Note 6 Taxation AccountBuildings 100 Bank 45 Bank * 210 Balance b/d 190Profit * 15 Depreciation * 70 Balance c/d 180 Profit and Loss 200

115 115 390 390

Note 7 Dividends AccountBank * 100 Balance b/d 30Balance c/d 40 Profit and Loss 110

140 140

Solutions

171

QUESTION 20.6

Lapwing Plc

(a) Reconciliation of Operating Profit to Net Cash FlowOperating ProfitDepreciation (Notes 2 and 5)Profit on Disposal (Note 3)Stock IncreaseDebtors IncreaseCreditors Decrease

408,000106,000(15,000)(30,000)(30,000)(10,000)

Net Cash Inflow from Operating Activities 429,000

(b) Cash Flow StatementOperating ActivitiesNet Cash Inflow from Operating ActivitiesReturns on Investments and Servicing of FinanceDividends Paid (Note 7)Interest Paid

(100,000)(15,000)

429,000

TaxationCorporation Tax Paid (Note 6)Investing ActivitiesPayments to Acquire Tangible Fixed Assets– Land and Buildings (Note 1)– Plant and Machinery (Note 4)Quoted InvestmentsCash on Disposal (Note 3)

(80,000)(120,000)(50,000)45,000

(115,000)

(210,000)

(205,000)Net Cash Outflow Before FinancingFinancingLoan BorrowedShares Issued

50,00050,000

(101,000)

100,000Decrease in Cash (1,000)ProofOpening Bank BalanceClosing Bank Balance

30,00029,000

Decrease in Cash (1,000)

Preparatory Notes (in €’000s) Discovered Items are marked with an AsteriskNote 1 Land and Buildings Account Note 4 Plant and Machinery Account

Balance b/dBank *

480150

DisposalBalance c/d

120510

Balance b/dBank *

30050

DisposalBalance c/d

100250

630 630 350 350

Note 2 Depreciation Account Note 5 Depreciation AccountDisposal *Balance c/d

70150


110110

Disposal *Balance c/d

30100


9040

220 220 130 130

Note 3 Disposal Account Note 6 Disposal AccountLand and BuildingsProfit *

12010

BankDepreciation *

6070

Plant and Machinery 100 LossDepreciationBank *

53065130 30

100 100


172


Jaycee Plc

Note 7 Motor Vehicles Note 8 Depreciation AccountBalance b/dBank *

7050 Balance c/d 120 Balance c/d 60


3030

120 120 60 60

(a) Reconciliation of Operating Profit to Net Cash FlowOperating Profit 126,000Depreciation (110 + 40 + 30) 180,000Loss on Disposal 5,000Profit on Disposal (10,000)Stock Increase (30,000)Debtors Decrease 20,000Creditors Decrease (60,000)Net Cash Inflow from Operating Activities 231,000

(b) Cash Flow StatementOperating ActivitiesNet Cash Inflow from Operating Activities 231,000Returns on Investments and Servicing of FinanceDividends Paid (70,000)Interest Paid (9,000)

(79,000)TaxationCorporation Profits Tax Paid (25,000)Investing ActivitiesPayments to Acquire Tangible Fixed Assets(150 + 50 + 50) (250,000)Cash on Disposal (60 + 65) 125,000

(125,000)Net Cash Outflow Before Financing 2,000FinancingDebenture Loan 30,000Increase in Cash 32,000ProofOpening Bank Balance (17,000)Closing Bank Balance 15,000Decrease in Cash 32,000

Preparatory Notes Discovered Items are marked with an AsteriskNote 1 Debenture Interest Account Note 2 Investment Interest AccountBank * 26,800 Balance b/d 15,000 Balance b/d 10,000 Bank * 18,000Balance c/d 5,000 Profit and Loss 16,800 Profit and Loss 10,000 Balance c/d 2,000

31,800 31,800 20,000 20,000

Calculation of Debenture Interest Payable Note 5 Calculation of Investment Interest Receivable

€150,000 at 12% for 2/3 year 12,000 €100,000 at 10% for 1 year = 10,000

€120,000 at 12% for 1/3 year 4,800

16,800

Solutions

173

Note 3 Land and Buildings Account Note 6 Plant and Machinery AccountBalance b/d 400,000 Disposal 120,000 Balance b/d 300,000 Disposal 100,000Bank * 312,000 Balance c/d 600,000 Balance c/d 200,000

712,000 712,000 300,000 300,000

Note 4 Depreciation Account Note 7 Depreciation AccountDisposal * 20,000 Profit and Loss 150,000 Disposal * 40,000 Balance b/d 110,000Balance c/d 190,000 Balance b/d * 60,000 Balance c/d 140,000 Profit and Loss 70,000

210,000 210,000 180,000 180,000

Note 5 Disposal Account Note 8 Disposal AccountBuildings 112,000 Bank 90,000 Machinery 100,000 Depreciation * 40,000

Depreciation * 20,000 Loss 6,000Loss * 2,000 Bank * 54,000

112,000 112,000 100,000 100,000

Note 9 Dividends Account Note 10 Taxation AccountBank * 160,000 Balance b/d 70,000 Balance b/d 20,000 Profit and Loss 90,000Balance c/d 39,000 Profit and Loss 129,000 Balance c/d 90,000 Bank * 20,000

199,000 199,000 110,000 110,000

(a) Reconciliation of Operating Profit to Net Cash FlowOperating Profit 231,800Depreciation 130,000Loss on Disposal (Notes 5 and 8) 8,000Stock Increase (30,000)Debtors Increase (18,000)Creditors Increase 21,000Net Cash Inflow from Operating Activities 342,800

(b) Cash Flow StatementOperating ActivitiesNet Cash Inflow from Operating Activities 342,800Returns on Investments and Servicing of FinanceDividends Paid (Note 9) (160,000)Interest Paid (Note 1) (26,800)Interest Received (Note 2) 18,000

(168,800)TaxationTax Rebate (Note 10) 20,000Investing ActivitiesPayments to Acquire Tangible Fixed Assets – (Note 3) (312,000)Cash on Disposal (Notes 5 and 8) 144,000

(168,000)Net Cash Inflow Before Financing 26,000FinancingLoan Repaid (30,000)Shares Issued 10,000

(20,000)Increase in Cash 6,000ProofOpening Bank Balance 21,000Closing Bank Balance 27,000Increase in Cash 6,000


174


Manimex Plc(a) Abridged Profit and Loss Account for the year ended 31/12/-5

Profit and Loss Balance c/f 29,000Profit and Loss Balance b/f 21,000Retained Profits 8,000Dividends (600,000 at 5 cent) 30,000Profit after Taxation 38,000Taxation (Note 7) 42,000Profit before Taxation 80,000Interest Paid (10% on 100,000 for 6 months) 5,000Operating Profit 85,000

Preparatory Notes (in €’000s) Discovered Items are marked with an AsteriskNote 1 Land and Buildings Account Note 4 Equipment AccountBalance b/d 350 Disposal 130 Balance b/d 190 Disposal * 40Bank * 190 Balance c/d 410 Bank * 90 Balance c/d 240

540 540 280 280

Note 2 Depreciation Account Note 5 Depreciation AccountDisposal * 20 Balance b/d 60 Disposal * 10 Balance b/d 75Balance c/d 70 Profit and Loss 30 Balance c/d 92 Profit and Loss 27

90 90 102 102

Note 3 Disposal Account Note 6 Disposal AccountBuildings 130 Bank 160 Equipment * 40 Loss 10Profit 50 Depreciation * 20 Depreciation * 10

180 180 Bank * 2040 40

Note 7 Taxation Account Note 8 Dividends AccountBank 29 Balance b/d 54 Bank * 27 Balance b/d 19Balance c/d 67 Profit and Loss * 42 Balance c/d 22 Profit and Loss 30

96 96 49 49

(b) Reconciliation of Operating Profit to Net Cash FlowOperating Profit 85,000Depreciation (30 + 27 + 20) 77,000Loss on Disposal (Note 6) 10,000Profit on Disposal (Note 3) (50,000)Stock Increase (19,000)Debtors Decrease 30,000Creditors Decrease (16,000)Net Cash Inflow from Operating Activities 117,000

Solutions

175

QUESTION 20.9 (HIGHER LEVEL)Ark Plc

(c) Cash Flow StatementOperating ActivitiesNet Cash Inflow from Operating Activities 117,000Returns on Investments and Servicing of FinanceDividends Paid (Note 8) (27,000)Interest Paid (5,000)

(32,000)TaxationCorporation Profits Tax Paid (Note 7) (29,000)Investing ActivitiesPayments to Acquire Tangible Fixed Assets (Note 1) (190,000)(Note 2) (90,000)Cash on Disposal (Notes 3 and 6) 180,000

(100,000)Net Cash Outflow Before Financing (44,000)FinancingShares Issued 110,000Repayment of Loan (100,000)

10,000Decrease in Cash (34,000)ProofOpening Cash and Bank Balance 4,000Closing Cash and Bank Balance (30,000)Decrease in Cash (34,000)

Preparatory Notes (in €’000s) Discovered Items are marked with an AsteriskNote 1 Tangible Fixed Assets Account Note 2 Disposal AccountBalance b/d 290 Disposal 43 Fixed Assets 43 Bank 49Bank 47 Depreciation * 17 Profit * 6Revaluation 33 Balance c/d 310 49 49

370 370

Note 3 Interest Receivable Account Note 4 Interest Payable AccountBalance b/d 4 Bank * 6 Bank * 18 Balance b/d 14Profit and Loss 5 Balance c/d 3 Balance c/d 12 Profit and Loss 16

9 9 30 30

Note 5 Dividends Account Note 6 Taxation AccountBank * 74 Balance b/d 60 Bank * 40 Balance b/d 33Balance c/d 70 Profit and Loss 84 Balance c/d 38 Profit and Loss 45

144 144 78 78

(a) Reconciliation of Operating Profit to Net Cash FlowOperating Profit 198,000Amounts Written Off Intangible Assets 10,000Depreciation (Note 1) 17,000Profit on Disposal (Note 2) (6,000)Stock Increase (18,000)Debtors Decrease 4,000Creditors Decrease (13,000)Net Cash Inflow from Operating Activities 192,000


176


Cain Plc

(b) Cash Flow StatementOperating ActivitiesNet Cash Inflow from Operating Activities 192,000Returns on Investments and Servicing of FinanceDividends Paid (Note 5) (74,000)Interest Paid (Note 4) (18,000)Interest Received (Note 3) 6,000

(86,000)TaxationCorporation Profits Tax Paid (Note 6) (40,000)Investing ActivitiesPayments to Acquire Tangible Fixed Assets – (Note 1) (47,000)Payments to Acquire Financial Fixed Assets (30,000)Cash on Disposal 49,000


(69,000)Decrease in Cash (31,000)ProofOpening Bank Balance 12,000Closing Bank Balance (19,000)Decrease in Cash (31,000)

Preparatory Notes (in €’000s) Discovered Items are marked with an AsteriskNote 1 Tangible Fixed Assets Note 2 Disposal AccountBalance b/d 1,384 Disposal 110 Assets 110 Bank 130Revaluation 400 Depreciation 152 Profit * 20Bank * 455 Balance c/d 1,977 130 130

2,239 2,239

Note 3 Interest Account Note 4 Calculation of Interest PayableBank * 65 Balance b/d 30 300 at 10% for 1 year = 30

Profit and Loss (Note 4) 35 100 at 10% for 1/2 year = 5

65 65 35

Note 5 Dividends Account Note 6 Taxation AccountBank * 105 Balance b/d 60 Bank * 259 Balance b/d 117Balance c/d 45 Profit and Loss 90 Balance c/d 148 Profit and Loss 290

150 150 407 407

Solutions

177

(c) See textbook page 281.


(a) Reconciliation of Operating Profit to Net Cash FlowProfit before Taxation 411,000Add Interest Payable (Note 4) 35,000Operating Profit 446,000Depreciation 152,000Amounts Written Off Intangible Assets 20,000Profit on Disposal (Note 1) (20,000)Stock Increase (69,000)Debtors Increase (15,000)Creditors Decrease (81,000)Net Cash Inflow from Operating Activities 433,000

(b) Cash Flow StatementOperating ActivitiesNet Cash Inflow from Operating Activities 433,000Returns on Investments and Servicing of FinanceDividends Paid (Note 5) (105,000)Interest Paid (Note 4) (65,000)

(170,000)TaxationCorporation Profits Tax Paid (Note 6) (259,000)Investing ActivitiesPayments to Acquire Tangible Fixed Assets (Note 1) (455,000)Payments to Acquire Financial Fixed Assets (40,000)Cash on Disposal (Notes 5 and 8) 130,000

(365,000)Net Cash Outflow Before Financing (361,000)FinancingLoan Borrowed 100,000Shares Issued 300,000

400,000Increase in Cash 39,000ProofOpening Bank Balance 73,000Closing Bank Balance 112,000Increase in Cash 39,000

Abel Plc(a) Abridged Profit and Loss Account for the year ended 31/12/-4

Profit and Loss Balance c/f 314,000Profit and Loss Balance b/f 290,000Retained Profits 24,000Dividends (400,000 x 10 cent) 40,000Profit after Taxation 64,000Taxation (Note 10) 85,000Profit before Taxation 149,000Interest Payable (Note 12) 10,000Operating Profit 159,000


178

Preparatory Notes (in €’000s) Discovered Items are marked with an AsteriskNote 1 Land and Buildings Account Note 7 Vehicles AccountBalance b/d 380 Disposal 20 Balance b/d 112 Disposal 20Revaluation 60 Balance c/d 92Bank * 40 Balance c/d 460 112 112

480 480

Note 2 Depreciation Account Note 8 Depreciation AccountDisposal * 5 Balance b/d 40 Balance b/d 22Balance c/d 70 Profit and Loss 35 Balance c/d 42 Profit and Loss 20

75 75 42 42

Note 3 Disposal Account (Buildings) Note 9 Disposal Account (Vehicles)Buildings 20 Bank 25 Vehicles 20 Loss 12Profit * 10 Depreciation * 5 Bank * 8

30 30 20 20

Note 4 Equipment Account Note 10 Taxation AccountBalance b/d 210 Disposal 30 Bank 75 Balance b/d 75Bank * 120 Balance c/d 300 Balance c/d 85 Profit and Loss * 85

330 330 160 160

Note 5 Depreciation Account Note 11 Dividends AccountDisposal 25 Balance b/d 90 Bank * 30 Balance b/d 40Balance c/d 80 Profit and Loss * 15 Balance c/d 50 Profit and Loss 40

105 105 80 80

Note 6 Disposal Account (Equipment) Note 12 Interest AccountEquipment 30 Depreciation 25 Bank * 9 Balance b/d 5Profit 15 Bank * 20 Balance c/d 6 Profit and Loss 10

45 45 15 15

(b) Reconciliation of Operating Profit to Net Cash FlowOperating Profit 159,000Depreciation (Note 2, 5, 8) 70,000Amount Written off Goodwill 20,000Profit on Disposal (Note 3, 6) (25,000)Loss on Disposal (Note 9) 12,000Stock Decrease 40,000Debtors Decrease 35,000Creditors Increase 10,000Net Cash Inflow from Operating Activities 321,000

Solutions

179


(c) Cash Flow StatementOperating ActivitiesNet Cash Inflow from Operating Activities 321,000Returns on Investments and Servicing of FinanceDividends Paid (Note 11) (30,000)Interest Paid (Note 12) (9,000)

(39,000)TaxationCorporation Profits Tax Paid (Note 10) (75,000)Investing ActivitiesPayments to Acquire Tangible Fixed Assets – (Notes 1, 4) (160,000)Cash on Disposal (Notes 3, 6, 9) 53,000


–Net Cash Increase 100,000ProofOpening Bank Balance (25,000)Closing Bank Balance 75,000Increase in Cash 100,000

Lerner Plc(a) Abridged Profit and Loss Account for the year ended 31/12/-5

Profit and Loss Balance c/f 237,000Profit and Loss Balance b/f 150,000Retained Profits 87,000Dividends 43,000Profit after Taxation 130,000Taxation (Note 10) 41,000Profit before Taxation 171,000Interest Paid €200,000 at 12% 24,000Operating Profit 195,000

Preparatory Notes (in €’000s) Discovered Items marked with AsteriskNote 1 Fixed Assets AccountBalance b/d 510 Disposal 60Bank * 200 Balance c/d 650

710 710

Note 2 Depreciation AccountDisposal 40 Balance b/d 130Balance c/d 150 Profit and Loss Account * 60

190 190

Note 3 Disposal Account (Buildings)Fixed Assets 60 Depreciation 40

Bank 15Loss * 5

60 60


180

(b) Reconciliation of Operating Profit to Net Cash FlowOperating Profit 195,000Depreciation (Note 2) 60,000Loss on Disposal (Note 3) 5,000Stock Decrease 3,000Debtors Increase (99,000)Creditors Decrease (21,000)Net Cash Inflow from Operating Activities 143,000

(c) Cash Flow StatementOperating Activities 143,000Net Cash Inflow from Operating ActivitiesReturns on Investments and Servicing of FinanceInterest Paid (24,000)Dividends Paid (50,000)

(74,000)TaxationCorporation Profits Tax Paid (33,000)Investing ActivitiesPayments to Acquire Tangible Fixed Assets (Note 1) (200,000)Cash on Disposal (Note 3) 15,000

(185,000)Net Cash Outflow Before Financing (149,000)FinancingIssue of Shares – 100,000At a Premium – 50,000Debentures Issued 50,000

200,000Increase in Cash 51,000ProofBank Balance on 31/12/-4 (63,000)Bank Balance on 31/12/-5 (12,000)Increase in Cash 51,000

181

Club Accounts and Accounts of Service Firms: Solutions21

QUESTION 21.1

Artane Residents Association

QUESTION 21.2

Donegal Musical Society

(b) Limitations of a Receipts and Payments Account (i) Does not take accruals and prepayments into account.

(ii) Does not distinguish between capital and revenue payments and receipts.(iii) Does not record depreciation on assets held(iv) Cannot reveal if activities which should generate profits are, in fact, generating profits.

QUESTION 21.3

Tralee Tennis Club

Receipts and Payments Account for the year ended 31/12/-0Balance b/d 800 Rent of Parish Hall 240Subscriptions 2,400 Printing Costs 250Golf Classic Receipts 1,100 Stationery 150Bingo Receipts 10,800 Bingo Prizes 2,900Sale of Work Receipts 820 Advertising Costs 310

Golf Classics Expenses 410Furniture 2,500Ladders 900Balance c/d 8,260

15,920 15,920

(a) Receipts and Payments Account for the year ended 31/12/-1Balance b/d 350 Hire of Parish Hall 300Subscriptions 1,680 Hire of Costumes 1,500Gate Receipts 3,820 Hire of Musicians 1,700Raffle Ticket Sales 5,000 Raffle Prizes 3,000Church Gate Collection 525 Royalties 300Donation 2,000 Advertising 4,000

Insurance 800Purchase of Props. 1,400Balance c/d 375

13,375 13,375

(a) Calculation of Accumulated Fund on 1/1/-4Assets LiabilitiesClubhouse and Land 120,000 Sundry Expenses Due 120Equipment 19,000Investments 8,000Bar Stock 2,000Subscriptions Due 300Bank 4,120 Accumulated Fund 153,300

153,420 153,420


182

Notes 1. Bar Trading AccountOpening Stock 2,000 Bar Sales 41,000Bar Purchases 21,000

23,000Closing Stock 23,000Cost of Sales 20,900Profit on Bar 20,100

41,000 41,000

2. Subscriptions AccountBalance b/d 300 Receipts and Payments 24,500Income and Expenditure 23,000Balance c/d 1,200

24,500 24,500

3. Sundry Expenses AccountReceipts and Payments 5,000 Balance b/d 120Balance c/d 180 Income and Expenditure 5,060

5,180 5,180

(b) Income and Expenditure Account for the year ended 31/12/-4Sundry Expenses (Note 3) 5,060 Profit on Bar (Note 1) 20,100Depreciation on Equipment(20% of 19,000 + 6,000) 5,000

Subscriptions (Note 2)Interest

23,0001,600

Profit on Competition (2,500 – 300) 2,200Surplus 37,440 Profit on Raffle (1,500 – 900) 600

47,500 47,500

(c) Balance Sheet as at 31/12/-4Cost Depr. Value

Fixed AssetsClubhouse and Land (120,000 + 30,000) 150,000 – 150,000Equipment (19,000 + 6,000) 25,000 5,000 20,000

175,000 5,000 170,000Investments 8,000Current Assets 178,000Bar Stock 2,100Bank 12,020

14,120Current LiabilitiesSundry Expenses Due 180Subscriptions Prepaid 1,200

(1,380)12,740

190,740Financed ByAccumulated Fund 153,300+ Surplus 37,440

190,740

Solutions

183

QUESTION 21.4

Nenagh Golf Club

(a) Calculation of Accumulated Fund on 1/1/-6Assets LiabilitiesClubhouse 150,000 Expenses Due 420Equipment 20,000 Bar Creditors 1,700Investments 16,000Bar Stock 2,900Subscriptions Due 530Cash 1,540 Accumulated Fund 188,850

190,970 190,970

Notes 1. Subscriptions AccountBalance b/d 530 Receipts and Payments 26,250Income and Expenditure 25,550Balance c/d 170

26,250 26,250

2. Bar Trading AccountOpening Stock 2,900 Bar Sales 24,800Bar Purchases (Note 2a) 14,800

17,700Closing Stock (2,300)Cost of Sales 15,400Profit on Restaurant 9,400

24,800 24,800

2. a Bar Creditors Control AccountReceipts and Payments 14,700 Balance b/d 1,700Balance c/d 1,800 Income and Expenditure 14,800

16,500 16,500

3. General Expenses AccountReceipts and Payments 27,500 Balance b/d 420

Income and Expenditure 26,800Balance c/d 280

27,500 27,500

(b) Income and Expenditure Account for the year ended 31/12/-6General Expenses (Note 3) 26,800 Subscriptions (Note 1) 25,550Loss on Competitions 1,120 Profit on Bar (Note 2) 9,400Depreciation on Equipment(20% of 20,000 + 6,300) 5,260

Interest 1,600

Depreciation on Clubhouse 3,000Surplus 370

36,550 36,550


184

QUESTION 21.5

Ballina Football Club


Fixed AssetsClubhouse 150,000 3,000 147,000Equipment (20,000 + 6,300) 26,300 5,260 21,040

176,300 8,260 168,040Investments 16,000Building Society 3,000

187,040Current AssetsBar Stock 2,300Expenses Prepaid 280Cash 1,570

4,150Current LiabilitiesBar Creditors 1,800Subscriptions Prepaid 170

(1,970)2,180

189,220Financed ByAccumulated Fund 188,850+ Surplus 370

189,220

(a) Calculation of Accumulated Fund on 1/1/-7Assets LiabilitiesClubhouse and Land 120,000 Bar Creditors 2,700Equipment 22,000Bar Stock 4,600Investments 15,000Bar Debtors 200Subscriptions Due 420Expenses Prepaid 120Cash in Hand 410Cash at Bank 3,200 Accumulated Fund 163,250

165,950 165,950

Notes 1. Subscriptions AccountBalance b/d 420 Receipts and Payments 26,000Income and Expenditure 25,850 Balance c/d 270

26,270 26,270

2. Bar Trading AccountOpening Stock 4,600 Sales (Note 2a) 28,680Bar Purchases (Note 2b) 18,500

23,100Closing Stock (5,100)Cost of Sales 18,000Profit on Bar 10,680

28,680 28,680

Solutions

185

(d) Differences between an Income and Expenditure Account and a Receipts and Payments AccountA Receipts and Payments Account is a cash book. It shows opening cash/bank balances, all monies received,all monies paid out and a closing cash/bank balance.An Income and Expenditure Account is a Profit and Loss Account. It shows all revenue receipts andpayments, it includes all prepayments and accruals, it shows all non-cash expenditure, e.g. depreciation andit shows the surplus or deficit of income for the period.

2. a Bar Debtors Control AccountBalance b/d 200 Receipts and Payments 28,600Sales 28,680 Balance c/d 280

28,880 28,880

2. b Bar Creditors Control AccountReceipts and Payments 18,900 Balance b/d 2,700Balance c/d 2,300 Purchases 18,500

21,200 21,200

3. General Expenses AccountBalance b/d 120Receipts and Payments 24,800Balance c/d 290 Income and Expenditure 25,210

25,210 25,210

(b) Income and Expenditure Account for the year ended 31/12/-7General Expenses (Note 3) 25,210 Subscriptions (Note 1) 25,850Depreciation on Equipment(10% of 22,000 + 12,000) 3,400

Profit on Bar (Note 2)Interest

10,6801,800

Surplus 10,220 Profit on Disco 50038,830 38,830


Fixed AssetsClubhouse and Land 120,000 – 120,000Equipment (22,000 + 12,000) 34,000 3,400 30,600

154,000 3,400 150,600Investments 15,000

165,600Current AssetsBar Stock 5,100Bar Debtors 280Subscriptions Due 270Cash 710Bank 4,100

10,460Current LiabilitiesBar Creditors 2,300Expenses Due 290

(2,590)7,870

173,470Financed ByAccumulated Fund 163,250+ Surplus 10,220

173,470


186

QUESTION 21.6

Clare Kayak Club

(b) Calculation of Unpaid Summer MembersUnpaid members at 31/12/-3 1,720

– Unpaid all-year members (3 x 120) (360)= Unpaid summer members 1,360

QUESTION 21.7

Malahide Bowling Club

(a) Subscriptions Account for the year ended 31/12/-31/1/-3 Balance b/d(6 x 120 + 10 x 80) 1,520

1/1/-3 Balance c/d(7 x 120 + 2 x 80) 1,000

31/12/-3 Income and Expenditure(45 x 120 + 160 x 80) 18,200 31/12/-3 Receipts and Payments 18,440Balance c/d(4 x 120 + 12 x 80) 1,440 Balance c/d 1,720

21,160 21,1601/1/-4 Balance b/d 1,720 1/1/-4 Balance b/d 1,440

(a) Calculation of Accumulated Fund on 1/1/-8Assets LiabilitiesClubhouse 230,000 Bar Creditors 1,400Equipment 54,000 Subscriptions Prepaid 190Investments 18,000 Expenses Due 380Bar Stock 3,400 Life Membership 5,000Bar Debtors 160Cash 380 Accumulated Fund 298,970

305,940 305,940

Notes 1. Subscriptions AccountBalance b/d 190

Income and Expenditure 29,670 Receipts and Payments 29,350Balance c/d 170 Balance c/d 300

29,840 29,840

2. Life Members AccountIncome and Expenditure 700 Balance b/d 5,000Balance c/d 6,300 Receipts and Payments 2,000

7,000 7,000

3. Bar Trading AccountOpening Stock 3,400 Sales (Note 3a) 48,070Bar Purchases (Note 3b) 29,000


48,070 48,070

Unpaid summer membersSummer members subscription---------------------------------------------------------------------- Number of unpaid summer members=

⇒ 1,36080

------------ 17 members=

Solutions

187

3. a Bar Debtors Control AccountBalance b/d 160 Receipts and Payments 48,000Sales 48,070 Balance c/d 230

48,230 48,230

3. b Bar Creditors Control AccountReceipts and Payments 29,300 Balance b/d 1,400Balance c/d 1,100 Purchases 29,000

30,400 30,400

4. General Expenses AccountReceipts and Payments 27,100 Balance b/d 380

Income and Expenditure 26,72027,100 27,100

(b) Income and Expenditure Account for the year ended 31/12/-8General Expenses (Note 4) 26,720 Subscriptions (Note 1) 29,670Depreciation on Equipment(54,000 + 16,000 – 62,000) 8,000

Life Membership (Note 2)Profit on Bar (Note 3)

70019,870

Profit on Poker Classic 4,300Surplus 20,720 Interest 900

55,440 55,440


Fixed AssetsClubhouse 230,000 – 230,000Equipment (54,000 + 16,000) 70,000 8,000 62,000

300,000 8,000 292,000Investments 18,000Prize Bonds 3,000Building Society 14,000

327,000Current AssetsBar Stock 4,200Bar Debtors 230Subscriptions Due 300Cash 530


(1,270)3,990

330,990Financed ByAccumulated Fund 298,970+ Surplus 20,720Donation 5,000

324,690Life Membership (Note 2) 6,300

330,990


188

QUESTION 21.8

Sligo Leisure and Recreation Club

(a) Calculation of Accumulated Fund on 1/1/-9AssetsClubhouse and LandEquipmentInvestmentsBar StockCoffee Shop StockBar DebtorsSubscriptions DueCashBank

500,000200,00020,0002,5001,200

140500150

2,950

LiabilitiesBar CreditorsSubscriptions PrepaidLife MembershipExpenses Due

Accumulated Fund

2,900200

16,000920

707,420

727,440 727,440

Notes 1. Subscriptions AccountBalance b/dIncome and ExpenditureBalance c/d

50027,750

150

Balance b/dReceipts and PaymentsBalance c/d

20027,300

90028,400 28,400

2. Life Members AccountIncome and ExpenditureBalance c/d

1,90017,100

Balance b/dReceipts and Payments

16,0003,000

19,000 19,000

3. Bar Trading AccountOpening StockBar Purchases (Note 3b)Closing StockCost of SalesProfit on Bar

2,50031,20033,700(3,900)29,8008,260

Sales (Note 3a) 38,060

38,060 38,060

3. a Bar Debtors Control AccountBalance b/dSales

14038,060

Receipts and PaymentsBalance c/d

38,000200

38,200 38,200

3. b Bar Creditors Control AccountReceipts and PaymentsBalance c/d

31,0003,100

Balance b/dPurchases

2,90031,200

34,100 34,100

4. Coffee Shop Trading AccountOpening StockPurchases

1,2008,000

Sales 12,000

Closing Stock9,200(800)

Cost of SalesProfit on Coffee Shop

8,4003,600

12,000 12,000

5. Wages AccountReceipts and PaymentsBalance c/d

20,0001,500 Income and Expenditure 21,500

21,500 21,500

Solutions

189

6. General Expenses AccountReceipts and Payments 18,710 Balance b/d

Income and Expenditure920

17,79018,710 18,710

7. Interest Receivable Account

Income and Expenditure 2,5002,500

Receipts and PaymentsBalance c/d

2,000500

2,500

8. Interest Receivable Account

Income and Expenditure 2,500Receipts and PaymentsBalance c/d

2,000500

2,500 2,500

9. Equipment AccountBalance b/dReceipts and Payments

200,00029,000

Income and Expenditure (Depr.)Balance c/d

13,000216,000

229,000 229,000

(b) Income and Expenditure Account for the year ended 31/12/-9Wages (Note 5)General Expenses (Note 4)Depreciation on Equipment (Note 8)

Surplus

21,50017,79013,000

11,720

Subscriptions (Note 1)Life Membership (Note 2)Profit on Bar (Note 3)Profit on Coffee Shop (Note 4)Interest Receivable (Note 7)Locker RentsAdvertising Receipts

27,7501,9008,2603,6002,5004,000

16,000

64,010 64,010

(c) Balance Sheet as at 31/12/-8

Fixed AssetsClubhouse and LandEquipment (Note 8)

Cost

500,000229,000

Depr.

–13,000

Value

500,000216,000

729,000 13,000 716,000Investments 20,000

Current AssetsBar StockCoffee Shop StockSubscriptions DueBar DebtorsInterest DueCash

3,900800900200500280

736,000

Current LiabilitiesSubscriptions PrepaidBar CreditorsWages DueBank Overdraft

1503,1001,5001,590

6,580

(6,340)240

736,240Financed ByAccumulated Fund+ Surplus

707,42011,720

Life Memberships (Note 2)719,14017,100

736,240


190


Ballaghaderreen Cricket Club

(a) Calculation of Accumulated Fund on 1/1/-9Assets LiabilitiesClubhouse and Land 220,000 Levy Reserve Fund 2,800Equipment 80,000 Life Members 6,000Bar Stock 1,300 Bar Creditors 3,200Bar Debtors 190 Wages Due 98Subscriptions Due 300 Loan 10,000Bank Current Account 2,900 Loan Interest Due

(12,000 – 10,000 = 2,000)2,000 Interest = 2 years1 year = 1,000 1,000Accumulated Fund 281,592

304,690 304,690

Notes 1. Subscriptions AccountBalance b/d 300 Receipts and Payments 8,250Income and Expenditure 8,700 Balance c/d 750

9,000 9,000

2. Life Members AccountIncome and Expenditure 700 Balance b/d 6,000Balance c/d 6,300 Receipts and Payments 1,000

7,000 7,000

3. Bar Trading AccountOpening Stock 1,300 Sales (54,002 – 190 + 320) 54,132Purchases (31,600 – 3,200 + 2,900) 31,300


54,132 54,132

4. Equipment AccountBalance b/d 80,000 Receipts and Payments 5,000Receipts and Payments 6,000 Depreciation 5,000

Balance c/d 76,00086,000 86,000

(b) Income and Expenditure Account for the year ended 31/12/-0Depreciation on Equipment (Note 4) 5,000 Subscriptions (Note 1) 8,700Groundsman’s Wages (15,602 – 98) 15,504 Life Members (Note 2) 700Sundry Expenses 10,500 Profit on Bar (Note 3) 24,232Loan Interest 1,000Surplus 1,628

33,632 33,632

Solutions

191


Carndonagh Golf Club


Fixed AssetsClubhouse and Land 220,000 – 220,000Equipment (Note 4) 81,000 5,000 76,000

301,000 5,000 296,000Current AssetsBar Stock 2,700Subscriptions Due 750Bar Debtors 320

3,770Current LiabilitiesBar Creditors 2,900Bank Overdraft 3,150

(6,050)(2,280)

293,720

Financed ByAccumulated Fund 281,592Surplus 1,628Entrance Fees 200Donations 1,200

284,620Levy Reserve Fund 2,800Life Memberships (Note 2) 6,300

293,720

(a) Calculation of Accumulated Fund on 1/1/-1Assets LiabilitiesClubhouse and Land 500,000 Life Members 8,000Machinery 25,000 Bar Creditors 2,540Equipment 65,000 Subscriptions Prepaid 750Bar Stock 3,500 Loan 6,000Bar Debtors 720 Loan Interest Due

(7,440 – 6,000 = 1,440)2 years = 1,440 Interest11/2 years = 1,080 1,080

6% Investments 20,000Bank Current Account 900

Accumulated Fund 596,750615,120 615,120

Notes 1. Subscriptions AccountLife Member 500 Balance b/d 750Levy Reserve Fund 6,500 Receipts and Payments 24,800Income and Expenditure 18,200Balance c/d 350

25,550 25,550


192



57,770 57,770

3. Investment Interest AccountIncome and Expenditure 1,200 Receipts and Payments 800

Balance c/d 4001,200 1,200

4. Equipment AccountBalance b/d 65,000 Disposal 17,000Receipts and Payments 28,000 Depreciation 6,000

Balance c/d 70,00093,000 93,000

5. Equipment Disposal AccountEquipment 17,000 Receipts and Payments 6,000

Loss on Disposal 11,00017,000 17,000

6. Machinery AccountBalance b/d 25,000 Depreciation 2,000

Balance c/d 23,00025,000 25,000

7. Loan AccountReceipts and Payments 6,000 Balance b/d 6,000

8. Loan Interest AccountReceipts and Payments 1,440 Balance b/d 1,080

Income and Expenditure 3601,440 1,440

(b) Income and Expenditure Account for the year ended 31/12/-1Depreciation on Equipment (Note 4) 6,000 Subscriptions (Note 1) 18,200Depreciation on Machinery (Note 6) 2,000 Profit on Bar (Note 2) 21,810Loss on Disposal (Note 5) 11,000 Investment Interest (Note 3) 1,200Loan Interest (Note 8) 360 Profit on Competition (2,540 – 1,980) 560Sundry Expenses 15,800 Locker Rents 2,800

Green Fees 11,200Surplus 20,610

55,770 55,770

Solutions

193

(d) Advice to ClubThe club may dispense with the imposition of the levy on its members. The €20,000 extension can befinanced by withdrawing the money invested in the building society and cashing in some of the 6%investments held.

QUESTION 21.11

Portarlington Tennis Club


Fixed AssetsClubhouse and Land 500,000 – 500,000Machinery (Note 6) 25,000 2,000 23,000Equipment (Note 4) 76,000 6,000 70,000

601,000 8,000 593,0006% Investments 20,000Building Society 15,000

628,000Current AssetsBar Stock 5,800Bar Debtors 290Investment Interest Due (Note 3) 400Bank 2,020


(4,150)4,360

632,360Financed ByAccumulated Fund 596,750Surplus 20,610

617,360Levy Reserve 6,500Life Memberships (Note 2) 8,500

632,360

(a) Calculation of Accumulated Fund on 1/1/-2Assets LiabilitiesClubhouse and Grounds 230,000 Life Membership 20,000Bar Stock 12,000 Bar Creditors 9,300Equipment 15,000 Levy Reserve Fund 24,000Bar Debtors 220 Bank 6,1208% Investments 20,000 Loan 30,000Investment Interest Due 400 Loan Interest Due

(35,400 – 3,000 = 5,400)

11/2 years = 5,400 Interest

10 months =

= 3,000

Levies Due (11 x 40) 440Subscriptions Due 1,860

3,000Accumulated Fund 187,500

279,920 279,920

5,4001 1/2------------- 10

12------×


194

Notes 1. Subscriptions AccountBalance b/d 1,860 Receipts and Payments 65,300Levy Reserve Fund 12,000Levies Due 440Income and Expenditure 51,000

65,300 65,300



85,090 85,090

3. Investment Interest AccountBalance b/d 400 Receipts and Payments 2,000Income and Expenditure 1,600

2,000 2,000

4. Equipment AccountBalance b/d 15,000 Depreciation 4,000Receipts and Payments 17,000 Balance c/d 28,000

32,000 32,000


6. Loan Interest AccountReceipts and Payments 5,400 Balance b/d 3,000

Income and Expenditure 2,4005,400 5,400

(b) Income and Expenditure Account for the year ended 31/12/-2Depreciation on Equipment (Note 4) 4,000 Subscriptions (Note 1) 51,000Loan Interest (Note 6) 2,400 Profit on Bar (Note 2) 23,590Loss on Catering (3,700 – 4,100) 400 Investment Interest (Note 3) 1,600General Expenses 28,700 Annual Grant 10,000Surplus 51,590 Profit on Competition (2,800 – 1,900) 900

87,090 87,090

Solutions

195

(d) Advice to the Treasurer:(i) Get outside caterers to come in on a fee-per-job basis. Cease the internal catering as it is running at a loss.

(ii) Get rid of the levy as it is no longer required. The club is cash-rich. It has turned an overdraft of €6,120into a bank balance of €6,180 after paying off a €30,000 loan plus interest accrued.


Kinvara Golf Club


Fixed AssetsClubhouse and GroundsEquipment

Cost

230,00032,000

Depr.

–4,000

Value

230,00028,000

262,000 4,000 258,0008% InvestmentsPrize Bonds

20,0002,000

Current AssetsBar StockBar DebtorsBank

15,200310

6,180

280,000

Current LiabilitiesBar Creditors

21,690

(6,600)15,090

295,090Financed ByAccumulated FundSurplus

187,50051,590

Life MembershipsLevy Reserve Fund (24,000 + 12,000)

239,09020,00036,000

295,090

(a) Calculation of Accumulated Fund on 1/1/-3Assets LiabilitiesEquipment 25,000 Life Membership 10,000Bar Debtors 610 Bar Creditors 4,900Investment Interest Due 350 Levy Reserve Fund 15,000Rent Prepaid 4,000 Bank Current Account 9,350Prize Bonds 5,000 Loan 5,000Bar Stock 7,000 Loan Interest Due

(6,392 – 5,000 = 1,392)2 years = 1,392

20 months =

= 1,160

11% Investments(2,550 – 350 = 2,200)11% = 2,200100% = 20,000 20,000 1,160

Subscriptions Due 1,500 Accumulated Fund 18,05063,460 63,460

Notes 1. Subscriptions AccountBalance b/dLevy Reserve FundLife MembershipIncome and Expenditure

1,50015,0005,000

36,000

Receipts and Payments 57,500

57,500 57,500

1,39224

------------- 20×


196

2. Bar Trading AccountOpening StockPurchases (72,380 – 4,900 + 9,600)

7,00077,080

Sales (85,000 – 610 + 380) 84,770

*Closing Stock

84,080(9,000)

Cost of SalesProfit on Bar

75,0809,690

84,770 84,770

3. Equipment AccountBalance b/d 25,000 Disposal

DepreciationBalance c/d

8,0002,000

15,00025,000 25,000

(b) Income and Expenditure Account for the year ended 31/12/-3Depreciation on Equipment (Note 3) 2,000 Subscriptions (Note 1) 36,000Loss on Catering (2,600 – 4,700) 2,100 Profit on Bar (Note 2) 9,690Loss on Disposal 4,000 Investment Interest 2,200Rent (30,000 + 4,000 – 5,000) 29,000General Expenses 25,300Loan Interest (1,392 – 1,160) 232 Deficit 14,742

62,632 62,632


Fixed AssetsEquipment 17,000 2,000 15,00011% Investments 20,000Prize Bonds 5,000

40,000Current AssetsBar Stock 9,000Bar Debtors 380Rent Prepaid (2 months) 5,000Bank 18,528

32,908Current LiabilitiesBar Creditors (9,600)

23,30863,308

Financed ByAccumulated Fund 18,050Deficit (14,742)

3,308Prize Bond Prize 10,000Lotto Grant 5,000

18,308Levy Reserve Fund (15,000 + 15,000) 30,000Life Membership (10,000 + 5,000) 15,000

63,308

Solutions

197

(d) Advice to the Treasurer:(i) The levy should be continued as the purchase of the land will enable the club to reduce or discontinue

paying rent which is its main expense.(ii) The deficit of income must be addressed by

a) Discontinuing the catering.b) Investigating the bar profit which is only 11% of sales, far below the norm for the pub industry.c) Increase subscriptions (at present they are €120 per member).d) Sell more life memberships.

(iii) The capital receipts cannot be expected to recur. The investments may have to be liquidated to provideworking capital next year.


Newbridge Basketball Club

(a) Calculation of Accumulated Fund on 1/1/-4Assets LiabilitiesClubhouse and Arena 300,000 Life Membership 16,000Equipment 17,000 Levy Reserve Fund 15,000Bar Stock 6,000 Bar Creditors 3,5007% Government Investments 10,000 Wages Due 500Bar Debtors 110 Loan 20,000Bank 12,000 Loan Interest Due

(23,780 – 20,000 = 3,780)11/2 years = 3,7801 year = 2,520 2,520

Investment Interest Due 200Levies Due (14 x 50) 700

Subscriptions Due 1,050 Accumulated Fund 289,540347,060 347,060

Notes 1. Subscriptions AccountBalance b/dLife MembersLevy Reserve FundLevies DueIncome and Expenditure

1,0504,0007,500

70042,750

Receipts and Payments 56,000

56,000 56,000

2. Life Membership AccountIncome and ExpenditureBalance c/d

2,50017,500

Balance b/dSubscriptions

16,0004,000

20,000 20,000

3. 7% Government Investment Interest AccountBalance b/dIncome and Expenditure

200700

Receipts and Payments 900

900 900

4. Bar Trading AccountOpening StockPurchases (49,000 – 3,500 + 4,800)

6,00050,300

Sales (76,000 – 110 + 240) 76,130

*Closing Stock

56,300(6,400)

Cost of SalesBarman’s Wages (16,500 – 500)

49,90016,000

*Profit on Bar

65,90010,23076,130 76,130


198

(d) Advice to the Treasurer(i) Renegotiate a sponsorship agreement with the existing sponsor or seek a new sponsor.

(ii) With new sponsorship in place, the levy may be discontinued as there are funds available within theclub (Investments and bank balance) to finance the extension.

5. Equipment AccountBalance b/dReceipts and Payments

17,00011,000

DisposalDepreciation (20% of 24,000)Balance c/d

4,0004,800

19,20028,000 28,000

6. 9% Investment Bonds Interest AccountIncome and Expenditure 540 Balance c/d 540

540 540


8. Loan Interest AccountReceipts and Payments 3,780 Balance b/d

Income and Expenditure2,5201,260

3,780 3,780

(b) Income and Expenditure Account for the year ended 31/12/-4Depreciation on Equipment (Note 5)Loan Interest (Note 8)Loss on Disposal (4,000 – 3,000)Sundry Expenses

Surplus

4,8001,2601,000

39,720

31,540

Subscriptions (Note 1)Life Membership (Note 2)7% Interest (Note 3)Profit on Bar (Note 4)9% Interest (Note 6)SponsorshipProfit on Catering (2,800 – 1,200)

42,7502,500

70010,230

54020,0001,600

78,320 78,320


Fixed AssetsClubhouse and ArenaEquipment (Note 5)

Cost

300,00024,000

Depr.

–4,800

Value

300,00019,200

324,000 4,800 319,2007% Government Investments9% Investments Bonds

10,00012,000

Current AssetsBar StockBar Debtors9% Investment Interest DueBank

6,400240540

17,500

341,200

Current LiabilitiesBar Creditors

24,680

(4,800)19,880


289,54031,540

Levy Reserve Fund (15,000 + 7,500)Life Membership (Note 2)

321,08022,50017,500

361,080

Solutions

199


Merrion Bowling Club

(a) Calculation of Accumulated Fund on 1/1/-5Assets LiabilitiesClubhouse and Greens 300,000 Bar Creditors 3,500Bar Stock 12,000 Life Memberships 24,000Equipment 16,000 Subscriptions Prepaid 300Bar Debtors 200 Greenkeeper’s Wages Due 150Subscriptions Due 400 Loan 16,000Investment Interest Due 280 Loan Interest Due

(20,800 – 16,000 = 4,800)21/2 years = 4,800

21 months =

= 3,360 3,360

Bank 2,8007% Government Investments(1,120 – 280 = 840)7% = 840100% = 12,000 12,000


Notes 1. Subscriptions AccountBalance b/d 400 Balance b/d 300Life Members 4,000 Receipts and Payments 23,700Income and Expenditure 20,000Balance c/d 400 Balance c/d 800

24,800 24,800

2. Equipment AccountBalance b/d 16,000 Depreciation 3,000Receipts and Payments 12,000 Balance c/d 25,000

28,000 28,000



29,450 29,450

4. Greenkeeper’s Wages AccountReceipts and Payments 15,000 Balance b/d 150Balance c/d 170 Income and Expenditure 15,020

15,170 15,170

(b) Income and Expenditure Account for the year ended 31/12/-5Depreciation on Equipment (Note 2)Greenkeeper’s Wages (Note 4)Loan Interest (4,800 – 3,360)Honorarium to TreasurerSurplus

3,00015,0201,440

20015,730

Subscriptions (Note 1)Profit on Bar (Note 3)Investment InterestProfit on Coffee Morning

20,00011,050

8403,500

35,390 35,390

4,80030

--------------- 21×


200


Blackheath Sport and Fitness Club


Fixed AssetsClubhouse and GreensEquipment (Note 2)

Cost

300,00028,000

Depr.

–3,000

Value

300,00025,000

328,000 3,000 325,0007% Government Investments 12,000

Current AssetsBar StockBar DebtorsSubscriptions Due

10,000350800

337,000

Current LiabilitiesBar CreditorsSubscriptions PrepaidBank OverdraftWages DueHonorarium Due

2,700400

4,580170200

11,150

(8,050)3,100


296,37015,730

Life Membership (24,000 + 4,000)312,10028,000

340,100

(a) Calculation of Accumulated Fund on 1/1/-6Assets LiabilitiesEquipment 56,000 Levy Reserve 22,750Bar Stock 2,100 Bar Creditors 3,800Rent Prepaid 600 Subscriptions Prepaid 300Bar Debtors 150 General Expenses Due 4208% Government Investments 15,000 Bank Overdraft 3,500Prize Bonds 2,000 Loan 10,000Subscriptions Due 400 Loan Interest Due

(11,800 – 10,000 = 1,800)3 years = 1,80021/2 years = 1,500 1,500

Investment Interest Due(1,800 – 1,200 = 600) 600


Notes 1. Subscriptions AccountBalance b/d 400 Balance b/d 300Levy Reserve 22,750 Receipts and Payments 55,550Income and Expenditure 32,500Balance c/d 200

55,850 55,850

Solutions

201

(d) Advice on Five-Year LevyThe levy should continue as the club’s liquid assets (Investments €15,000, prize bonds €3,000 and bankaccount €36,050) total €54,050 which is short of the €115,000 required to build the premises.



52,930 52,930

3. Equipment AccountBalance b/d 56,000 Disposal 11,000Receipts and Payments 24,000 Balance c/d 69,000

80,000 80,000

4. Rent AccountBalance b/d (1/4 year) 600 Income and Expenditure 2,850

Receipts and Payments (1 year) 3,000 Balance c/d (1/4 of 3,000) 750

3,600 3,600

(b) Income and Expenditure Account for the year ended 31/12/-6Depreciation on Equipment (20% of 69,000)Rent (Note 4)Loss on Creche (2,900 – 5,000)Loss on Disposal (11,000 – 7,000)General Expenses (4,600 – 420)Loan Interest (1,800 – 1,500)Surplus

13,8002,8502,1004,0004,180

30031,200

Subscriptions (Note 1)Profit on Bar (Note 2)Annual GrantProfit on Raffle (2,800 – 800)Investment Interest

32,50018,7304,0002,0001,200

58,430 58,430


Fixed AssetsEquipment (Note 2)

Cost

69,000

Depr.

13,800

Value

55,2008% Government InvestmentsPrize Bonds (2,000 + 1,000)

15,0003,000

Current AssetsBar StockBar DebtorsBankRent Prepaid (Note 4)

3,800180

36,050750

73,200

Current LiabilitiesBar CreditorsSubscriptions Prepaid

2,500200

40,780

(2,700)38,080


34,58031,200

Levy Reserve (22,750 + 22,750)65,78045,500

111,280


202

QUESTION 21.16 (HIGHER LEVEL)Poseidon Swimming Club

(a) Calculation of Accumulated Fund on 1/1/-7AssetsMotor VanEquipmentBuilding SocietyInvestment Interest DuePool Rental PrepaidStock of Swim GearBank Account7% Government Investments(560 – 140 = 420)7% = 420100% = 6,000Subscriptions Due (Note 1)

6,0003,0005,000

140200280

1,800

6,000105

LiabilitiesLife MembershipSubscriptions PrepaidLoanLoan Interest Due(4,864 – 4,000 = 864)11/2 years = 864

8 months =

= 384

Accumulated Fund

4,000210

4,000

384

13,93122,525 22,525

Notes 1. Subscriptions AccountBalance b/d (Discovered Figure)Income and Expenditure (54 x 35)Balance c/d (12 x 35)

1051,890

420

Balance b/dReceipts and PaymentsBalance c/d (2 x 35)

2102,135

702,415 2,415

2. Swimming Gear Trading AccountOpening StockPurchases

2801,900

Sales 3,260

Closing Stock2,180(310)

Cost of SalesProfit on Bar

1,8701,3903,260 3,260

3. Investment Interest AccountBalance b/dIncome and Expenditure

140420

Receipts and Payments 560

560 560

4. Life Membership AccountIncome and ExpenditureBalance c/d

1,2004,800

Balance b/dReceipts and Payments

4,0002,000

6,000 6,000

5. Pool Rental AccountBalance b/d (1/6 year)Receipts and Payments (1 year)

2001,800

Income and ExpenditureBalance c/d (1/6 of 1,800)

1,700300

2,000 2,000

(b) Income and Expenditure Account for the year ended 31/12/-7Pool Rental (Note 5)Coach’s Wages (7,000 + 300)Motor and Travel ExpensesLoan Interest (864 – 384)General ExpensesDepreciationEquipment (3,000 + 2,000 – 4,600)Motors (6,000 – 4,800)Surplus

1,7007,3001,100

4802,226

4001,2002,854

Subscriptions (Note 1)Profit on Swim Gear Sales (Note 2)Investment Interest (Note 3)Life Membership (Note 4)Profit on GalaSponsorshipBuilding Society Interest

1,8901,390

4201,2001,850

10,000510

17,260 17,260

86418-------- 8×

Solutions

203

QUESTION 21.17Red Pole Barbers Ltd


Fixed AssetsMotor VanEquipment

Cost

6,0005,000

Depr.

1,200400

Value

4,8004,600

7% Government InvestmentsBuilding Society Deposit Account (5,000 + 4,000 + 510)

11,000 1,600 9,4006,0009,510

Current AssetsStock of Swimming GearSubscriptions DuePool Rental PrepaidBank

31070

3002,715

24,910

Current LiabilitiesWages DueSubscriptions Prepaid

300420

3,395

(720)2,675

27,585Financed ByAccumulated FundSurplusLotto Grant

13,9312,8546,000

Life Membership (Note 4)22,7854,800

27,585

(a) Profit and Loss Account for the year ended 31/12/-6Insurance (1,100 – 275)Rent (8,000 – 2,000)Loan InterestLight and Heat (800 + 170)Rates (300 + 150)Advertising (3,500 + 500)WagesDepreciation on Equipment

8256,0002,160

970450

4,0009,0001,800

Fee Income

Net Loss

17,550

7,65525,205 25,205


204


Oriona Ltd

(b) Balance Sheet as at 31/12/-6

Fixed AssetsEquipment

Cost

18,000

Depr.

1,800

Value

16,200Current AssetsBankInsurance PrepaidRent Prepaid

850275

2,000

Current LiabilitiesESB Bill DueAdvertising DueRates Due

170500150

3,125

(820)2,305

18,505Financed ByShare Capital Authorised and Issued€1 Ordinary SharesReserves Profit and Loss AccountLong-Term LiabilitiesBank Loan (20,000 – 3,840)

10,000(7,655)

16,16018,505

Notes 1. Bank Loan AccountBank (10 x 80) 800 Bank 10,000Balance c/d 9,200

10,000 10,000

2. Interest on Bank Loan AccountBank (10 x 220) 2,200 Profit and Loss (11 x 220) 2,420Balance c/d 220

2,420 2,420

3. Fees AccountProfit and Loss 23,000 Bank (VAT Exclusive) 23,000

23,000 23,000

4. Beauty Products Trading AccountPurchases 2,700 Sales (VAT Exclusive) 4,703Closing Stock (500)Cost of Sales 2,200Profit 2,503

4,703 4,703

5. VAT AccountBank 3,800 Bank (VAT on Sales) 987Balance c/d 2,017 Bank (VAT on Fees) 4,830

5,817 5,817

Solutions

205

(a) Profit and Loss Account for the year ended 31/12/-8Interest on Loan (Note 2) 2,420 Fees Charged (Note 3) 23,000Insurance (840 – 70) 770 Profit on Beauty Products (Note 4) 2,503Equipment Rental 1,700Premises Rental 7,000Beauty Products (3,800 – 700) 3,100Light and Heat 1,200Wages 5,000Advertising 800Postage and Stationery 400Rates (600 + 300) 900Depreciation Equipment (11,000 – 9,500) 1,500Net Profit 713

25,503 25,503

(b) Balance Sheet as at 31/12/-8Cost Depr. Value

Fixed AssetsEquipment 11,000 1,500 9,500Current AssetsClosing Stock – Beauty Products Shop Stock 700– For Resale 500Bank 1,880Insurance Prepaid 70

3,150Current LiabilitiesLoan Interest Due (Note 2) 220VAT Due (Note 5) 2,017Rates Due 300

(2,537)613

10,113Financed ByShare Capital (€1 Shares) 200Reserves – Profit and Loss Account 713Long Term LiabilitiesBank Loan (Note 1) 9,200

10,113

206

Incomplete Records I(Cash Book Method): Solutions22

QUESTION 22.1D. Jarvis (Items marked * are discovered items)

Note 1 Calculation of Opening Capital 1/1/-0AssetsPremisesMotorsStockDebtorsCash

65,00027,0007,0003,4001,420

LiabilitiesGeneral Expenses DueCreditors

Capital *

4504,700

98,670103,820 103,820

Note 2 Cash AccountBalance b/dReceipts

1,42092,800

PaymentsBalance c/d

92,9001,320

94,220 94,220

Note 3 Debtors Control AccountBalance b/dCredit Sales *

3,40024,800

CashBalance c/d

24,3003,900

28,200 28,200

Note 4 Sales Account

Trading Account * 93,300Debtors (Note 3)Cash

24,80068,500

93,300 93,300

Note 5 Creditors Control AccountCashBalance c/d

27,0006,300

Balance b/dCredit Purchases *

4,70028,600

33,300 33,300

Note 6 Purchases AccountCreditors (Note 5)Cash

28,60039,400 Trading Account * 68,00068,000 68,000

Note 7 General Expenses AccountCashBalance c/d

14,700350

Balance b/dProfit and Loss Account *

45014,600

15,050 15,050

(a) Trading, Profit and Loss Account for the year ended 31/12/-0Sales (Note 4)Less Cost of SalesOpening StockPurchases (Note 6)

7,00068,000

93,300

Closing Stock75,000(8,000)

(67,000)Gross Profit– ExpensesGeneral Expenses (Note 7)

26,300

(14,600)Net Profit 11,700

Solutions

207

QUESTION 22.2

N. Purdy (Items marked * are discovered items)

(b) Balance Sheet as at 31/12/-0Fixed AssetsPremises 65,000Motors 27,000Equipment 6,000

98,000Current AssetsStock 8,000Debtors 3,900Cash (Note 2) 1,320‘ 13,220Current LiabilitiesCreditors 6,300General Expenses Due 350

(6,650)6,570

104,570Financed ByCapital (Note 1) 98,670Net Profit 11,700

110,370Drawings (5,800)

104,570

Note 1 Calculation of Opening Capital 1/1/-1Assets LiabilitiesBuildings 43,000 Creditors 3,700Furniture and Fittings 3,400 General Expenses Due 300Debtors 2,800Stock 6,400Cash 1,700 Capital * 53,300

57,300 57,300

Note 2 Cash AccountBalance b/d 1,700 Payments 67,300Receipts 66,600 Balance c/d * 1,000

68,300 68,300Note 3 Debtors Control AccountBalance b/d 2,800 Cash 26,900Credit Sales * 27,800 Balance c/d 3,700

30,600 30,600

Note 4 Sales AccountDebtors (Note 3) 27,800

Trading Account * 67,500 Cash 39,70067,500 67,500

Note 5 Creditors Control AccountCash 27,000 Balance b/d 3,700Balance c/d 3,100 Credit Purchases * 26,400

30,100 30,100


208

Note 6 Purchases AccountCreditors (Note 5) 26,400Cash 19,400 Trading Account * 45,800

45,800 45,800

Note 7 General Expenses AccountCash 8,100 Balance b/d 300Balance c/d 400 Profit and Loss Account 8,200

8,500 8,500

(a) Trading, Profit and Loss Account for the year ended 31/12/-1Sales (Note 4) 67,500Less Cost of SalesOpening Stock 6,400Purchases (Note 6) 45,800

52,200Closing Stock (6,700)

(45,500)Gross Profit 22,000– ExpensesGeneral Expenses (Note 7) (8,200)Net Profit 13,800

(b) Balance Sheet as at 31/12/-1Fixed AssetsBuildings 43,000Furniture and Fittings 3,400Motor Van 4,300

50,700Current AssetsStock 6,700Debtors 3,700Cash (Note 2) 1,000

11,400Current LiabilitiesCreditors 3,100General Expenses Due 400

(3,500)7,900


67,100Drawings (8,500)

58,600

Solutions

209

QUESTION 22.3

P. Yardley (Items marked * are discovered items)

Note 1 Calculation of Opening Capital 1/1/-3AssetsPremisesEquipmentDebtorsStockCommission DueBank

125,00018,0008,7007,200

6001,800

LiabilitiesCreditors

Capital

2,700

158,600161,300 161,300

Note 2 Bank AccountBalance b/dReceipts LodgedBalance c/d *

1,80069,1009,200

Cheque Payments 80,100

80,100 80,100


8,70027,300

BankBalance c/d

28,2007,800

36,000 36,000


Trading Account * 67,000Debtors (Note 3)Bank

27,30039,700

67,000 67,000

Note 5 Creditors Control AccountBankBalance c/d

21,6002,900


2,70021,800

24,500 24,500

Note 6 Purchases AccountCreditors (Note 5)Bank

21,80027,800 Trading Account * 49,60049,600 49,600

Note 7 Commission Receivable AccountBalance b/dProfit and Loss Account *

600600

Bank 1,200

1,200 1,200

Note 8 Wages and General Expenses AccountBankBalance c/d

19,600300 Profit and Loss Account * 19,900

19,900 19,900

Note 9 Equipment AccountBalance b/d 18,000 Depreciation *

Balance c/d2,000

16,00018,000 18,000


210

QUESTION 22.4

C. O Reilly (Items marked * are discovered items)


7,20049,600

67,000


(50,280)Gross Profit+ IncomeCommission (Note 7)

16,720

600

– ExpensesWages and General Expenses (Note 8)Depreciation on Equipment (Note 9)

19,9002,000

17,320

(21,900)Net Loss (4,580)

(b) Balance Sheet as at 31/12/-3Cost Depr Value

Fixed AssetsPremisesEquipment (Note 9)Delivery Van

125,00018,0006,900

–2,000

–

125,00016,0006,900

149,900 2,000 147,900Current AssetsStockDebtors

6,5207,800

Current LiabilitiesCreditorsWages DueBank Overdraft (Note 2)

2,900300

9,200

14,320

(12,400)1,920

149,820Financed ByCapital (Note 1)Net LossDrawings

158,600(4,580)(4,200)

149,820

Note 1 Calculation of Opening Capital 1/1/-4Assets LiabilitiesPremises 90,000 Advertising Due 400Vans 15,000 Creditors 6,900Furniture 18,800Stock 8,500Debtors 5,200Bank 2,600 Capital * 132,800

140,100 140,100

Note 2 Bank AccountBalance b/dReceipts Lodged

2,600116,100

Cheque PaymentsBalance c/d *

113,6005,100

118,700 118,700

Solutions

211

Note 3 Debtors Control AccountBal b/d 5,200 Bank 21,600Credit Sales * 21,700 Balance c/d 5,300

26,900 26,900


Trading Account * 109,000 Bank 87,300109,000 109,000

Note 5 Creditors Control AccountBank 24,100 Balance b/d 6,900Balance c/d 7,100 Credit Purchases * 24,300

31,200 31,200

Note 6 Purchases AccountCreditors (Note 5) 24,300Bank 49,200 Trading Account * 73,500

73,500 73,500

Note 7 Rent Receivable AccountProfit and Loss Account * 6,600 Bank 7,200Balance b/d 600

7,200 7,200

Note 8 Wages and General Expenses AccountBank 21,400 Balance b/d 400Balance c/d 500 Profit and Loss Account * 21,500

21,900 21,900

Note 9 Furniture AccountBalance b/d 18,800 Depreciation * 3,000Bank 12,200 Balance c/d 28,000

31,000 31,000

Note 10 Vans AccountBalance b/d 15,000 Depreciation * 1,000

Balance c/d 14,00015,000 15,000


8,50073,500

109,000


(72,800)Gross Profit+ IncomeRent (Note 7)

36,200

6,600

– ExpensesWages and General Expenses (Note 8)Depreciation on Furniture (Note 9)Depreciation on Vans (Note 10)

21,5003,0001,000

42,800

(25,500)Net Profit 17,300


212

QUESTION 22.5

D. Keane (Items marked * are discovered items)


Fixed AssetsPremises 90,000 – 90,000Equipment (Note 10) 15,000 1,000 14,000Furniture (Note 9) 31,000 3,000 28,000

136,000 4,000 132,000Current AssetsStock 9,200Debtors 5,300Bank (Note 2) 5,100

19,600Current LiabilitiesCreditors 7,100Wages Due 500Rent Receivable Prepaid 600

(8,200)11,400


150,100Drawings (6,700)

143,400

Note 1 Calculation of Opening Capital 1/1/-5Assets LiabilitiesPremises 110,000 Wages Due 1,000Vans 25,000 Creditors 7,400Equipment 24,000Rates Prepaid 300Debtors 4,600Stock 9,400Bank 860 Capital * 165,760

174,160 174,160

Note 2 Bank AccountBalance b/d 860 Cheque Payments 115,960Receipts Lodged 109,100Balance c/d 6,000

115,960 115,960

Note 3 Debtors Control AccountBalance b/d 4,600 Bank 14,800Credit Sales * 15,400 Balance c/d 5,200

20,000 20,000


Trading Account * 105,100 Bank 89,700105,100 105,100

Solutions

213


33,660 33,660

Note 6 Purchases AccountCreditors (Note 5) 26,260Bank 15,200 Trading Account * 41,460

41,460 41,460

Note 8 Rent Receivable AccountBank 3,500

Profit and Loss Account * 4,000 Balance c/d 5004,000 4,000

Note 9 Wages and General Expenses AccountBalance b/d 300 Balance b/d 1,000Bank 24,000 Profit and Loss Account * 23,300

24,300 24,300

Note 10 Equipment AccountBalance b/d 24,000 Depreciation * 4,000Bank 40,000 Balance c/d 60,000

64,000 64,000

Note 11 Vans AccountBalance b/d 25,000 Depreciation * 2,000

Balance c/d 23,00025,000 25,000



(40,160)Gross Profit 64,940+ IncomeRent (Note 8) 4,000Commission 1,100

70,040– ExpensesWages and General Expenses (Note 9) 23,300Depreciation on Equipment (Note 10) 4,000Depreciation on Vans (Note 11) 2,000

(29,300)Net Profit 40,740


214


P. Wilson (Items marked * are discovered items)


Fixed AssetsPremises 110,000 – 110,000Vans (Note 11) 25,000 2,000 23,000Equipment (Note 10) 64,000 4,000 60,000

199,000 6,000 193,000Current AssetsStock 10,700Debtors 5,200Rent Receivable Due 500

16,400Current LiabilitiesCreditors 6,600Bank Overdraft (Note 2) 6,000

(12,600)3,800


206,500Drawings (9,700)

196,800

Note 1 Opening Balance Sheet 1/1/-6AssetsPremisesStockDebtors

41,0004,5009,500

LiabilitiesCreditorsWages DueRent PrepaidCapital *

3,800400800

50,00055,000 55,000

Note 2 Cash AccountCash Sales * 72,570 Purchases

Salaries and WagesLodgementsDrawings (60 x 52)Balance c/d

20,40017,60031,0003,120

45072,570 72,570

Note 3 Bank AccountCashLoanDebtorsRent

31,00024,00014,3001,600

EquipmentMotor VanCreditorsInsuranceDrawingsLight and HeatBalance c/d *

15,00019,00014,1001,2003,5003,800

14,30070,900 70,900


9,50014,900

BankBalance c/d

14,30010,100

24,400 24,400

Solutions

215


Trading Account * 87,470Debtors (Note 4)Cash (Note 2)

14,90072,570

87,470 87,470


14,1003,700


3,80014,000

17,800 17,800


14,00020,400

Drawings (50 x 52)Trading Account *

2,60031,800

34,400 34,400

Note 8 Rent Receivable Account

Profit and Loss Account * 2,400Balance b/dBank

8001,600

2,400 2,400

Note 9 Salaries and Wages AccountCash 17,600 Balance b/d

Profit and Loss Account *400

17,20017,600 17,600

Note 10 Insurance AccountBank 1,200 Drawings (1/4 of 1,200)

Profit and Loss Account *Balance c/d

300600300

1,200 1,200

Note 11 Light and Heat AccountBankBalance c/d

3,800200

Drawings (1/5 of 4,000) Profit and Loss Account *

8003,200

4,000 4,000

Note 12 Drawings AccountCash (Note 2)Bank (Note 3)Stock (Note 7)Insurance (Note 10)Light and Heat (Note 11)

3,1203,5002,600

300800 Capital * 10,320

10,320 10,320


4,50031,800

87,470


(32,400)Gross Profit+ IncomeRent Receivable (Note 8)

55,070

2,400

– ExpensesSalaries and Wages (Note 9)Insurance (Note 10)Light and Heat (Note 11)Loan Interest (1/4 of 10% of 24,000)

17,200600

3,200600

57,470

(21,600)Net Profit 35,870


216

QUESTION 22.7P. Ronaldo (Items marked * are discovered items)

(b) Balance Sheet as at 31/12/-6Fixed AssetsPremisesEquipmentMotor Van

41,00015,00019,000

Current AssetsStockDebtorsBank (Note 3)CashInsurance Prepaid

3,90010,10014,300

450300

75,000

Current LiabilitiesCreditorsESB Bill DueLoan Interest DueLoan Instalment Due

3,700200600

3,000

29,050

(7,500)21,55096,550

Financed ByCapital (Note 1)+ Net Profit

50,00035,870

– Drawings (Note 11)85,870

(10,320)

Long Term LiabilitiesLoan (24,000 – 3,000)

75,550

21,00096,550

Note 1 Balance Sheet as at 1/1/-7AssetsPremisesStockDebtorsInsurance PrepaidGoodwill *

85,00012,20018,000

5002,870

LiabilitiesCreditorsESB Bill DueCapital

16,300270

102,000

118,570 118,570

Note 2 Cash AccountCash Sales * 136,900 Salaries and Wages

LodgementsPurchasesDrawingsBalance c/d

31,70065,00037,4802,000

720136,900 136,900

Note 3 Bank AccountCashDebtorsCapitalLoan

65,00019,6002,800

80,000

CreditorsInsuranceVanLight and HeatInterestDrawingsPremisesInvestment FundBalance c/d *

36,2001,200

21,0004,8304,0003,900

80,0007,2009,070

167,400 167,400

Solutions

217


18,00012,900

BankBalance c/d

19,60011,300

30,900 30,900



12,900136,900

149,800 149,800


36,20016,400


16,30036,300

52,600 52,600


36,30037,480

DrawingsTrading Account *

3,00070,780

73,780 73,780

Note 8 Insurance AccountBalance b/dBank

5001,200

Profit and Loss Account *Balance c/d

1,100600

1,700 1,700

Note 9 Light and Heat AccountBankBalance c/d

4,830240

Balance b/dDrawings (1/5 of 4,800) Profit and Loss Account *

270960

3,8405,070 5,070

Note 10 Interest AccountBankBalance c/d

4,000800

Drawings (1/4 of 4,800) Profit and Loss Account *

1,2003,600

4,800 4,800

Note 11 Drawings AccountCash (Note 2)Stock (Note 7)Bank (Note 3)Light and Heat (Note 9)Interest (Note 10)

2,0003,0003,900

9601,200 Capital * 11,060

11,060 11,060


12,20070,780

149,800

Closing Stock82,980

(12,700)(70,280)

Gross Profit+ IncomeInterest on Investment Fund

79,520

72

– ExpensesInsurance (Note 8)Light and Heat (Note 9)Interest (Note 10)Salaries and Wages

1,1003,8403,600

31,700

79,592

(40,240)Net Profit 39,352


218


J. Mooney (Items marked * are discovered items)

(b) Balance Sheet as at 31/12/-7Fixed AssetsPremises (85,000 + 80,000)VanGoodwill (Note 1)Investment Fund (7,200 + 72)

165,00021,0002,8707,272

Current AssetsStockDebtorsCashInsurance PrepaidBank (Note 3)

12,70011,300

720600

9,070

196,142

Current LiabilitiesCreditorsESB Bill DueInterest Due (Note 10)

16,400240800

34,390

(17,440)16,950

213,092Financed ByCapital (102,000 + 2,800)Net Profit

104,80039,352

Drawings (Note 11) 144,152(11,060)

Long-Term LiabilitiesLoan (12%)

133,092

80,000213,092

Note 1 Balance Sheet 1/1/-8Assets LiabilitiesPremises 115,200 Creditors 4,000Stock 12,600 Wages Due 1,000Rates Prepaid 400Debtors 6,500Cash 300 Capital 130,000

135,000 135,000

Note 2 Cash AccountBalance b/d 300 Purchases 38,500Cash Sales * 107,880 Wages and General Expenses 24,200

Lodgements 43,000Drawings (40 x 52) 2,080Balance c/d 400

108,180 108,180

Note 3 Bank AccountCash 43,000 Van 48,000Debtors 27,100 Rates 3,600Capital 5,000 Creditors 18,900Term Loan 48,000 Insurance 3,800

Term Loan Repayment 8,400Balance c/d * 40,400

123,100 123,100

Solutions

219


35,700 35,700


Trading Account * 137,080 Cash (Note 2) 107,880137,080 137,080


22,700 22,700

Note 7 Purchases AccountCreditors (Note 6) 18,700 Drawings (70 x 52) 3,640Cash 38,500 Trading Account * 53,560

57,200 57,200

Note 8 Wages and General Expenses AccountCash 24,200 Balance b/d 1,000

Profit and Loss Account * 23,20024,200 24,200

Note 9 Rates AccountBalance b/d 400 Profit and Loss Account * 3,400Bank 3,600 Balance c/d 600

4,000 4,000

Note 10 Insurance AccountBank 3,800 Drawings 1,400

Profit and Loss Account * 1,800Balance c/d (1/4 of 2,400) 600

3,800 3,800

Note 11 Term Loan AccountBank (8 x 800) 6,400 Bank 48,000Balance c/d * 41,600

48,000 48,000

Note 12 Loan Instalment AccountBank (7 x 800) 5,600 Term Loan (8 x 800) 6,400Balance c/d * 800

6,400 6,400

Note 13 Loan Interest AccountBank (7 x 400) 2,800 Profit and Loss Account (8 x 400) 3,200Balance c/d * 400

3,200 3,200

Note 14 Drawings AccountCash (Note 2) 2,080Stock (Note 7) 3,640Insurance (Note 10) 1,400 Capital 7,120

7,120 7,120


220



(53,160)Gross Profit 83,920– ExpensesWages and General Expenses (Note 8) 23,200Rates (Note 9) 3,400Insurance (Note 10) 1,800Loan Interest (Note 13) 3,200

(31,600)Net Profit 52,320

(b) Balance Sheet as at 31/12/-8Fixed AssetsPremises 115,200Vans 48,000

163,200Current AssetsStock 13,000Debtors 8,600Cash 400Bank (Note 3) 40,400Rates Prepaid 600Insurance Prepaid (Note 10) 600

63,600Current LiabilitiesCreditors 3,800Loan Instalment Due (Note 12) 800Loan Interest Due (Note 13) 400

(5,000)58,600

221,800Financed ByCapital (130,000 + 5,000) 135,000Net Profit 52,320

187,320Drawings (Note 14) (7,120)

180,200Long-Term Liabilities10% Term Loan (Note 11) 41,600

221,800

Solutions

221


J. Cremen (Items marked * are discovered items)

Note 1 Opening Balance Sheet 1/1/-9Assets LiabilitiesBuildings 80,000 Wages Due 500Stock 16,500Debtors 13,000Stock of Oil 250Cash 350Creditor 60 Capital * 109,660

110,160 110,160

Note 2 Cash AccountBalance b/d 350 Purchases 26,500Cash Sales * 92,600 Wages and General Expenses 29,300

Lodgements 34,000Drawings (50 x 52) 2,600Balance c/d 550

92,950 92,950

Note 3 Bank AccountDebtors 19,300 Vans 30,000Dividends (Capital) 1,200 Creditors 18,700Cash 34,000 Interest 5,625Rent 600 Light, Heat and Fuel 2,620Loan 50,000 Drawings 2,800

Premises 45,000Balance c/d * 7,645 Investment Fund (800 x 10) 8,000

112,745 112,745


26,200 26,200



Note 6 Creditors Control AccountBalance b/d 60Bank 18,700Balance c/d 2,800 Credit Purchases * 21,560

21,560 21,560


48,060 48,060


222

Note 8 Wages and General Expenses AccountCash 29,300 Balance b/d 500


Note 9 Interest AccountBank 5,625 Drawings (1/5 of 6,250) 1,250

Balance c/d 625 Profit and Loss Account * 5,0006,250 6,250

Note 10 Light, Heat and Fuel AccountBalance b/d 250 Drawings (1/3 of 2,760) 920

Bank 2,620 Profit and Loss Account * 1,840Balance c/d 200 Balance c/d 310

3,070 3,070

Note 11 Drawings AccountCash (Note 2) 2,600Stock (Note 7) 4,160Bank (Note 3) 2,800Interest (Note 9) 1,250Light, Heat, Fuel (Note 10) 920 Capital * 11,730

11,730 11,730



(42,200)Gross Profit 63,600+ IncomeRent receivable 600Investment Income 760

64,960– ExpensesWages and General Expenses (Note 8) 28,800Interest (Note 9) 5,000Light, Heat, Fuel (note 10) 1,840

(35,640)Net Profit 29,320

Solutions

223

QUESTION 22.10

P. Cleary (Items marked * are discovered items)

(b) Balance Sheet as at 31/12/-9Fixed AssetsBuildings (80,000 + 45,000) 125,000Vans 30,000Investment Fund 8,760

163,760Current AssetsStock 18,200Stock of Oil 310Debtors 6,900Cash 550

25,960Current LiabilitiesCreditors 2,800ESB Bill Due 200Interest (Note 9) 625Bank Overdraft (Note 3) 7,645

(11,270)14,690

178,450Financed ByCapital (Note 1) 109,660Capital Introduced 1,200Net Profit 29,320

140,180Drawings (Note 11) (11,730)

128,450Long Term Liabilities15% Loan 50,000

178,450

Note 1 Opening Balance Sheet on 1/1/-0Assets LiabilitiesPremises 160,000 Creditors 12,900Stock 14,200 Rent Prepaid 250Debtors 12,000 Wages Due 5007% Investments 6,000 Capital 195,000Investment Interest Due 140Goodwill * 16,310

208,650 208,650

Note 2 Cash AccountCash Sales * 171,780 Lodgements 98,000

Wages and General Expenses 23,700Purchases 47,500Drawings (40 x 52) 2,080Balance c/d 500

171,780 171,780


224

Note 3 Bank AccountDebtors 37,000 Vans 22,000Cash 98,000 Creditors 33,100Investment Interest 560 Light and Heat 6,500Rent 1,200 Loan Payment 3,200Loan 60,000 Advertising 6,000

Furniture 12,000Drawings 2,7006% Investments 50,000Premises 50,000Balance c/d * 11,260

196,760 196,760


52,900 52,900




44,300 44,300


78,900 78,900

Note 8 7% Investment Interest AccountBalance b/d * 140 Bank 560Profit and Loss Account 420

560 560

Note 9 6% Investment Interest AccountProfit and Loss Account 1,500 Balance c/d * 1,500

1,500 1,500

Note 10 Rent Received AccountProfit and Loss Account * 1,150 Balance b/d 250Balance c/d 300 Bank 1,200

1,450 1,450

Note 11 Wages and General Expenses AccountCash 23,700 Balance b/d 500


Note 12 Light and Heat AccountBank 6,500 Drawings (1/4 of 6,900) 1,725Balance c/d 400 Profit and Loss Account * 5,175

6,900 6,900

Solutions

225

Note 13 Loan Instalment AccountBank (2 x 1,000) 2,000 Loan Account (3 x 1,000) 3,000Balance c/d 1,000

3,000 3,000

Note 14 Loan Interest AccountBank (2 x 600) 1,200 Drawings (1/5 of 1,800) 360Balance c/d 600 Profit and Loss Account * 1,440

1,800 1,800

Note 15 Advertising AccountBank 6,000 Profit and Loss Account * 5,000

Balance c/d 1,0006,000 6,000

Note 16 Drawings AccountCash (Note 2) 2,080Bank (Note 3) 2,700Stock (Note 7) 3,640Light and Heat (Note 12) 1,725Loan Interest (Note 14) 360Furniture 4,000 Capital * 14,505

14,505 14,505



(71,860)Gross Profit 140,820+ Income7% Investment Interest (Note 8) 4206% Investment Interest (Note 9) 1,500Rent Receivable (Note 10) 1,150

3,070– Expenses 143,890Wages and General Expenses (Note 11) 23,200Light and Heat (Note 12) 5,175Loan Interest (Note 14) 1,440Advertising (note 15) 5,000

(34,815)Net Profit 109,075


226


O. Connaughton (Items marked * are discovered items)

(b) Balance Sheet as at 31/12/-0Fixed AssetsPremises (160,000 + 50,000) 210,000Vans 22,000Furniture (12,000 – 4,000) 8,000Goodwill (Note 1) 16,3107% Investments 6,0006% Government Investments 50,000

312,310Current AssetsStock 17,600Debtors 15,900Cash 500Advertising Prepaid 1,0006% Investment Interest Due (Note 9) 1,500Bank (Note 3) 11,260

47,760Current LiabilitiesCreditors 11,200ESB Bill Due 400Rent Receivable Prepaid 300Loan Instalment Due (Note 13) 1,000Loan Interest Due (Note 14) 600

(13,500)34,260

346,570Financed ByCapital 195,000Net Profit 109,075

304,075Drawings (Note 16) (14,505)

289,570Loan (60,000 – 3,000) 57,000

346,570

Note 1 Opening Balance Sheet on 1/1/-1Assets LiabilitiesBuildings 90,000 Advertising Due 200Stock 20,000 Creditors 12,000Debtors 14,000Insurance Prepaid 600Cash 100 Capital * 112,500

124,700 124,700

Note 2 Cash AccountBalance b/d 100 Lodgements 73,000Cash Sales * 161,740 Purchases 43,700

Advertising 800General Expenses 37,200Rates 1,800Drawings (100 x 52) 5,200Balance c/d 140

161,840 161,840

Solutions

227

Note 3 Bank AccountCash 73,000 Light and Heat 4,620Debtors 56,900 Insurance (Annual Premium) 2,800Lotto Win (Capital) 5,000 Loan Interest 1,400Loan 70,000 Creditors 43,800

Motor Vehicles 45,000Drawings 1,200Buildings 65,000Rent 4,380Balance c/d * 36,700

204,900 204,900


79,900 79,900




54,800 54,800


86,500 86,500

Note 8 Advertising AccountCash 800 Balance b/d 200Balance c/d 700 Profit and Loss Account * 1,300

1,500 1,500

Note 9 Light and Heat AccountBank 4,620 Drawings (1/5 of 5,145) 1,029


Note 10 Insurance AccountBalance b/d 600 Profit and Loss Account * 2,700Bank 2,800 Balance c/d (1/4 of 2,800) 700

3,400 3,400

Note 11 Loan Interest AccountBank 1,400 Profit and Loss Account * 2,800Balance c/d 1,400

2,800 2,800

Note 12 Rent AccountBank 4,380 Drawings (1/5 of 4,380) 876

Profit and Loss Account * 584Balance c/d (10/12 of 3,504) 2,920

4,380 4,380


228

Note 13 Drawings AccountCash (Note 2)Bank (Note 3)Stock (Note 7)Light and Heat (Note 9)Rent (Note 12)

5,2001,2002,6001,029

876 Capital * 10,90510,905 10,905


20,00083,900

227,640


(84,900)Gross Profit– ExpensesAdvertising (Note 8)Light and Heat (Note 9)Insurance (Note 10)Loan Interest (Note 11)Rent (Note 12)General ExpensesRates

1,3004,1162,7002,800

58437,2001,800

142,740

(50,500)Net Profit 92,240

(b) Balance Sheet as at 31/12/-1Fixed AssetsBuildings (90,000 + 65,000)Motor Vehicles

155,00045,000

Current AssetsStockDebtorsCashBank (Note 3)Insurance Prepaid (Note 10)Rent Prepaid (Note 12)

19,00023,000

14036,700

7002,920

200,000

Current LiabilitiesCreditorsESB Bill DueAdvertising DueLoan Interest Due (Note 11)Loan Instalment Due

11,000525700

1,4003,500

82,460

(17,125)65,335

265,335Financed ByCapital (Note 1)Additional Capital

112,5005,000

Net Profit117,50092,240

Drawings (Note 13)209,740(10,905)

Long-term LiabilitiesLoan (70,000 – 3,500)

198,835

66,500265,335

Solutions

229


T. Healy (Items marked * are discovered items)

Note 1 Opening Balance Sheet 1/10/-2AssetsBuildingsMotorsStockStock of FuelRates Prepaid11% Investments

100,00016,00010,000

200150

10,000

LiabilitiesDebtorCreditorsWages Due

Capital *

1,2003,7001,100

130,350136,350 136,350

Note 2 Cash AccountCash Sales * 54,450 Lodgements

PurchasesWagesDrawings (200 x 12)Balance c/d

23,00021,0008,0002,400

5054,450 54,450

Note 3 Bank AccountCashDebtorsInvestment InterestLoan

23,00017,0001,000

50,000

Light, Heat and FuelCreditorsInterestRatesDrawings (Car Repairs)WagesVanDrawings (Holidays)BuildingsInvestment FundBalance c/d *

1,74017,5002,500

660300

4,00012,00010,00030,0001,800

10,50091,000 91,000

Note 4 Debtors Control Account

Credit Sales * 40,200

Balance b/dBankBalance c/d

1,20017,00022,000

40,200 40,200



40,20054,450

94,650 94,650


17,5002,800


3,70016,600

20,300 20,300


16,60021,000

Drawings (50 x 52)Trading Account *

2,60035,000

37,600 37,600

Note 8 11% Investment AccountProfit and Loss Account 1,100 Bank

Balance c/d1,000

1001,100 1,100


230

Note 9 Wages AccountCash 8,000 Balance b/d 1,100Bank 4,000 Drawings (1/4 of 12,000) 3,000


Note 10 Light, Heat and Fuel AccountBalance b/d 200 Drawings (1/3 of 1,710) 570

Bank 1,740 Profit and Loss Account * 1,140Balance c/d 230

1,940 1,940

Note 11 Loan Interest AccountBank 2,500 Profit and Loss Account * 3,000Balance c/d 500

3,000 3,000

Note 12 Rates AccountBalance b/d 150 Profit and Loss Account 645Bank 660 Balance c/d (1/4 of 660) 165

810 810

Note 13 Motors AccountBalance b/d 16,000 Profit and Loss Account (Depreciation) * 3,000Bank 12,000 Balance c/d 25,000

28,000 28,000

Note 14 Drawings AccountCash (Note 2) 2,400Bank (Note 3) 300Bank (Note 3) 10,000Stock (Note 7) 2,600Wages (Note 9) 3,000Light, Heat and Fuel (Note 10) 570 Capital * 18,870

18,870 18,870



(30,000)64,650

+ Income11% Investment Interest (Note 8) 1,100Investment Fund Interest 10

65,760– ExpensesWages (Note 9) 8,800Light, Heat and Fuel (Note 10) 1,140Loan Interest (Note 11) 3,000Rates (Note 12) 645Depreciation on Motors (Note 13) 3,000

(16,585)Net Profit 49,175

Solutions

231

(b) Balance Sheet as at 30/9/-2Fixed Assets Cost Depr. ValueBuildings (100,000 + 30,000) 130,000 – 130,000Motors (Note 13) 28,000 3,000 25,00011% Investments 10,000Investment Fund (1,800 +10) 1,810

166,810

Current AssetsStock 15,000Debtors 22,000Bank 10,500Stock of Fuel 230Investment Interest Due (Note 8) 100Rates Prepaid (Note 12) 165Cash 50

48,045Current LiabilitiesCreditors 2,800Wages Due 900Loan Interest Due (Note 11) 500

(4,200)43,845


179,525Drawings (Note 14) (18,870)

160,655Long-Term Liabilities12% Loan 50,000

210,655

232

Incomplete Records II(Balance Sheet Method): Solutions23

QUESTION 23.1

O. Thomas

QUESTION 23.2

R. Brown

(a) Opening Balance Sheet (Statement of Affairs) on 1/1/-0Assets LiabilitiesBuildings 61,000 Bank Overdraft 2,500Motor Vehicles 17,000 Wages Due 400Equipment 8,000 Creditors 9,500Stock 9,000Debtors 13,000Rates Prepaid 250 Capital (Net Worth) 95,850

108,250 108,250

(b) Balance Sheet as at 31/12/-0Assets 127,000Less Liabilities (13,700)Net Worth 31/12/-0 113,300Financed ByCapital 1/1/-0 95,850+ Capital Introduced 4,000

99,850– Drawings (700 + 5,200) (5,900)

93,950Net Profit (Balancing Figure) 17,350

111,300

(a) Opening Balance Sheet (Statement of Affairs) on 1/1/-1Assets LiabilitiesBuildings 72,000 Bank Overdraft 2,700Motor Vehicles 41,000 Wages Due 200Equipment 10,000 Creditors 6,400Stock 11,000Debtors 12,500Rates Prepaid 400 Capital (Net Worth) 137,600

146,900 146,900

Solutions

233

QUESTION 23.3

R. Cash

(b) Balance Sheet as at 31/12/-1Assets 178,500– Depreciation on Motor Vehicles (8,200)

170,300Less Liabilities (10,300)Net Worth 31/12/-1 160,000Financed ByCapital 1/1/-1 137,600+ Capital Introduced 2,800

140,400– Drawings (5,000 + 5,600) (10,600)


160,000

(a) Opening Balance Sheet (Statement of Affairs) on 1/1/-2Assets LiabilitiesPremises 94,000 Creditors 17,900Fixtures and Fittings 19,000 Expenses Due 700Motor Vehicles 27,000 Bank Overdraft 3,400Stock 17,200Debtors 14,300Advertising Prepaid 1,200 Capital (Net Worth) 150,700

172,700 172,700

(b) Balance Sheet as at 31/12/-2Assets 210,400– Depreciation on Motor Vehicles (5,400)

205,000Less Liabilities 24,500+ Expenses Due 500

(25,000)Net Worth 31/12/-2 180,000Financed ByCapital 1/1/-2 150,700+ Capital Introduced 6,000

156,700– Drawings (600 + 2,600) (3,200)


180,000


234

QUESTION 23.4

K. Moon

QUESTION 23.5

L. Todd

Balance Sheet as at 31/12/-3Fixed Assets Cost Depr. ValuePremises 82,000 – 82,000Motor Vehicles 46,000 18,400 27,600

128,000 18,400 109,600Current AssetsStock 14,000Debtors 19,000Rates Prepaid 300

33,300Current LiabilitiesCreditors 13,500Bank Overdraft 3,000Expenses Due 500

(17,000)16,300

125,900Financed ByCapital 1/1/-3 90,000+ Capital Introduced 5,000

95,000– Drawings (2,080 + 2,600 + 3,000) (7,680)


125,870

(a) Opening Balance Sheet (Statement of Affairs) on 1/1/-4Assets LiabilitiesStock 13,400 Creditors 14,000Debtors 16,500 Expenses Due 900Advertising Prepaid 1,100Bank 2,400Premises 79,000Fixtures and Fittings 24,000Vans (50,000 – 20,000) 30,000 Capital (Net Worth) 151,500

166,400 166,400

Solutions

235

QUESTION 23.6

W. Boyer

(b) Balance Sheet as at 31/12/-4Assets 186,580– Depreciation on Fixtures and Fittings 4,800– Depreciation on Vans 10,000 (14,800)+ Rates Prepaid 220

172,000Less Liabilities (32,000)


160,500– Drawings (6,000 + 5,200) (11,200)

149,300Net Loss (Balancing Figure) (9,300)

140,000

(a) Opening Balance Sheet (Statement of Affairs) on 1/1/-5Assets LiabilitiesStock 18,000 Creditors 24,300Debtors 23,200 Wages Due 700Rates Prepaid 1,900 Bank Overdraft 3,500Premises 110,000Equipment (14,000 – 4,000) 10,000Delivery Vans 30,000 Capital (Net Worth) 164,600

193,100 193,100

(b) Balance Sheet as at 31/12/-5Assets 221,600– Depreciation on Equipment 2,800– Depreciation on Vans 3,000

(5,800)+ Rates Prepaid 2,200

218,000Less Liabilities 32,700+ Interest Due on Overdraft 300

(33,000)Net Worth 31/12/-5 185,000Financed ByCapital 1/1/-5 164,600+ Capital Introduced 6,000

170,600– Drawings (3,000 + 2,600 + 2,400) (8,000)

162,600Net Loss (Balancing Figure) 22,400

185,000


236

QUESTION 23.7

F. Woolworth


F. Devitt

Balance Sheet as at 31/12/-6Fixed Assets Cost Depr. ValueBuildings 180,000 – 180,000Equipment 60,000 15,000 45,000Vans 60,000 30,000 30,000


274,000Current AssetsStock 21,000Debtors 19,500Bank 3,800Rates Prepaid 150

44,450Current LiabilitiesCreditors 14,000ESB Bill Due 200Loan Interest Due 250

(14,450)30,000


276,000– Drawings (3,800 + 3,120 + 4,160) (11,080)

264,92015% Loan 12,000


304,000

Note 1 Opening Balance Sheet (Statement of Affairs) on 1/1/-7Assets LiabilitiesPremises 53,000 Creditors 11,900Stock 15,000 Expenses Due 1,100Debtors 18,400Cash 900Insurance Prepaid 700Equipment 25,000 Capital 100,000

113,000 113,000

Solutions

237

Notes (Items marked * are discovered items)

(a) Closing Balance Sheet as at 31/12/-7Fixed AssetsPremises 53,000Equipment 25,000Vans 17,000

95,000Current AssetsStock 17,000Debtors 17,200Cash 1,200Bank 5,200Insurance Prepaid 800Advertising Prepaid 400

41,800Current LiabilitiesCreditors 12,300ESB Bill Due 280

(12,580)29,220


110,000– Drawings (Note 2) (14,050)


124,220

Note 2 Drawings AccountStock (90 x 52) 4,680Cash (50 x 52) 2,600Holiday 3,000Light and Heat (Note 3) 2,170Insurance (Note 4) 1,600 Capital * 14,050

14,050 14,050



Note 4 Insurance AccountBalance b/d 700 Drawings (1/3 of 4,800) 1,600

Bank 4,800 Profit and Loss Account * 3,100Balance c/d 800

5,500 5,500

Note 5 Wages and General Expenses AccountBank 27,000 Balance b/d 1,100



238

(c) Statement of Advice for DevittDevitt should keep an analysed cash book and a ledger, supported by appropriate books of first entry. Thiswould allow for more accurate record-keeping and less reliance on estimates.


T. Barr

Note 6 Advertising AccountBank 1,600 Profit and Loss Account * 1,200

Balance c/d 4001,600 1,600

(b) Profit and Loss Account for the year ended 31/12/-7Gross Profit (Net Profit + Expenses) 64,980ExpensesLight and Heat (Note 3) 6,510Insurance (Note 4) 3,100Wages and General Expenses (Note 5) 25,900Advertising (Note 6) 1,200

(36,710)Net Profit (From Closing Balance Sheet) 28,270

Trading Account for the year ended 31/12/-7Sales 259,920 (100%)Less Cost of SalesOpening Stock 15,000Purchases (201,620 – 4,680) 196,940


(194,940)Gross Profit (From Profit and Loss Account) 64,980 (25%)

Note 1 Opening Balance Sheet (Statement of Affairs) on 1/1/-8Assets LiabilitiesPremises 120,000 Creditors 12,000Stock 21,000 Wages Due 1,800Debtors 18,000 Capital 150,000Insurance Prepaid 600Advertising Prepaid 300Goodwill * 3,900

163,800 163,800

Solutions

239


(a) Balance Sheet as at 31/12/-8Fixed AssetsPremises (120,000 + 50,000) 170,000Equipment (24,000 – 8,000) 16,000Goodwill (Note 1) 3,900

189,900Current AssetsStock 24,000Debtors 16,000Bank 4,000Cash 300Insurance Prepaid 700Advertising Prepaid 400

45,400Current LiabilitiesCreditors 9,000ESB Bill Due 300Loan Interest Due (Note 2) 500Loan Instalment Due (Note 2) 1,000

(10,800)34,600


155,000– Drawings (Note 2) (20,375)

134,625Loan (60,000 – 8,000) 52,000


224,500

Note 2 Loan Interest AccountBank (500 x 7) 3,500 Drawings (1/5 of 4,000) 800

Balance c/d * 500 Profit and Loss Account * 3,200Interest Payable (500 x 8) 4,000 4,000

Note 3 Loan Instalment AccountBank (1,000 x 7) 7,000 Loan Account (1,000 x 8) 8,000Balance c/d * 1,000

8,000 8,000

Note 4 Drawings AccountHoliday 4,000Cash (200 x 12) 2,400Stock (300 x 12) 3,600Light and Heat (Note 5) 1,575Equipment 8,000Loan Interest (Note 2) 800 Capital * 20,375

20,375 20,375


240


B. Dack



Note 6 Insurance AccountBalance b/d 600 Profit and Loss Account * 4,100Bank 4,200 Balance c/d 400

4,800 4,800

Note 7 Advertising AccountBalance b/d 300 Profit and Loss 2,600Bank 2,700 Balance c/d 400

3,000 3,000

Note 8 Wages and General Expenses AccountBank 28,000 Balance b/d 1,800


(b) Profit and Loss Account for the year ended 31/12/-8Gross Profit (Gross Profit + Expenses) 78,700ExpensesLoan Interest (Note 2) 3,200Light and Heat (Note 5) 4,725Insurance (Note 6) 4,100Advertising (Note 7) 2,600Wages and General Expenses (Note 8) 26,200





Note 1 Opening Balance Sheet (Statement of Affairs) on 1/1/-9Assets LiabilitiesPremises 100,000 Wages Due 500Stock 1,000 Creditors 13,000Debtors 12,000 Capital 120,000Bank (120,000 – 110,000) 10,000Goodwill * 10,500

133,500 133,500

Solutions

241

(a) Balance Sheet as at 31/12/-9Fixed Assets Cost Depr. ValuePremises 100,000 – 100,000Machinery 18,000 1,000 17,000Motor Van 5,000 500 4,500Computer (11,000 – 2,200) 8,800 – 8,800

131,800 130,300Goodwill (Note 1) 10,500

140,800Current AssetsStock 1,500Debtors 13,500Bank 8,000Rates Prepaid 100

23,100Current LiabilitiesCreditors 12,000ESB Bill Due 300Loan Interest Due (Note 2) 200

(12,500)10,600


130,000– Drawings (Note 3) (14,240)

115,760Loan (20,000 – 2,000) 18,000


151,400

Note 2 Loan Interest AccountBank 300 Drawings (1/5 of 500) 100

Balance c/d 200 Profit and Loss Account * 400500 500

Note 3 Drawings AccountStock (500 x 12) 6,000Cash (300 x 12) 3,600Holiday 2,000Light and Heat (Note 4) 340Interest (Note 2) 100Computer 2,200 Capital * 14,240

14,240 14,240

Note 4 Light and Heat AccountBank 1,400 Drawings (1/5 of 1,700) 340



242

(c) Statement of Advice for DackDack should keep an analysed cash book and a ledger, supported by appropriate books of first entry. Thiswould enable Dack to prepare final accounts accurately and avoid relying on estimates.


J. Bolton

Note 5 Rates AccountBank 600 Profit and Loss Account * 500

Balance c/d 100600 600

Note 6 Wages AccountBank 12,000 Balance b/d 500


(b) Profit and Loss Account for the year ended 31/12/-9Gross Profit (Net Profit + Expenses) 32,900ExpensesLoan Interest (Note 2) 400Light and Heat (Note 4) 1,360Rates (Note 5) 500Wages (Note 6) 11,500Depreciation – Machinery 1,000

– Motor Van 500(15,260)

Net Profit (From Closing Balance Sheet) 17,640

Trading Account for the year ended 31/12/-9Sales (Gross Profit + Cost of Sales) 115,150Less Cost of SalesOpening Stock 1,000Purchases (88,750 – 6,000) 82,750


(82,250) (100%)Gross Profit (From Profit and Loss Account) 32,900 (40%)

Note 1 Opening Balance Sheet (Statement of Affairs) on 1/1/-0Assets LiabilitiesPremises 90,000 Creditors 15,900Motors 20,000 Advertising Due 1,000Rates Prepaid 500 Capital 160,000Debtors 24,100Stock 10,500Bank (160,000 – 140,000) 20,000Goodwill * 11,800

176,900 176,900

Solutions

243


(a) Balance Sheet as at 31/12/-0Fixed AssetsPremises (90,000 + 45,000) 135,000Motors 20,000Equipment (12,000 – 4,000) 8,000

163,000Goodwill (Note 1) 11,800Investment Fund (2,000 + 120) 2,120

176,920Current AssetsStock 16,400Debtors 23,800Bank 27,200Rates Prepaid (Note 2) 600

68,000Current LiabilitiesCreditors 12,200ESB Bill Due 650Advertising Due 500Interest Due (Note 3) 500

(13,850)54,150


164,000– Drawings (Note 4) (19,665)

144,335Loan 60,000


231,070

Note 2 Rates AccountBalance b/d 500 Profit and Loss Account * 2,300Bank 2,400 Balance c/d (1/4 of 2,400) 600

2,900 2,900

Note 3 Loan Interest AccountBank 2,000 Drawings (1/4 of 2,500) 625


Note 4 Drawings AccountStock (90 x 52) 4,680Cash (70 x 52) 3,640Light and Heat (Note 5) 1,470Equipment 4,000Interest (Note 3) 625Education Fees (Note 6) 5,250 Capital * 19,665

19,665 19,665


244

(c) Statement of Advice for BoltonBolton should keep an analysed cash book and a ledger, supported by appropriate books of first entry. Thiswould facilitate the preparation of final accounts and do away with the need for estimates.



Note 6 Education Fees AccountBank 7,000 Drawings (3/4 of 7,000) 5,250


Note 7 Advertising AccountBank 3,000 Balance b/d 1,000Balance c/d 500 Profit and Loss Account * 2,500

3,500 3,500

(b) Profit and Loss Account for the year ended 31/12/-0Gross Profit (Net Profit + Expenses – Income) 91,920IncomeInvestment Fund Interest 120

92,040ExpensesRates (Note 2) 2,300Loan Interest (Note 3) 1,875Light and Heat (Note 5) 5,880Education Fees (Note 6) 1,750Advertising (Note 7) 2,500Wages and General Expenses 51,000





Solutions

245


M. Nevin


Note 1 Opening Balance Sheet (Statement of Affairs) on 1/1/-1Assets LiabilitiesPremises 80,000 Creditors 12,500Stock 11,200 Wages Due 300Debtors 19,000 Bank Overdraft 9,800Motor Vehicles 24,00011% Investments 10,000Investment Interest Due 150Rates Prepaid 250Cash 100 Capital * 122,100

144,700 144,700

(a) Balance Sheet as at 31/12/-1Fixed Assets Cost Depr. ValuePremises 80,000 – 80,000Motor Vehicles 24,000 3,000 21,000Equipment (16,000 – 12,000) 4,000 – 4,000

108,000 3,000 105,00011% Investments 10,000

115,000Current AssetsStock 12,100Debtors 18,400Rates Prepaid 300Bank 12,900Cash 100Insurance Prepaid 600Investment Interest Due (Note 2) 500

44,900Current LiabilitiesCreditors 13,200Wages Due 200ESB Bill Due 200Rent Receivable Prepaid (Note 3) 4,000

(17,600)27,300

142,300Financed ByCapital 1/1/-1 (Note 1) 122,100– Drawings (Note 4) (22,470)


142,300

Note 2 11% Investment Interest AccountBalance b/d 150 Bank 750Profit and Loss Account 1,100 Balance c/d * 500

1,250 1,250


246

Note 3 Rent Receivable AccountProfit and Loss Account (2/12) 800 Bank 4,800

Balance c/d (10/12) * 4,000

4,800 4,800

Note 4 Drawings AccountStock (60 x 52) 3,120Cash (40 x 52) 2,080Light and Heat (Note 5) 1,250College Fees (Note 6) 3,500Insurance (Note 7) 520Equipment 12,000 Capital * 22,470

22,470 22,470



Note 6 College Fees AccountBank 7,000 Drawings (1/2 of 7,000) 3,500


Note 7 Insurance AccountBank 2,600 Drawings (1/5 of 2,600) 520

Profit and Loss Account * 1,480Balance b/d 600

2,600 2,600

Note 8 Wages and General Expenses AccountBank 19,600 Balance b/d 300Balance c/d 200 Proift and Loss Account * 19,500

19,800 19,800

Note 9 Rates AccountBalance b/d 250 Profit and Loss Account * 3,550Bank 3,600 Balance c/d 300

3,850 3,850

Solutions

247


S. Healy

(b) Profit and Loss Account for the year ended 31/12/-1Gross Profit (Net Profit + Expenses – Income) 75,550Income11% Investment Interest (Note 2) 1,100Rent Receivable (Note 3) 800

1,90077,450

ExpensesLight and Heat (Note 5) 3,750College Fees (Note 6) 3,500Insurance (Note 7) 1,480Wages and General Expenses (Note 8) 19,500Rates (Note 9) 3,550Depreciation on Motors 3,000





Note 1 Opening Balance Sheet (Statement of Affairs) on 1/1/-2Assets LiabilitiesPremises 80,000 Creditors 11,000Motor Van 10,000 AIB Loan 5,000Equipment 19,000 ESB Bill Due 4008% Investments 12,000 Wages Due 1,500Stock 15,000Debtors 10,000Rates Prepaid 684Insurance Prepaid 300 Capital * 129,084

146,984 146,984


248


(a) Balance Sheet as at 31/12/-2Fixed AssetsPremises 80,000Motor Van (10,000 + 10,000) 20,000Equipment (19,000 + 40,000) 59,000Furniture (6,000 – 1,200) 4,800

163,8008% Investments 12,000Investment Fund (4,200 + 125) 4,325

180,125Current AssetsStock 12,000Debtors 6,000Bank 7,000Rates Prepaid (Note 2) 744Insurance Prepaid (Note 3) 375

26,119Current LiabilitiesCreditors 9,000ESB Bill Due 500Wages Due 600Loan Interest Due (Note 4) 1,000

(11,100)15,019

195,144Financed ByCapital 1/1/-2 129,084– Drawings (Note 5) (12,940)

116,144National Irish Bank Loan 50,000


195,144

Note 2 Rates AccountBalance b/d (1/2 year) 684 Profit and Loss Account * 1,428

Bank (Full Year) 1,488 Balance c/d * 7442,172 2,172

Note 3 Insurance AccountProfit and Loss Account (1/4 year) 300 Drawings (1/5 of 1,500) 300

Bank (Full Year) 1,500 Profit and Loss Account * 1,125Balance c/d (1/4 of 1,500) 375

1,800 1,800

Note 4 Loan Interest (National Irish Bank) AccountBank 2,000 Profit and Loss Account * 3,000Balance b/d 1,000

3,000 3,000

Solutions

249

Note 5 Drawings AccountFamily Holiday 4,400Light and Heat (Note 6) 920Insurance (Note 3) 300Furniture 1,200Cash (60 x 52) 3,120Stock 3,000 Capital * 12,940

12,940 12,940

Note 6 Light and Heat AccountBank 4,600 Balance b/d 400

Drawings (1/5 of 4,600) 920


Note 7 AIB Loan AccountBank 5,600 Balance b/d 5,000

Profit and Loss Account * 6005,600 5,600

Note 8 Wages AccountBank 38,000 Balance b/d 1,500Balance c/d 600 Profit and Loss Account * 37,100

38,600 38,600

(b) Profit and Loss Account for the year ended 31/12/-2Gross Profit (Net Profit + Expenses – Income) 86,948IncomeInvestment Fund Interest 1258% Investment Interest 960

1,08588,033

ExpensesRates (Note 2) 1,428Insurance (Note 3) 1,125Loan Interest National Irish Bank (Note 4) 3,000Light and Heat (Note 6) 3,780Loan Interest AIB (Note 7) 600Wages (Note 8) 37,100Advertising 12,000






250

(c) Record KeepingHealy’s record keeping is unsatisfactory because it relies on estimates. A better system would be to keep ananalysed cash book and ledger, supported by appropriate books of first entry.


S. O’Rourke

Note 1 Opening Balance Sheet (Statement of Affairs) on 1/1/-3Assets LiabilitiesPremises 104,000 Wages Due 500Stock 14,400 ESB Bill Due 200Insurance Prepaid 240 Creditors 11,400Debtors 14,700 Capital 140,000Bank (140,000 – 130,000) 10,000Goodwill 8,760

152,100 152,100

(a) Balance Sheet as at 31/12/-3Fixed Assets Cost Depr. ValuePremises (104,000 + 70,000) 174,000 – 174,000Furniture (12,000 – 6,000) 6,000 6,000Equipment 20,000 2,000 18,000

200,000 2,000 198,000Goodwill (Note 1) 8,760Investment Fund (6,000 + 470) 6,470

213,230Current AssetsStock 12,300Debtors 17,500Bank 26,500Rates Prepaid 200Insurance Prepaid (Note 2) 270

56,770Current LiabilitiesCreditors 14,200ESB Bill Due 160Interest Due (Note 3) 800

(15,160)41,610

254,840Financed ByCapital 1/1/-3 140,000+ Capital Introduced (650 + 2,000) 2,650

142,650– Drawings (Note 4) (15,032)

127,618Loan 80,000Net Profit (Balancing Figure) 47,222

254,840

Solutions

251


Note 2 Insurance AccountBalance b/d (1/4 year) 240 Profit and Loss Account * 1,050

Bank (full year) 1,080 Balance c/d (1/4 of 1,080) 270

1,320 1,320

Note 3 Loan Interest AccountBank 3,200 Drawings (1/4 of 4,000) 1,000


Note 4 Drawings AccountStock (70 x 52) 3,640Cash (65 x 52) 3,380Light and Heat (Note 5) 412Interest (Note 3) 1,000Furniture 6,000Rates (note 6) 600 Capital * 15,032

15,032 15,032

Note 5 Light and Heat AccountBank 2,100 Balance b/d 200

Drawings (1/5 of 2,060) 412


Note 6 Rates AccountBank 1,800 Drawings (1/3 of 1,800) 600

Profit and Loss Account * 1,000Balance c/d 200

1,800 1,800

Note 7 Wages and General Expenses AccountBank 38,500 Balance b/d 500



252


R. Foster

(b) Profit and Loss Account for the year ended 31/12/-3Gross Profit (Net Profit + Expenses – Income) 93,450IncomeInvestment Interest 470

93,920ExpensesInsurance (Note 2) 1,050Loan Interest (Note 3) 3,000Light and Heat (Note 5) 1,648Rates (Note 6) 1,000Wages and General Expenses (Note 7) 38,000Depreciation on Equipment 2,000





Note 1 Opening Balance Sheet (Statement of Affairs) on 1/1/-4Assets LiabilitiesLand 200,000 Creditors 14,000Stock 9,000 Wages Due 1,200Rates Prepaid 375 Capital 250,000Debtors 16,000Investment Interest Due 7008% Investments 17,500Bank (250,000 – 237,375) 12,625Goodwill * 9,000

265,200 265,200

Solutions

253


(a) Balance Sheet as at 31/12/-4Fixed Assets Cost Depr. ValueLand and Buildings (200,000 + 50,000) 250,000 – 250,000Equipment (Note 2) 80,000 8,000 72,000

330,000 8,000 322,000Goodwill (Note 1) 9,0008% Investments 17,500

348,500Current AssetsStock 8,000Debtors 14,000Advertising Prepaid 2,000Rates Prepaid (Note 3) 405Investment Interest Due (Note 4) 900

25,305Current LiabilitiesCreditors (15,000 – 1,000) 14,000Loan Interest Due (Note 5) 1,000Wages Due 1,800ESB Bill Due 460Bank Overdraft 40,287

(57,547)(32,242)316,258

Financed ByCapital 1/1/-4 250,000– Drawings (Note 6) (25,717)

224,283Loan (80,000 – 4,000) 76,000


316,258

Note 2 Equipment AccountLoan 65,000 Profit and Loss Account (Depreciation)* 8,000Bank 15,000 Balance c/d 72,000

80,000 80,000

Note 3 Rates AccountBalance b/d (1/4 year) 375 Profit and Loss Account * 1,590

Bank (full year) 1,620 Balance c/d (1/4 of 1,620) 405

1,995 1,995

Note 4 8% Investment Interest AccountBalance b/d 700 Bank 1,200Profit and Loss Account * 1,400 Balance c/d * 900

2,100 2,100

Note 5 Loan Interest AccountBank 4,000 Drawings (1/4 of 5,000) 1,250

Balance c/d 1,000 Profit and Loss Account * 3,7505,000 5,000


254

Note 6 Drawings AccountBoat 12,000Stock (500 x 12) 6,000Cash (50 x 52) 2,600Light and Heat (Note 7) 1,742Interest (Note 5) 1,250General Expenses (Note 8) 2,125 Capital * 25,717

25,717 25,717



Note 8 General Expenses AccountBank 17,000 Drawings (1/8 of 8,710) 2,125


(b) Profit and Loss Account for the year ended 31/12/-4Gross Profit (Net Profit + Expenses – Income) 74,358IncomeInvestment Interest 1,400

75,758ExpensesDepreciation on Equipment (Note 2) 8,000Rates (Note 3) 1,590Loan Interest (Note 5) 3,750Light and Heat (Note 7) 6,968General Expenses (Note 8) 14,875Wages (20,000 – 1,200 + 1,800) 20,600Advertising (6,000 – 2,000) 4,000





Solutions

255


R. Savage

(a) Balance Sheet as at 31/12/-5Cost Depr. Value

Fixed Assets 280,000 28,000 252,000Current AssetsStock 30,000

Debtors (300,000 ÷ 12) x 1 25,000

Bank 5,00060,000

Current LiabilitiesCreditors 30,000

30,000282,000

Financed ByCapital 1/1/-5 265,000– Drawings (15,000)


282,000

(b) Trading and Profit and Loss Account for the year ended 31/12/-5Sales (Cash Sales €148,000, Credit Sales €300,000) 448,000 (100%)Less Cost of SalesPurchases 366,000Closing Stock (30,000)

(336,000)Gross Profit 112,000 (25%)ExpensesDepreciation 28,000Sundry Other Expenses 52,000



256


M. Ryan



Debtors (282,000 ÷ 12) x 1 23,500

Bank 6,50075,000

Current LiabilitiesCreditors 20,000Bank Overdraft 10,000

(30,000)45,000

159,000Financed ByCapital 1/1/-6 118,000– Drawings (14,000)


159,000

(b) Trading, Profit and Loss Account for the year ended 31/12/-6Sales (Cash Sales €38,000, Credit Sales €282,000) 320,000 (100%)Less Cost of SalesPurchases (291,000 – 6,000) 285,000Closing Stock (45,000)

(240,000)Gross Profit 80,000 (25%)ExpensesDepreciation 6,000Sundry Other Expenses 19,000


Solutions

257


M. Lyle



Debtors (270,000 ÷ 12) x 2 45,000

Bank 15,00080,000

Current LiabilitiesCreditors 28,000Bills Payable 12,000

(40,000)40,000

173,000Financed ByCapital 142,000Capital Introduced 15,000

157,000– Drawings (18,000)


173,000

(b) Trading, Profit and Loss Account for the year ended 31/12/-7Sales (Cash Sales €30,000, Credit Sales €270,000) 300,000Less Cost of SalesPurchases (267,200 – 7,200) 260,000Closing Stock (20,000)

240,000 (100%)Gross Profit 60,000 (25%)+ IncomeDiscount Received 1,000

61,000– ExpensesDepreciation 7,000Sundry Other Expenses 20,000



258


R. Daly



Debtors (240,000 ÷ 12) x 11/2 30,000

Bank 7,50045,000

Current Liabilities

Creditors (175,500 ÷ 12) x 1 14,625

Loan Interest Due 375(15,000)

30,000120,000

Financed ByCapital 1/1/-8 42,500– Drawings (12,500)

30,0005 year loan 50,000


120,000

(b) Trading and Profit and Loss Account for the year ended 31/12/-8Sales (All on Credit) 240,000 (100%)Less Cost of SalesPurchases (All on Credit) 177,500Closing Stock (7,500)

168,000Gross Profit 72,000 (30%)+ IncomeRent Received 1,000

73,000– ExpensesDepreciation 10,000Sundry Other Expenses 23,000


259

Farm Accounts: Solutions24QUESTION 24.1

QUESTION 24.2

Analysed Receipts and Payments Account R. BeattyReceiptsDetails Total Cattle and Milk Sales Sheep Sales Government

GrantsBalance b/d 1,200 – – –Milk Sales 17,000 17,000 – –Beef Premium 2,100 – – 2,100Sheep Sales 14,000 – 14,000 –Cattle Sales 25,000 25,000Ewe Premium 6,000 – – 6,000Wool Sales 1,500 1,500Total Receipts 66,800 42,000 15,500 8,100

PaymentsDetails Total Cattle and Milk Sheep Sundry DrawingsDairy Wages 4,000 4,000 – – –General Wages 12,000 – – 12,000 –Light and Heat 700 – – 700 –Cattle Feed 5,000 5,000 – – –Sheep Feed 2,000 – 2,000 – –Conacre 1,200 1,200Cattle 9,000 9,000 – – –Drawings 5,500 – – – 5,500Sheep 4,000 – 4,000 – –Repairs 300 – – 300 –Fertilizer 1,200 – – 1,200 –Total Payments 44,900 18,000 6,000 15,400 5,500Balance c/d 21,900

N. Power: Analysed Receipts and Payments Account ReceiptsDetails Total Cattle Sales Poultry Sales Grain Sales Government

GrantsBalance b/d 3,500 – – – –Cattle 21,000 21,000 – – –Poultry 14,000 – 14,000 – –Grain 6,500 – – 6,500 –Beef Premium 3,000 – – – 3,000Headage 4,000 – – – 4,000Total Receipts 52,000 21,000 14,000 6,500 7,000


260

QUESTION 24.3

The McMahon Family

PaymentsDetails Total Cattle Poultry Grain Sundry DrawingsCattle 9,000 9,000 – – – –Poultry 7,000 – 7,000 – – –Seed 1,500 – – 1,500 – –Wages 6,000 – – 6,000 – –Wages 13,500 – – – 13,500 –Drawings 7,000 – – – – 7,000Feed 1,500 1,500 – – – –Feed 300 – 300 – – –Fencing 900 – – – 900 –Repairs 100 – – – 100 –Fertilizer 1,200 – – – 1,200 –Light and Heat 700 – – – 700 –Insurance 900 – – – 900 –Total Payments 49,600 10,500 7,300 7,500 17,300 7,000Balance c/d 2,400

(a) Enterprise Analysis Account for the year ended 31/12/-5 – Cattle and MilkSales – Milk 17,000

– Cattle 26,000Drawings (700 + 2,500) 3,200Beef Premium 4,500Closing Stock of Cattle 21,000

71,700Less Expenses

Opening Stock of Cattle 22,000Purchases 9,000Feed 3,000Dairy Wages 6,500

General Wages (1/2 of 15,000) 7,500

Haulage (1/2 of 2,000) 1,000 (49,000)

Gross Profit (Contribution) 22,700

Enterprise Analysis Account for the year ended 31/12/-5 – Grain CropsSales 13,500Closing Stock 8,500

22,000Less Expenses

Opening Stock 4,000Seeds 1,200Sowing Wages 3,800Reaping Wages 4,200

General Wages (1/2 of 15,000) 7,500

Haulage (1/2 of 2,000) 1,000 (21,700)

Gross Profit (Contribution) 300

Solutions

261

QUESTION 24.4

The O’Reilly Family

(a) General Profit and Loss Account for the year ended 31/12/-5Contribution from Cattle and Milk 22,700Contribution from Grain Crops 300Conacre 1,200

24,200Less Expenses

Fencing 200Light and Heat 1,700Repairs 2,500Insurance 700

(5,100)Net Profit 19,100

(a) Enterprise Analysis Account for the year ended 31/12/-6 – Cattle and MilkSales – Milk 140,000

– Cattle 280,000Drawings (700 + 3,800) 4,500Closing Stock of Cattle 85,000

509,500Less Expenses

Opening Stock of Cattle 90,000Purchases 210,000Feedstuffs 25,000Dairy Wages 14,000Veterinary Fees 5,700Milking Parlour Repairs 2,100

Fertilizer Costs (1/2 of 1,500 + 4,800 – 2,400) 1,950

General Wages (1/2 of 24,000) 12,000

Haulage (1/2 of 6,000) 3,000 (363,750)


Enterprise Analysis Account for the year ended 31/12/-6 – Grain CropsSales 62,600Closing Stock 15,000

77,600Less Expenses

Opening Stock 12,000Purchases of Seed 13,000Pesticides (700 + 5,300 – 300) 5,700Sowing Wages 5,500Reaping Wages 8,200

Fertilizer Costs (1/2 of 1,500 + 4,800 – 2,400) 1,950

General Wages (1/2 of 24,000) 12,000

Haulage (1/2 of 6,000) 3,00061,350



262

QUESTION 24.5

The Doyle Family

(b) General Profit and Loss Account for the year ended 31/12/-6Contribution from Cattle and Milk 145,750Contribution from Grain Crops 16,250


Electricity and Diesel Oil (300 + 3,200 – 400) 3,100Insurance 700Bank Charges 200General Expenses 2,200

(6,200)Net Profit 155,800

(a) Enterprise Analysis Accounts for the year ended 31/12/-7Cattle Sheep Pigs

Sales 301,000 74,000 94,000Premium 12,000 4,000 –Drawings 2,700 1,700 900Closing Stocks 95,000 32,000 23,000

410,700 111,700 117,900Less ExpensesOpening Stock 98,000 28,000 21,000Purchases 212,000 39,000 72,000

Wages (1/3 of 65,000 + 1,000) 22,000 22,000 22,000

Haulage (1/3 of 19,000 + 2,000) 7,000 7,000 7,000

Veterinary Fees (1/3 of 3,500 + 400) 1,300 1,300 1,300

(340,300) (97,300) (123,300)Gross Profit (Contribution) 70,400 144,400 (5,400)

(b) General Profit and Loss Account for the year ended 31/12/-7Contribution from Cattle 70,400Contribution from Sheep 14,400Contribution from Pigs (5,400)Conacre 9,000

88,400Less Expenses

Light and Heat (7,000 – 1,400) 5,600Bank Charges 500Accountancy Fees 2,000Insurance (7,000 – 1,400) 5,600Repairs (4,000 – 800) 3,200Bank Interest 1,500General Expenses (6,500 – 1,300) 5,200Depreciation – Farm Machinery 7,000

– Tractors 10,000(40,600)

Net Profit 47,800

Solutions

263

QUESTION 24.6

(c) Balance Sheet as at 31/12/-7Cost Depr Value

Fixed AssetsLand and Buildings 300,000 – 300,000Farm Machinery 70,000 7,000 63,000Tractors 50,000 10,000 40,000

420,000 17,000 403,000Current Assets

Stock – Cattle 95,000– Sheep 32,000– Pigs 23,000

150,000Debtors 17,000

167,000Current Liabilities

Creditors 21,000Bank Overdraft 15,000

Vet Fees Due 400Haulage Due 2,000Wages Due 1,000

(39,400)127,600530,600

Financed byCapital 500,000+ Net Profit 47,800

547,800– Drawings (7,000 + 2,700 + 1,700 + 900 + 1,400 + 1,400 + 800 + 1,300) (17,200)

530,600

The Galvin Family

(a) Statement of Capital on 1/1/-1Assets LiabilitiesFarm Land and Buildings 400,000 ESB Bill Due 320Equipment 120,000 Due to Vet. 4,500Cattle Stock 70,000 Loan 10,000Pigs Stock 40,000 Loan Interest Due 1,890Horses Stock 65,000 21/2 year = 2,700

Diesel Oil Stock 700 13/4 year = 1,890

Due from Goffs 14,700Due from Creamery 5,600Insurance Prepaid 480Bank 3,800 Capital on 1/1/- 703,570

720,280 720,280


264

(b) Enterprise Analysis Account for the year ended 31/12/-1 – Cattle and Milk

Sales to Creamery (84,000 – 5,600 + 6,500) 84,900Cattle Sales 127,000 Beef Premium 13,000Drawings 500Closing Stock of Cattle 60,000


Opening Stock of Cattle 70,000Dairy Wages 17,000Cattle Purchases 82,000Vet. Fees (40% of 19,500 – 4,500) 6,000Farm Repairs (40% of 11,000) 4,400General Farm Expenses (40% of 6,500) 2,600Depreciation on Equipment(1/3 of 120,000 + 95,000 – 15,000 – 191,000) 3,000

Insurance (1/3 of 4,800 + 1,800 – 600 – 336) 448Light Heat and Fuel(20% of 700 + 3,000 – 320 – 600 – 695) 417

(185,865)Gross Profit (Contribution) 99,535

Enterprise Analysis Account – Pigs

Pig Sales 76,000Closing Stock of Pigs 7,000

83,000Less Expenses

Opening Stock of Pigs 40,000Pig Purchases 29,000Vet. Fees (20% of 19,500 – 4,500) 3,000Farm Repairs (20% of 11,000) 2,200General Farm Expenses (20% of 6,500) 1,300Depreciation on Equipment(1/3 of 120,000 + 95,000 – 15,000 – 191,000) 3,000



Enterprise Analysis Account – Horses

Horse Sales (26,250 – 14,700) 11,550Annual Grant from Bord na gCapaill 12,000Closing Stock of Horses 18,000

41,550Less Expenses

Opening Stock of Horses 65,000Horse Purchases 21,000Vet. Fees (40% of 19,500 – 4,500) 6,000Farm Repairs (40% of 11,000) 4,400General Farm Expenses (40% of 6,500) 2,600Depreciation on Equipment(1/3 of 120,000 + 95,000 – 15,000 – 191,000) 3,000


(103,282)Gross Profit (Contribution) (61,732)

Solutions

265

(e) Advice for the GalvinsThe margin on cattle and milk is 47%, on pigs 4%, and there is a loss on horses. Depending on the acreagedevoted to each enterprise, it would appear that Galvin should specialise in cattle and milk and end the othertwo enterprises. There may be expensive shut down costs involved. The farm’s liquidity situation is such thatthe money that is presently tied up in current assets, especially stocks and cash, could be more profitablyutilised in fixed assets which would generate profits.

(c) General Profit and Loss Account for the year ended 31/12/-1

Contribution from Cattle and Milk 99,535Contribution from Pigs 3,218Contribution from Horses (61,732)Profit on Model Farm Exhibition (24,000 – 15,000) 9,000

50,021Less Expenses

Loss on Disposal 7,000Loan interest (2,700 – 1,890) 810Bank Charges 500

(8,310)Net Profit 41,711

(d) Balance Sheet as at 31/12/-1Cost Depr Value

Fixed AssetsLand and Buildings 400,000 – 400,000Equipment 200,000 9,000 191,000

600,000 9,000 591,000Current Assets

Stock – Cattle 60,000– Pigs 7,000– Horses 18,000– Diesel Fuel 600

85,600Due from Creamery 6,500Insurance Prepaid (4 months) 600Deposit Account 40,000Current Account 12,050

144,750735,750

Financed byCapital 1/1/-1 703,570+ Net Profit 41,711

745,281– Drawings (8,000 + 336 + 695 + 500) (9,531)

735,750


266

QUESTION 24.7

Brian and Mary McArdle

(a) Enterprise Analysis Account for the year ended 31/12/-9 – Cattle and Milk

Sales – Cattle 43,000 – Milk (29,500 + 1,800) 31,300

Beef Premium 4,500Drawings (600 + 2,100) 2,700Closing Stock of Cattle 79,000


Opening Stock of Cattle 75,000Purchases 29,000Feedstuffs 9,000Dairy Wages 5,300Veterinary Fees (1,200 – 240) 960Barley Fed to Cattle 1,900Repairs to Milking Parlour 2,800Haulage (70% of 5,800) 4,060Depreciation – Machinery (70% of 3,000) 2,100– Equipment (70% of 9,000) 6,300Diesel Oil (70% of 200 + 1,800 – 500) 1,050


Enterprise Analysis Account for the year ended 31/12/-9 – Barley

Sales – Barley 19,000 – Straw 2,600

EU Barley Subsidies (1,300 + 1,200) 2,500Barley fed to Cattle 1,900Closing Stock 6,000

32,000Less Expenses

Opening Stock 7,000Seeds 900Pesticides 3,000Crop Spraying 2,000Sowing and Harvesting Wages 5,600Fertiliser (2,500 + 4,500 – 3,000) 4,000Haulage (30% of 5,800) 1,740Depreciation – Machinery (30% of 3,000) 900– Equipment (30% of 9,000) 2,700Diesel Oil (30% of 200 + 1,800 – 500) 450


(b) General Profit and Loss Account for the year ended 31/12/-9

Contribution from Cattle and Milk 23,030Contribution from Barley 3,710Conacre 1,800

28,540Less Expenses

Insurance (700 – 140) 560Light and Heat (1,300 – 260) 1,040Loan Interest 2,000

(3,600)Net Profit 24,940

Solutions

267

(d) Advice to the McArdle FamilyThe farm made a profit of €24,940 during the year. This represents a return on capital employed of justunder 5%. This would have to be compared with previous years and returns from similar enterprises. The peracreage contribution of cattle and milk was €164.50 per acre (23,030/140) and the per acreage contributionof barley was €61.83 per acre (3,710/60).The return on the cattle and milk enterprise is superior to that on barley so a higher concentration on cattleand milk is desirable but may not be possible due to suitability of land, milk quotas available etc.



Fixed AssetsFarm Land and Buildings 450,000 – 450,000Farm Machinery 55,000 28,000 27,000Farm Equipment 45,000 26,000 19,000

550,000 54,000 496,000Current Assets

Stock – Cattle 79,000– Fertiliser 3,000– Barley 6,000– Diesel Oil 500

88,500Debtors (1,900 + 1,800 + 1,200) 4,900Cash 100


Creditors 16,400Bank 1,700

(18,100)75,400

571,400Financed byCapital (524,800 + 2,800) 527,600+ Net Profit 24,940

552,540– Drawings (2,800 + 600 + 2,100 + 240 + 140 + 260) (6,140)

546,400ACC Loan 25,000

571,400

The Lynch Family(a) Statement of Capital on 1/1/-0

Assets LiabilitiesFarm Land and Buildings 200,000 Creditors for Cattle 12,000Farm Equipment 15,000Farm Machinery 25,000Due from Creamery 1,500Stock of Cattle 29,000Stock of Grain 4,000Prize Bonds 5,000Due from Meat Factory 9,500Insurance Prepaid 320Bank 3,500 Capital on 1/1/-0 280,820

292,280 292,820


268

(b) Enterprise Analysis Account for the year ended 31/12/-0 – Cattle and Milk

Sales to Meat Factory (23,800 – 9,500 + 10,800) 25,100Sales at Market 19,000Sales of Milk (27,200 – 1,500 + 2,800) 28,500 Beef Premium 3,900Drawings (1,000 + 3,000) 4,000Closing Stock 32,000


Opening Stock of Cattle 29,000Purchases (23,000 – 12,000 + 11,500) 22,500Feedstuffs 11,100Grain Fed to Cattle 1,900Veterinary Fees (3,000 – 600) 2,400Dairy Wages 11,700General Farm Expenses (1/2 of 2,300) 1,150Machinery Repairs (1/2 of 3,200) 1,600Haulage (1/2 of 5,500) 2,750


Enterprise Analysis Account for the year ended 31/12/-0 – Grain Crops

Sales 15,300Grain Subsidy 2,800Grain fed to Cattle 1,900Closing Stock 7,000

27,000

Less ExpensesOpening Stock 4,000Seeds 2,900Sowing and Harvesting 3,900Pesticides 2,500Crop Spraying 2,900General Farm Expenses (1/2 of 2,300) 1,150Machinery Repairs (1/2 of 3,200) 1,600Haulage (1/2 of 5,500) 2,750


(c) General Profit and Loss Account for the year ended 31/12/-0

Contribution from Cattle and Milk 28,400Contribution from Grain Crops 5,300Conacre 3,500

37,200Less Expenses

Insurance (320 + 2,040 – 340) 2,020Water Rates (160 – 32) 128 Depreciation – Equipment (15,000 + 17,000 – 30,000) 2,000

– Machinery (25,000 – 21,000) 4,000(8,148)

Net Profit 29,052

Solutions

269

QUESTION 24.9

The McGimpsey Family

(d) Balance Sheet as at 31/12/-0Cost Depr Value

Fixed AssetsFarm Land and Buildings 200,000 – 200,000Farm Equipment 32,000 2,000 30,000Farm Machinery 25,000 4,000 21,000

257,000 6,000 251,000Prize Bonds 5,000

256,000Current Assets

Stock – Cattle 32,000– Grain 7,000

39,000Debtors – Creamery 2,800

– Meat Factory 10,800Bank 1,800Insurance Prepaid (two months) 340


Creditors for Cattle (11,500)43,240

299,240Financed byCapital 1/1/-0 280,820+ Net Profit 29,052

309,872– Drawings (6,000 + 1,000 + 3,000 + 600 + 32) 10,632

299,240

(a) Enterprise Analysis Account for the year ended 31/12/-8 – Cattle and Milk

Sales – Cows 190,000 – Calves 45,000 – Milk (118,000 + 5,000) 123,000

Beef Premium 4,000Drawings (2,200 + 800) 3,000Closing Stock of Cattle 102,000


Opening Stock of Cattle 98,000Purchases 140,000Feedstuffs 11,000Dairy Wages (24,000 + 1,000) 25,000Repairs to Milking Parlour 1,500Veterinary Fees (7,000 + 300) 2 3,650Haulage (5,000 + 2,500) 3 2,500Cattle Pen Repairs 3,000


÷÷


270

Enterprise Analysis Account for the year ended 31/12/-8 – Sheep

Sales – Sheep 124,000 – Wool 3,000

Ewe Premium 5,000Drawings 1,900Closing Stock 33,000


Opening Stock 37,000Purchases 101,000Feedstuffs 3,000Sheep Dip Expenses 700Sheep Shearing 700Veterinary Fees (7,000 + 300) 2 3,650Haulage (5,000 + 2,500) 2,500


Enterprise Analysis Account – Grain Crops

Sales – Grain 21,000Closing Stock 18,000

39,000Less Expenses

Opening Stock 10,000Pesticides (1,500 + 4,000 – 2,000) 3,500Purchases of Seeds 9,000Repairs to Harvester 1,200Sowing Wages 5,000Harvesting Wages 7,000Crop Spraying 2,000Haulage (5,000 + 2,500) 3 2,500

(40,200)Gross Profit (Contribution) (1,200)

(b) General Profit and Loss Account for the year ended 31/12/-8

Contribution from Cattle and Milk 182,350Contribution from Sheep 18,350Contribution from Grain Crops (1,200)Conacre 12,000Rent of Land for Annual Ploughing Championships 39,000


Diesel Oil (2,000 + 5,000 – 1,800 – 1,300) 3,900Light and Heat (4,000 + 200 – 1,050) 3,150General Wages (40,000 – 10,000) 30,000Depreciation – Farm Machinery 27,000

– Farm Equipment 14,000 – Tractors 13,500

Bank Interest 1,000Accountancy Fees 3,000

(95,550)Net Profit 154,950

÷

÷

Solutions

271


Fixed AssetsFarm Land and Buildings 450,000 – 450,000Farm Machinery 120,000 57,000 63,000Farm Equipment 70,000 44,000 36,000Tractors 90,000 43,500 46,500

730,000 144,500 585,500Current Assets

Stock – Pesticides 2,000– Diesel Oil 1,800– Cattle 102,000– Sheep 33,000– Grain 18,000

156,800Debtors (27,100 + 5,000) 32,100Cash 500

189,400Less Current Liabilities

Creditors 35,000Bank 3,000Dairy Wages Due 1,000Haulage Due 2,500ESB Bill Due 200Vet Fees Due 300

(42,000)147,400732,900

Financed byCapital 600,000+ Net Profit 154,950

754,950– Drawings (4,800 + 2,200 + 1,900 + 800 + 1,300 + 1,050 + 10,000) (22,050)

732,900

272

Tabular Statements: Solutions25QUESTION 25.1

QUESTION 25.2

Lassiter Ltd1/1/-4 Jan Feb Mar Apr June July Aug 31/12/-4

Buildings 120,000 20,000 140,000Machinery 25,000 5,000 30,000Stock 35,000 (10,000) 8,000 33,000Debtors 21,000 (1,000) 12,000 32,000Bills Receivable 10,000 10,000

211,000 – – (1,000) 20,000 2,000 8,000 5,000 245,000Share Capital 130,000 70,000 200,000General Reserve 20,000 20,000Profit and Loss Account 38,000 100 (700) 2,000 (3,000) 36,400Creditors 18,000 (1,100) 8,000 24,900Bank Overdraft 5,000 1,000 (70,000) (300) 8,000 (56,300)TSB Loan 20,000 20,000

211,000 – – (1,000) 20,000 2,000 8,000 5,000 245,000

Mitchell Ltd1/1/-5 Jan Feb Mar May July Oct Dec 31/12/-5

Buildings 60,000 40,000 100,000Equipment 40,000 6,000 46,000Motor Vans 20,000 20,000Stock 44,000 (8,000) 1,000 37,000Debtors 21,000 (3,000) 4,800 (1,200) 21,600Bills Receivable 8,000 8,000

193,000 – – (3,000) (3,200) 6,000 40,000 (200) 232,600Share Capital 150,000 50,000 200,000Share Premium 10,000 10,000 20,000Profit and Loss 12,000 300 (1,800) 1,600 (2,000) (200) 9,900Creditors 17,500 (2,800) 14,700Bank Overdraft 3,500 (60,000) 2,500 (1,200) (4,800) 8,000 (52,000)Revaluation Reserve 40,000 40,000

193,000 – – (3,000) (3,200) 6,000 40,000 (200) 232,600

Solutions

273


Notes (1) June – A payment of €1,440 annual premium brings insurance prepaid to 31/3/-7. Thus 3 months at €120 per month = €360 prepaid.


Quantum Ltd1/1/-6 Jan Feb March April May June1 July Aug Oct Dec 31/12/-6

Buildings 110,000 60,000 170,000Equipment 60,000 9,000 69,000Stock 62,000 (12,000) 300 4,500 (800) 54,000Debtors 27,000 14,400 (360) 1,200 42,240Insurance Prepaid 300 60 360

259,300 60,000 2,400 (60) – 1,200 60 – 4,500 (800) 9,000 335,600Share Capital 170,000 15,000 185,000Share Premium 34,000 5,000 39,000Profit and Loss Account 21,000 2,400 (60) 2,000 (1,380) 200 (80) 2,000 26,080Creditors 29,000 4,500 (720) 32,780Bank Overdraft 3,300 (20,000) (800) 1,440 1,800 7,000 (7,260)Bills Payable 2,000 (2,000) –Revaluation Reserve 60,000 60,000

259,300 60,000 2,400 (60) – 1,200 60 – 4,500 (800) 9,000 335,600

Jones Ltd1/1/-7 Jan Feb March April May June August Sept. Dec. 31/12/-7

Land and Buildings 260,000 260,000– Accumulated Depreciation (20,000) (6,000) (26,000)Motor Vehicles 90,000 50,000 140,000– Accumulated Depr. (30,000) (28,000) (58,000)Goodwill 40,000 5,000 45,000Stock 50,000 12,000 4,900 (7,200) 688 60,388Debtors 41,000 20,000 (2,000) 9,000 (774) 67,226Insurance Prepaid 220 40 260

431,220 87,000 40 – – (2,000) 4,900 1,800 (86) (34,000) 488,874Share Capital 250,000 50,000 300,000General Reserve 50,000 50,000Share Premium 50,000 15,000 65,000Profit and Loss Account 28,220 (1,520) 13,800 (15,000) (1,200) 1,800 (86) (34,000) (7,986)Creditors 35,000 22,000 4,900 61,900Bank Overdraft 15,000 1,560 (14,400) 15,000 (800) 16,360Rent Rec. Prepaid 3,000 600 3,600

431,220 87,000 40 – – (2,000) 4,900 1,800 (86) (34,000) 488,874


274



ROI Ltd1/1/-8 January May August Sept Dec 31/12/-8

Buildings 180,000 40,000 220,000– Accumulated Depreciation (20,000) (5,000) (25,000)Plant and Machinery 90,000 30,000 120,000– Accumulated Depreciation (30,000) (4,000) (34,000)Motors 50,000 (5,000) 45,000– Accumulated Depreciation (10,000) 7,000 (3,000) (6,000)Stock 28,000 16,000 (20,000) 34,000Debtors 32,000 30,000 62,000– Bad Debts Provision (2,000) 1,000 (1,000)Bank 4,000 (800) (5,000) (1,800)Insurance Prepaid 1,050 150 1,200Goodwill 14,000 14,000

323,050 100,000 (650) (3,000) 10,000 (11,000) 418,400Share Capital 200,000 80,000 280,000General Reserve 60,000 60,000Profit and Loss Account 34,200 (1,150) (3,000) 4,000 (11,000) 23,050Creditors 25,000 25,000VAT 3,850 6,000 9,850Share Premium 20,000 20,000Rent Receivable Prepaid 500 500

323,050 100,000 (650) (3,000) 10,000 (11,000) 418,400

Westward Ltd1/1/-9 Jan Feb March May June July Dec 31/12/-9

Land and Buildings 300,000 100,000 80,000 480,000– Accumulated Depreciation (20,000) 20,000 (7,600) (7,600)Motor Vans 90,000 10,000 (20,000) 80,000– Accumulated Depreciation (30,000) 11,000 (16,000) (35,000)Stock 72,000 10,000 (3,000) 79,000Debtors 40,000 (3,200) 36,800– Bad Debts Provision (2,000) 160 (1,840)Insurance Prepaid 360 30 390Goodwill 10,000 10,000Equipment 40,000 40,000

450,360 120,000 150,000 (3,000) (3,170) – (9,000) (23,440) 681,750Share Capital 250,000 100,000 350,000General Reserve 50,000 50,000Share Premium 50,000 25,000 75,000Profit and Loss Account 72,000 (300) (1,730) 300 2,000 (23,440) 48,830Creditors 25,000 25,000 (2,700) (3,100) 44,200Bank 1,360 (1,440) 2,800 (11,000) (8,280)Bills Payable 2,000 2,000Revaluation Reserve 120,000 120,000

450,360 120,000 150,000 (3,000) (3,170) – (9,000) (23,440) 681,750

Solutions

275

QUESTION 25.7

QUESTION 26.1

(i) Management (ii) Financial (iii) Management(iv) Financial (v) Financial (vi) Management

(vii) Financial (viii) Financial (ix) Management(x) Management (xi) Financial (xii) Management

(xiii) Financial (xiv) Financial

QUESTION 26.2

See textbook page 384.

QUESTION 26.3

See textbook page 385.

Flagpole Ltd1/1/-0 Jan. Feb. March April June Sept Dec 31/12/-0

Land and Buildings 200,000 100,000 300,000– Accumulated Depr. (10,000) 10,000 (3,600) (3,600)Motor Vans 50,000 (15,000) 35,000– Accumulated Depr. (20,000) 8,000 (7,000) (19,000)Goodwill 16,000 16,00010% Investments 20,000 20,000Stock 35,000 5,000 (7,500) (300) 32,200Debtors 30,000 9,900 39,900Bank 6,000 8,100 6,000 20,100Investment Income Due 500 500Bad Debts Provision (1,995) (1,995)

327,000 5,000 2,400 (300) 8,600 110,000 (1,000) (12,595) 439,105Share Capital 200,000 200,000Share Premium 50,000 50,000Profit and Loss Account 45,000 1,500 (33) 8,400 (1,000) (12,595) 41,272Creditors 27,000 5,500 (297) 32,203VAT 3,000 (500) 900 30 3,430Rent Receivable Prepaid 2,000 200 2,200Revaluation Reserve 110,000 110,000

327,000 5,000 2,400 (300) 8,600 110,000 (1,000) (12,595) 439,105

Introduction to Management Accounting: Solutions26

276

Cost Classification: Solutions27QUESTION 27.1

Tabula Ltd

QUESTION 27.2

Goona Ltd

QUESTION 27.3

Finneogue Ltd

QUESTION 27.4

QUESTION 27.5

Odeplex Cinema Ltd

Step 1:Customers Costs

High 51,000 €91,500Low 16,000 €39,000Difference 35,000 €52,500

Variable Cost = €52,500

Step 2: Variable cost per unit = €52,500/35,000 = €1.50 per customer

Step 3:High Low

Total Cost €91,500 €39,000– Variable cost €76,500(51,000 x €1.50) €24,000 (16,000 x €1.50)= Fixed cost €15,000 €15,000

Step 4: At 54,000 customers, maintenance costs will be €15,000 fixed plus €81,000 (54,000 x €1.50) = €96,000

Situation Graph Number(a) 5(b) 1(c) 4(d) 3(e) 2

Manufacturing Costs(i)(iv)(v)(vi)(ix)(x)

-------------------------------------------------- Non-Manufacturing Costs(ii)(iii)(vii)(viii)

--------------------------------------------------------------

Direct Costs of Production(i)(iii)(iv)(viii)(ix)

-------------------------------------------------------------- Indirect Costs of Production(ii)(v)(vi)(vii)(x)

------------------------------------------------------------------

Fixed Costs(ii)(iii)(vii)(ix)-------------------------- Variable Costs

(i)(iv)(v)(x)--------------------------------- Mixed Costs

(vi)(vii)----------------------------

Solutions

277

QUESTION 27.6

Pelo Car Sales Ltd

Step 1:Sales Costs

High €730,000 €85,000Low €510,000 €63,000Difference €220,000 €22,000


Step 2: Variable cost per unit = €22,000/€220,000 = 10%

Step 3:High Low

Total Cost €85,000 €63,000– Variable cost €73,000 (10% of €730,000) €51,000 (10% of €510,000)= Fixed cost €12,000 €12,000

Step 4: At sales of €680,000, salesforce earnings will be €12,000 fixed plus €68,000 (10% of €680,000) =€80,000

QUESTION 27.7

Wringo Ltd

Step 1:Spools of wire produced Costs

High 13,000 €34,890Low 10,000 €29,550Difference 3,000 €5,340


Step 2: Variable cost per unit = €5,340/€3,000 = €1.78

Step 3:High Low

Total Cost €34,890 €29,550– Variable cost €23,140 (13,000 x 1.78) €17,800 (10,000 x 1.78)= Fixed cost €11,750 €11,750

Step 4: At production of 16,000 spools of wire, production overheads will be €11,750 fixed + €28,480 (16,000 x€1,78) = €40,230.

QUESTION 27.8

Avora Ltd

QUESTION 27.9

Bawbogue Ltd

Controllable by the Marketing Manager(i)(ii)(iii)(v)(vi)(viii)(ix)(x)

------------------------------------------------------------------------------------------------ Uncontrollable by the Marketing Manager(iv)(vii)

------------------------------------------------------------------------------------------------------

Product Cost(i)(iii)(v)(vi)(vii)(ix)(x)---------------------------------------- Period Cost

(i)(iv)(viii)---------------------------

278

Product Costing: Solutions28QUESTION 28.1

Alpha Ltd

QUESTION 28.2

Beta Ltd

Overhead Analysis SheetOverhead Basis of

ApportionmentTotal Machining Assembly Polishing

Supervisors’ Salaries Number of Employees 42,000 7,000 21,000 14,000Rent and Rates Floor Space 7,000 3,500 1,750 1,750Light and Heat Floor Space 21,000 10,500 5,250 5,250Equipment Insurance Book Value 2,500 1,000 1,000 500Equipment Depreciation Book Value 10,000 4,000 4,000 2,000Buildings Depreciation Book Value 7,000 3,000 2,000 2,000Buildings Insurance Book Value 14,000 6,000 4,000 4,000Canteen Costs Number of Employees 15,000 2,500 7,500 5,000

118,500 37,500 46,500 34,500

Overhead Analysis SheetOverhead Basis of

ApportionmentTotal Casting Polishing Administration Maintenance

Rent and Rates Floor Space 2,520 1,260 840 210 210Light and Heat Floor Space 12,000 6,000 4,000 1,000 1,000Machinery Insurance Book Value 18,000 9,600 8,400 – –Canteen Costs No. of Employees 50,000 22,500 18,750 3,750 5,000Buildings Depr. Book Value 4,000 1,400 1,700 500 400Machinery Power Machine Hours 33,600 25,200 8,400 – –Supervisors’ Salaries No. of Employees 104,000 46,800 39,000 7,800 10,400Machine Depr. Book Value 13,500 7,200 6,300 – –

237,620 119,960 87,390 13,260 17,010Reapportion. Admin. Machine Hours 9,945 3,315 (13,260)Reapportion. Maint. Machine Hours 12,758 4,252 (17,010)

237,620 142,663 94,957

Solutions

279

QUESTION 28.3

Gamma Ltd

(b) Overhead Absorption Rates

(i) Department A

=

(ii) Department B

=

(iii) Department C

=

(c)Cost of Production of Job No. 73X (€).Direct Materials 20,000Direct Wages 1,750OverheadsDepartment A – 200 x €3.86 772Department B – 4,000 x €0.28 1,120Department C – 150 x €3.52 528Cost of Production 24,170

QUESTION 28.4

Delta Ltd

(a) Overhead Absorption RatesDepartment 1

=

Department 2

=

Department 3

=

(a) Overhead Analysis SheetOverhead Basis of

ApportionmentTotal Dept A Dept B Dept C

Supervisors’ Salaries Direct Wages 60,000 32,000 8,000 20,000Rent and Rates Floor Space 12,000 7,200 2,400 2,400Repairs to Building Book Value 3,150 1,350 900 900Canteen Costs Number of employees 4,000 1,600 1,600 800Materials Handling Direct Materials 7,000 2,800 2,800 1,400Equipment Depreciation Book Value 4,000 1,500 1,300 1,200Machinery Maintenance Machine Hours 9,800 1,960 5,880 1,960Machinery Insurance Machine Hours 2,600 520 1,560 520Buildings Insurance Book Value 4,900 2,100 1,400 1,400Light and Heat Floor Space 8,000 4,800 1,600 1,600Administration Costs Number of employees 15,000 6,000 6,000 3,000

130,450 61,830 33,440 35,180

Total Department OverheadsDepartment Labour Hours

---------------------------------------------------------------------- 61,83080,000/5-------------------- 61,830

16,000--------------- €3.86 per labour hour= = =

Total Department OverheadsDepartment Machine Hours

---------------------------------------------------------------------- 33,440120,000------------------ €0.28 per machine hour= =


---------------------------------------------------------------------- 35,18050,000/5-------------------- 35,180

10,000--------------- €3.52 per labour hour= = =


---------------------------------------------------------------------- 17,00020,000---------------- €0.85 per labour hour= =

Total Department OverheadsDepartment Machine Hours

---------------------------------------------------------------------- 52,000400,000------------------- €0.13 per machine hour= =

Total Department OverheadsDepartment Machine Hours--------------------------------------------------------------------- 108,000

400,000------------------- €0.27 per machine hour= =


280

Department 4

=

(b) Selling Price of Job No. 1974Raw Materials – 3,000 kgs at €3.90 per Kg. = 11,700Direct WagesDept 1 – 400 hours at €5 = 2,000Dept 2 – 100 hours at €6 = 600Dept 3 – 90 hours at €5 = 450Dept 4 – 200 hours at €8 = 1,600

4,650OverheadsDept 1 – 400 hours at €0.85 = 340Dept 2 – 4,000 hours at €0.13 = 520Dept 3 – 3,500 hours at €0.27 = 945Dept 4 – 200 hours at €1.13 = 226

2,031Cost of Production (75%) 18,381Expected Profit (25%) 6,127Selling Price (100%) 24,508

QUESTION 28.5

Epsilon Ltd

(a) Overhead Absorption Rates(i) Cutting Department

=

(ii) Assembly Department

=

(iii) Finishing Department

=

(b) Under/over-absorption of Overheads

Notes: Absorbed overheads = actual hours at predetermined rates

(i) Cutting Department190,000 machine hours at €0.15 = €28,500

(ii) Assembly Department73,000 labour hours at €1.20 = €87,600

(iii) Finishing Department79,000 labour hours at €1.32 = €104,280

Cutting Assembly Finishing TotalActual Overhead 30,000 86,000 106,000 222,000Absorbed Overhead 28,500 (i) 87,600 (ii) 104,280 (iii) 220,380(Under)/Over Absorbed (1,500) 1,600 (1,720) (1,620)


---------------------------------------------------------------------- 13,56012,000---------------- €1.13 per labour hour= =

Budgeted OverheadBudgeted Machine Hours------------------------------------------------------------- 27,000

180,000------------------- €0.15 per machine hour= =

Budgeted OverheadBudgeted Labour Hours--------------------------------------------------------- 84,000

70,000---------------- €1.20 per labour hour= =

Budgeted OverheadBudgeted Labour Hours--------------------------------------------------------- 105,600

80,000------------------- €1.32 per labour hour= =

Solutions

281

QUESTION 28.6

Zeta Ltd

(a) Overhead Absorption Rates

(i) Department AFixed Variable

= €2.80 = €3.25

(ii) Department BFixed Variable

= €1.25 = €2.92

(iii) Department CFixed Variable

= €0.85 = €2.87

(b) Selling price of Job No. 219Raw Materials – 18,000 metres at €1.40 per metre = 25,200

Direct WagesDept A – 200 hours at €18 per hour = 3,600Dept B – 100 hours at €16 per hour = 1,600Dept C – 500 hours at €14 per hour = 7,000

12,200Variable OverheadsDept A – 900 hours at €3.25 = 2,925Dept B – 700 hours at €2.92 = 2,044Dept C – 500 hours at €2.87 = 1,435

6,404Fixed OverheadsDept A – 900 hours at €2.80 = 2,520Dept B – 700 hours at €1.25 = 875Dept C – 500 hours at €0.85 = 425

3,820Cost of Production (80%) 47,624Expected Profit (20%) 11,906Selling Price (100%) 59,530

(c) See textbook page 393.


ETA Ltd

(a) Overhead Absorption RatesDesign Department

Fixed Variable

= €2.75 = €3.20

OverheadsMachine Hours------------------------------------= 126,000

45,000------------------ 146,250

45,000------------------

OverheadsMachine Hours------------------------------------= 50,000

40,000---------------- 116,800

40,000------------------

OverheadsLabour Hours--------------------------------= 17,000

20,000---------------- 57,400

20,000---------------

OverheadsLabour Hours----------------------------------= 1,100

400------------- 1,280

400-------------


282

Machine ShopFixed Variable

= €1.90 = €2.10Finishing Department

Fixed Variable

= €1.75 = €4.20

(b) General Administration Overhead Absorption Rate

(c) Selling price of Job No. 77RRaw Materials – 5,200 sq. m at €0.17 per sq. m. = 884.00

Direct WagesDesign Department – 10 hours at €10= 100.00Machine Shop – 8 hours at €8 = 64.00Finishing Department – 24 hours at €7 = 189.00

353.00Variable OverheadsDesign Department – 10 hours at €3.20 = 32.00Machine Shop – 20 hours at €2.10 = 42.00Finishing Department – 24 hours at €4.20 = 100.80

174.80Fixed OverheadsDesign Department – 10 hours at €2.75 = 27.50Machine Shop – 20 hours at €1.90 = 38.00Finishing Department – 24 hours at €1.75 = 42.00

107.50General Administration Overhead42 hours at €1.05 = 44.10

Cost of Production (80%) 1,563.40Expected Profit (20%) 390.85Selling Price (100%) 1,954.25


Theta Ltd

(a) Overhead Analysis SheetOverhead Basis of

ApportionmentTotal Machining Assembly Finishing

Supervisors’ Salaries Direct labour 104,500 25,080 37,620 41,800Machinery Maintenance Machine hours 15,400 11,550 2,310 1,540General Administration Number of Employees 18,000 4,320 6,480 7,200Materials Handling Direct Materials 30,000 20,000 6,000 4,000Canteen Costs Number of Employees 27,000 6,480 9,720 10,800Plant Insurance Plant Valuation 6,400 3,600 2,400 400Plant Depreciation Plant Valuation 8,000 4,500 3,000 500Light and Heat Floor Space 18,000 6,000 6,000 6,000Rent and Rates Floor Space 24,000 8,000 8,000 8,000Employee Benefits Number of Employees 12,000 2,880 4,320 4,800Power and Steam Kilowatt Hours 50,000 34,000 12,000 4,000

313,300 126,410 97,850 89,040

OverheadsMachine Hours------------------------------------= 950

500-------- 1,050

500------------

OverheadsLabour Hours--------------------------------= 2,800

1,600------------ 6,720

1,600------------

OverheadTotal Budgeted Labour Hours----------------------------------------------------------------------- 2,268

2,160------------ €1.05= =

Solutions

283

(b) Overhead Absorption Rates

(i) Machining Department

=

(ii) Assembly Department

=

(iii) Finishing Department

=

(c) Selling Price of Job No. 819ZDirect Materials – (70,000 + 23,000 + 5,000) = 98,000Direct Labour (6,650 + 21,850 + 38,000) = 66,500OverheadsMachining Department – 5,000 x €0.84 = 4,200Assembly Department – 2,300 x €2.72 = 6,256Finishing Department – 4,000 x €2.23 = 8,920

Cost of Production (80%) 183,876Expected Profit (20%) 45,969Selling Price (100%) 229,845


Iota Ltd

(b) Overhead Absorption Rates(i) Production Department 1

=

(ii) Production Department 2

=

(a) Overhead Analysis SheetOverhead Basis of Apportionment Total Production Departments Service Departments

1 2 1 2Machinery Insurance Valuation 13,300 7,000 6,300 – –Machinery Depreciation Valuation 5,890 3,100 2,790 – –Administration No. of Employees 19,000 6,080 3,800 3,800 5,320Supervision No. of Employees 50,000 16,000 10,000 10,000 14,000Rent and Rates Floor Space 7,800 2,600 1,950 1,950 1,300Light and Heat Floor Space 6,960 2,320 1,740 1,740 1,160Canteen No. of Employees 30,000 9,600 6,000 6,000 8,400Materials Handling Direct Materials 8,890 6,350 2,540 – –General Repairs Floor Space 4,200 1,400 1,050 1,050 700Buildings Insurance Floor Space 6,480 2,160 1,620 1,620 1,080

152,520 56,610 37,790 26,160 31,960Reapportion Machine Hours 17,440 8,720 (26,160)Reapportion Machine Hours 21,307 10,653 (31,960)

152,520 95,357 57,163

Total OverheadsMachine Hours

--------------------------------------- 126,410150,000------------------- €0.84 per machine hour= =

Total OverheadsLabour Hours

--------------------------------------- 97,850342,000/9.50------------------------------ €2.72 per labour hour= =

Total OverheadsLabour Hours

--------------------------------------- 89,040380,000/9.50------------------------------ €2.23 per labour hour= =


--------------------------------------- 95,357400,000------------------ €0.24 per machine hour= =


--------------------------------------- 57,163200,000------------------- €0.29 per machine hour= =


284

(c) Selling price of Product No. 23–194 Prime Cost 16.90OverheadsProduction Department 1 – 13 x €0.24 = 3.12Production Department 2 – 18 x €0.29 = 5.22

Cost of Production (80%) 25.24Expected Profit (20%) 6.31(100%) 31.55

(d) Under/over-absorption of OverheadsActual overheads 8.32 per unitOverheads absorbed (14 x 0.24 + 17 x 0.29) = 8.29 per unit

Under absorption (0.03) per unit


Kappa Ltd

(a) High/Low method – Budgeted Overheads Output Dept A Dept B Dept C

High 15,000 38,750 30,000 20,750Low 9,000 25,250 19,200 13,250Difference 6,000 13,500 10,800 7,500

Variable Cost per unit

= 2.25 1.80 1.25Fixed Costs (Total costs – Variable costs) 5,000 3,000 2,000

(b) High/Low Method – Actual Overheads Output Dept A Dept B Dept C

High 15,000 36,500 31,500 19,250Low 9,000 23,900 20,100 12,350Difference 6,000 12,600 11,400 6,900

Variable Cost per unit

= 2.10 1.90 1.15Fixed Costs (Total costs – variable costs) 5,000 3,000 2,000

(c) Under/over-absorption of Variable Overheads for the First Six Months


Lambda Ltd

(a) Overhead Absorption Rates(i) Design Department

Fixed Variable

= €2 per hour = €5 per hour(ii) Machining Department

Fixed Variable

= €6 per hour = €7.50 per hour

Dept A Dept B Dept C TotalActual 147,000 133,000 80,500 360,500Budgeted 157,500 126,000 87,500 371,000(Under)/Over Absorbed 10,500 (7,000) 7,000 10,500

13,5006,000--------------- 10,800

6,000--------------- 7,500

6,000------------

12,6006,000--------------- 11,400

6,000--------------- 6,900

6,000------------

Total Budgeted OverheadsDirect Labour Hours

----------------------------------------------------------------= 12,0006,000--------------- 30,000

6,000----------------

Total Budgeted OverheadsMachine Hours

----------------------------------------------------------------= 60,00010,000---------------- 75,000

10,000----------------

Solutions

285

(iii) Finishing DepartmentFixed Variable

= €1.25 per hour = €6.25 per hour

(b) Selling price of Job No. 731/TDirect Materials Machining Department – 3,800 metres at €25 (640,000/25,600) = 95,000Finishing Department – 650 metres at €20 (110,000/5,500) = 13,000

Direct LabourDesign Department – 60 hours at €20 (120,000/6,000)= 1,200Machining Department – 15 hours at €8 (20,000/2,500)= 120Finishing Department – 12 hours at €5 (40,000/8,000) = 60Variable OverheadsDesign Department – 60 hours at €5 = 300Machining Department – 150 hours at €7.50 = 1,125Finishing Department – 12 hours at €6.25 = 75Fixed OverheadsDesign Department – 60 hours at €2 = 120Machining Department – 150 hours at €6 = 900Finishing Department – 12 hours at €1.25 = 15

Cost of Production (90%) 111,915Expected Profit (10%) 12,435Selling Price (100%) 124,350

(c) Actual selling price 121,241.25 (124,350 – 21/2%)Actual cost of production 117,510.75 (111,915 + 5%)Actual Profit 3,730.50


Mu Ltd

Note 1 Note 2100 at 1.15 = 115.00 130 at 1.18 = 153.4020 at 1.18 = 23.60 95 at 1.21 = 114.95

138.60 268.35

Note 3 Note 4205 at 1.21 = 248.05 70 at 1.25 = 87.505 at 1.25 = 6.25

254.30

(a) Stores Ledger CardDate Receipts Issued to Production Balance

Quantity Price Value Quantity Price Value Quantity ValueJuly 1 100 115.00July 1 150 1.18 177.00 250 292.00July 4 120 Note 1 138.60 130 153.40July 9 300 1.21 363.00 430 516.40July 15 225 Note 2 268.35 205 248.05July 21 110 1.25 137.50 315 385.55July 22 210 Note 3 254.30 105 131.25July 27 300 1.27 381.00 405 512.25July 29 70 Note 4 87.50 335 424.75July 31 50 1.26 63.00 385 487.75

Total Budgeted OverheadsDirect Labour Hours

----------------------------------------------------------------= 10,0008,000---------------- 50,000

8,000---------------


286

(b) Closing Stock Valuation at 31 July 35 at 1.25 = 43.75300 at 1.27 = 381.0050 at 1.26 = 63.00

487.75


Nu Ltd

(i) Credit Sales for the year (€) (ii) Credit purchases for the year (€)50 at €28 = 1,400 200 at €20 = 4,000300 at €30 = 9,000 500 at €22 = 11,000180 at €40 = 7,200 400 at €22 = 8,800600 at €45 = 27,000 500 at €24 = 12,000

44,600 35,800Add V.A.T. at 10% 4,460 Add VAT at 10% 3,850Sales to Debtors 49,060 Purch. From Creds. 39,650

(a) Debtors Control AccountBalance b/d 5,600 Bank 49,860Sales 49,060 Balance c/d 4,800

54,660 54,660Balance b/d 4,800

Creditors Control AccountBank 38,580 Balance b/d 3,400Balance c/d 4,200 Purchases 39,380

42,780 42,780Balance b/d 4,200

(b) Stores Ledger CardDate Receipts Issues Balance

Units Value (€)

Units Value (€)

Units Value (€)

1/1/-1 55 99015/1/-1 200 4,000 155 4,9908/2/-1 50 900 205 4,0907/3/-1 500 11,000 705 15,090

22/4/-1 20 390 685 14,7001/5/-1 300 6,230 385 8,470

21/6/-1 400 8,800 785 17,27020/7/-1 180 3,960 605 13,31011/8/-1 40 880 565 12,430

1/9-1 100 2,200 465 10,23012/10/-1 500 12,000 965 22,23019/11/-1 600 13,470 365 8,760

Notes:

8/2/-1 – (50 x 18) = 90022/4/-1 – (5 x 18 + 15 x 20) = 3901/5/-1 – (185 x 20 +115 x 22) = 6,23020/7/-1 – (180 x 22) = 3,96011/8/-1 – (40 x 22) = 8801/9/-1 – (100 x 22) = 2,20019/11/-1 – (65 x 22 + 400 x 22 + 135 x 24) = 13,470

Solutions

287

Cash sales for the year (€)20 at £28 = 56040 at £28 = 1,120100 at £30 = 3,000100 at £40 = 4,000

Total 8,680VAT at 10% 868Cash Sales 9,548

(c) Trading Account for the year ended 31/12/-1 (€)Sales – Credit 44,600

– Cash 8,68053,280

Less Cost of SalesOpening Stock 990+ Purchases 35,800

36,790– Closing Stock 6,360

(30,430)Gross Profit 22,850

(d) VAT AccountPurchases 3,580 Sales on Credit 4,460Bank 1,248 Sales for Cash 868Balance c/d 500

5,328 5,328Balance b/d 500

288

Cost Volume Profit Analysis(Marginal Costing): Solutions29

QUESTION 29.1

Soprano Ltd

(a) Sales price per Unit = €18 (b) Variable cost per Unit = €12.60 (c) Contribution per Unit = 18 – 12.60 = 5.40 (d) Break-even point

=

QUESTION 29.2

Tenor Ltd

(a) Contribution per Unit25 – 15 = 10

(b) Break-even point

=

QUESTION 29.3

Alto Ltd

(a) Break-even Point in Sales Revenue

=

(b) Break-even Point in Units

(c) Marginal Costing Statement (33,000 units)Sales (33,000 x 25) 825,000

– Variable Costs (33,000 x 15) 495,000= Contribution 330,000– Fixed Costs 275,000= Profits 55,000

(c) Marginal Costing Statement at 14,000 unitsSales (14,000 x 45) 630,000

– Variable Costs (58%) 365,400= Contribution (42%) 264,600– Fixed Costs 264,600= Profits Nil

(d) Marginal Costing Statement at 18,000 unitsSales (18,000 x 45) 810,000

– Variable Costs (58%) 469,800= Contribution (42%) 340,200– Fixed Costs 264,600= Profits 75,600

Fixed CostsCPU

------------------------- 135,0005.40

----------------- 25,000 units x €18 = €450,000= =

Fixed CostsCPU

------------------------- 275,00010

------------------ 27,500 units €25× €687,500= = =

Fixed CostsC/S Ratio

------------------------- 264,60042%

----------------- 264,600 100×42

-------------------------------- £630,000= = =

630,000 45 = 14,000 units÷

Solutions

289

QUESTION 29.4

Arco Ltd

(a) Contribution per Unit= Sales price – Variable cost= 62 – 39.06= €22.94

(b) Break-even Point in Units

=

(c) Break-even Point in Sales Revenue

=

(d) Target Profit

=

= = 10,360 units

(e) Margin of Safety Percentage

=

=

QUESTION 29.5

Tremolo Ltd

(a) C/S Ratio

=

=

(b) Break-even point in Sales Revenue

=

(c) Target Profit

=

= = €580,951

(f) Marginal Costing Statement (i) 4,000 (ii) 6,000 (iii) 8,000 (iv) 20,000

Sales 248,000 372,000 496,000 1,240,000

– Variable Costs 156,240 234,360 312,480 781,200

= Contribution 91,760 137,940 183,520 458,800

– Fixed Costs 137,640 137,640 137,640 137,640

= Profits (Losses) (45,88) Nil 45,880 321,160

(d) Marginal Costing StatementSales 750,000

– Variable Costs (59%) 442,500= Contribution (41%) 307,500– Fixed Costs 188,190= Profits 119,310

Fixed CostsCPU

------------------------- 137,64022.94

----------------- 6,000 units= =


------------------------- 137,64037%

----------------- €372,000˜= =

Fixed Costs + Target ProfitCPU

------------------------------------------------------------

137,640 100,000+22.94

----------------------------------------

Actual Sales B/E Sales 100×–Actual Sales

--------------------------------------------------------------------

10,000 6,000 100×–10,000

----------------------------------------------- 40%=

Contribution 100×Sales

-------------------------------------------

Profit Fixed Costs 100×+Sales

------------------------------------------------------------ 34,850 188,190+544,000

--------------------------------------- 100× 41%= =


------------------------- 188,19041%

----------------- €459,000= =

Fixed Costs + Target ProfitC/S Ratio

------------------------------------------------------------

188,190 50,000+41%

--------------------------------------


290

QUESTION 29.6Sharp Ltd

(a) Contribution per Unit= Sales price – Variable cost= 8.20 – 5.33= 2.87

(b) Break-even Point

=

(c) Margin of Safety Percentage

=

=

(d) Target Profit

=

= = 23,969 units

(e) Sales – Variable Costs – Fixed Costs = Profits((21,000 + 2,100) x 8.20) – ((21,000 + 2,100)) x 5.33) – (48,790 + 7,000) = Profits189,420 – 123,123 – 55,790 = €10,507.


Crescendo Ltd

(a) Break-even Point

=

(f) Marginal Costing StatementSales (16,000 x 9) 144,000

– Variable Costs (16,000 x 5.33) 85,280= Contribution 58,720– Fixed Costs 48,790= Profits 9,930

Cost ClassificationCost Fixed VariableDirect Materials – 210,000Direct Labour – 195,000Factory Overheads 15,000 60,000Administration 59,000 –Distribution 52,500 52,500Totals 126,500 517,500

Marginal Costing Statement at 15,000 unitsTotal Per Unit

Sales 690,000 46.00– Variable Costs 517,500 34.50= Contribution 172,500 11.50– Fixed Costs 126,500= Profits 46,000

Fixed CostsCPU

------------------------- 48,7902.87

--------------- 17,000 units x €8.20 €139,400= = =


--------------------------------------------------------------------

21,000 17,000 100×–21,000

--------------------------------------------------- 19%=

Fixed Costs + Target ProfitCPU

------------------------------------------------------------

48,790 20,000+2.87

-----------------------------------

Fixed CostsCPU

------------------------- 126,50011.50

----------------- 11,000 units= =

Solutions

291

Margin of Safety Percentage

=

=

(b) Profit Target

=

=

= 15,800 units(c) Let S = Sales Price

Sales – Variable Costs – Fixed Costs = Profits15,000 S – (15,000 x 34.50) – 139,150 = 46,00015,000 S – 517,500 – 139,150 = 46,00015,000 S = 702,650S = €46.84


Collegno LtdNote: Number of units omitted from question (6,500 units)

(a) Break-even Point = 4,000 unitsMargin of Safety = 2,500 units (42%)

(b) See textbook page 418

(d) Marginal Costing Statement at 18,750 unitsSales (18,750 x 41.40) 776,250

– Variable Costs (18,750 x 34.50) 646,875= Contribution 129,375– Fixed Costs 151,800= Profits 22,425


--------------------------------------------------------------------

15,000 11,000 100×–15,000

--------------------------------------------------- 27%=

Fixed Costs + Profit TargetCPU

------------------------------------------------------------

126,500 55,200+11.50

--------------------------------------


292

QUESTION 29.9 (HIGHER LEVEL)Forzato Ltd


=

(b) Profit Target

= = = 3,589 units

(c) Let number of units = NSales – Variable Costs – Fixed Costs = Profits45N – 24N – 34,100 = 40,00021N = 74,100N = 3,529 Units

(e) See textbook page 418


Fortissimo Ltd(a) Break-even Point in Sales Revenue

=

(b) Profit Target

= = = €477,778

(c) Let x = Sales Revenue

45%x = 170,000 + 11%x34%x = 170,000x = €500,000

(d) Variable costs are 55% of sales.A 5% increase brings variable costs up to 57.75% of sales and the C/S ratio down to 42.25%

Break-even Point in sales revenue =

Cost ClassificationCost Fixed VariableManufacturingSelling and DistributionAdministration

24,5002,0004,500

45,50038,000

500Totals 31,000 84,000


–SalesVariable Costs

135,00084,000

4528

=–

ContributionFixed Costs

51,00031,000

17

= Profits 20,000

(d) Marginal Costing Statement at 3,450 units

–Sales (3,450 x 40)Variable Costs (3,450 x 25)

138,00086,250

=–

ContributionFixed Costs (31,000 + 6,200)

51,75037,200

= Profits 14,550

Fixed CostsCPU

------------------------- 31,00017

--------------- 1,824 units x €45 €82,080= = =


------------------------------------------------------------ 31,000 + 30,00017

-----------------------------------


------------------------- 170,00045%

----------------- €377,778= =

Fixed Costs + Profit TargetC/S Ratio

------------------------------------------------------------ 170,000 + 45,00045%

--------------------------------------

170,000 + 11%x45%

------------------------------------ x=


------------------------- 161,50042.25%----------------- €382,249= =

Solutions

293

QUESTION 29.11

Rubato Ltd


=

Margin of safety Percentage

=

=

(b) Profit Target

=

=

= 2,190 units(c) Let N = number of units

Sales – Variable Costs – Fixed Costs = Profits620N – 415.40N – 245,520 = 0.15(620N)204.60N – 245,520 = 93N111.6N = 245,520N = 2,200 units

(d) Let S = sales priceSales – Variable Costs – Fixed Costs = Profits3,000S – (3,000 x 415.40) – 245,520 = 184,1403,000S – 1,246,200 – 245,520 = 184,1403,000S = 1,246,200 + 245,520 + 184,140S = €558.62

(e) Let N = number of unitsSales – Variable Costs – Fixed Costs = Profits(N x (620 + 62)) – (N x 425) – 245,520 = 500,000682N – 425N – 245,520 = 500,000257N = 500,000 + 245,520 \ N = 2,901 unitsMaximum Capacity = 3,000 units

∴

Cost Fixed VariableDirect Materials – 441,000Direct Labour 199,920Production Overheads 99,270 136,920Administration Expenses 118,250 –Distribution Costs 28,000 94,500Totals 245,520 872,340


Sales 1,302,000 620.00– Variable Costs 872,340 415.40= Contribution 429,660 204.60– Fixed Costs 245,520= Profits 184,140

Fixed CostsCPU

------------------------- 245,520204.60----------------- 1,200 units= =

Actual Sales Breakeven Sales 100×–Actual Sales

-------------------------------------------------------------------------------------

2,100 1,200–2,100

----------------------------- 43%=


------------------------------------------------------------

245,520 202,554+204.60

----------------------------------------

2,9013,000------------ 100× 96.7% of capacity=


294


Harmonic Ltd

Variable cost per unit =

High LowTotal Cost 65,600 58,100– Variable Cost 40,000 32,500= Fixed Costs 25,600 25,600


=


= =

(b) Profit Target

= = = 18,600 units

(c) Let N = number of unitsSales – Variable Costs – Fixed Costs = Profits30N – 20N – 150,000 = 0.2(30N)10N – 15,000 = 6N4N = 150,000N = 37,500 units

Cost Classification – Production OverheadsOutput Costs

High 16,000 65,600Low 13,000 58,100Difference 3,000 7,500

Cost ClassificationCost Fixed VariableDirect Materials – 162,000Direct Labour – 99,000Production Overheads 25,600 45,000Administration Expenses 28,000 –Distribution Costs 96,400 54,000

150,000 360,000


Sales 540,000 30– Variable Costs 360,000 20= Contribution 180,000 10– Fixed Costs 150,000= Profits 30,000

(d) Marginal Costing StatementSales (19,800 x 27) 534,600

– Variable Costs (19,800 x 21) 415,800= Contribution 118,800– Fixed Costs 157,500= Profits 61,300

7,5003,000------------ €2.50=

Fixed CostsCPU

------------------------- 150,00010

----------------- 15,000 units= =


-------------------------------------------------------------------- 18,000 15,000 100×–18,000

-------------------------------------------------- 17%=


------------------------------------------------------------ 150,000 + 36,00010

--------------------------------------

Solutions

295

(e) After-tax Profit

=

=

=

= 20,000 units


Tralagh Ltd

Variable cost per unit= 18,000/3,000 = €6 per hourHigh Low

Total Cost 106,000 88,000– Variable Costs 42,000 24,000= Fixed Costs 64,000 64,000


=


Cost Classification – Indirect CostsOutput Costs

High 7,000 106,000Low 4,000 88,000Difference 3,000 18,000

Cost ClassificationCost Fixed VariableDirect Costs – 300,000Indirect Costs 64,000 36,000Administration Expenses 12,000 48,000Distribution Costs 20,000 60,000

96,000 444,000



Fixed Costs + (Target Profit 1 – Tax Rate)÷CPU

-------------------------------------------------------------------------------------------------

150,000 + (45,000 90%)÷10

-----------------------------------------------------------

150,000 + 50,00010

--------------------------------------

Fixed CostsCPU

------------------------- 96,00046

--------------- 2,087 units= =

6,000 2,087 100×–6,000

--------------------------------------------- 65%=


296

(b) Break-even Chart

(c) Profit Target

=

= = = 6,998 units

(e) After-tax Profit Target

=

=

=

= 6,041 units(f) A constant product mix is only a valid assumption in the short term, i.e. over a very small range of output.

Most firms would vary their product mix to maximize the firm’s profits in varying market circumstances.


Ponticello Ltd

(d) Marginal Costing Statement at 5,700 unitsSales (5,700 x 140) 798,000

– Variable Costs (5,700 x 81.40) 463,980= Contribution 334,020– Fixed Costs (96,000 + 19,200) 115,200

218,820

Cost ClassificationCost Fixed VariableManufacturing 32,564 289,560Non-Manufacturing 42,654 36,040Total 75,218 325,600

Marginal Costing Statement at 800 unitsTotal Per Unit



------------------------------------------------------------

96,000 + 200,00046 – 3.70

-------------------------------------- 296,00042.30

-----------------

Fixed Costs + (Target Profit 1 – Tax Rate)÷CPU

-------------------------------------------------------------------------------------------------

96,000 + (180,000 90%)÷46 + 3

-----------------------------------------------------------

96,000 + 200,00049

--------------------------------------

Solutions

297


=


= =

(b) Let S = Sales PriceSales – Variable Costs – Fixed Costs = Profits800S – (800 x 400) – 82,740 = 39,182800S = 320,000 + 82,740 + 39,182800S = 441,922S = €552.40

(c) Let N = Number of unitsSales – Variable Costs – Fixed Costs = Profits550N – 407N – 75,218 = 0.15(550N)143N – 75,218 = 82.5N60.5N = 75,218N = 1,244


Pitch Ltd

(d) Marginal Costing StatementSales (800 x 550) 440,000

– Variable Costs (800 x (407 – 20)) 309,600= Contribution 130,400– Fixed Costs (75,218 + 20,000) 95,218= Profits 35,182

(e) Marginal Costing StatementSales (880 x 525) 462,000

– Variable Costs (880 x (407 + 12)) 368,720= Contribution 93,280– Fixed Costs 75,218= Profits 18,062

Cost ClassificationCost Fixed VariableDirect Materials – 240,000Direct Labour – 160,000Production Overheads 45,400 52,000Administration Expenses 92,000 16,000Distribution Costs 45,300 43,200

182,700 511,200


Sales 720,000 45.00– Variable Costs 511,200 31.95= Contribution 208,800 13.05– Fixed Costs 182,700= Profits 26,100

Fixed CostsCPU

------------------------- 75,218143

--------------- 526 units= =


-------------------------------------------------------------------- 800 526 100×–800

------------------------------------ 34%=


298


=


= =

(b) Let S = Sales PriceSales – Variable Costs – Fixed Costs = Profits16,000S – (16,000 x 31.95) – 182,700 = 0.1(16,000S)16,000S – 511,200 – 182,700 = 1,600S14,400S = 693,900S = €48.19

(c) Plan (A) Marginal Costing StatementSales (19,200 x €42.75) 820,800

– Variable Costs (19,200 x €31.95) 613,440= Contribution 207,360– Fixed Costs 182,700= Profits 24,660

Plan (B) Marginal Costing StatementSales (18,400 x €45) 828,000

– Variable Costs (18,400 x €32.22) 592,848= Contribution 235,152– Fixed Costs 194,700= Profits 40,452

Plan (C) Marginal Costing StatementSales (16,000 x €45) 720,000

– Variable Costs (16,000 x €26.95) 431,200= Contribution 288,800– Fixed Costs 202,700= Profits 86,100 Optimum

Fixed CostsCPU

------------------------- 182,70013.05

----------------- 14,000 units= =


-------------------------------------------------------------------- 16,000 14,000 100×–16,000

-------------------------------------------------- 12.5%=

299

Budgeting andBudgetary Control: Solutions30

QUESTION 30.1

QUESTION 30.2

Rocklom Ltd

(a) Sales BudgetSuper Excell

Budgeted Quantities 8,000 3,500Expected Sales Price €20 €30Budgeted Sales €160,000 €105,000

(b) Unit Production Budget Super Excell

Budgeted Sales 8,000 3,500+ Budgeted Closing Stock 800 250– Opening Stock (700) (300)= Budgeted Production 8,100 units 3,450 units

Hiform Ltd(a) Sales Budget

Quantum MagnumBudgeted Quantities 7,000 5,000Expected Sales Price €15 €20Budgeted Sales €105,000 €100,000

(b) Unit Production Budget Quantum Magnum

Budgeted Sales 7,000 5,000+ Budgeted Closing Stock 1,000 500– Opening Stock (900) (600)= Budgeted Production 7,100 units 4,900 units

(c) Raw Materials Usage Budget Material A Material B

Quantum (7,100 x 6) 42,600(7,100 x 14) 99,400

Magnum (4,900 x 9) 44,100(4,900 x 11) 53,900

Budgeted Materials Usage 86,700 kgs 153,300 kgs

(d) Raw Materials Purchases Budget Material A Material B

Budgeted Materials Usage 86,700 153,300+ Budgeted Closing Stock 7,000 13,500– Opening Stock (6,500) (11,000)= Budgeted Materials Purchased (kgs) 87,200 155,800


300

QUESTION 30.3

QUESTION 30.4

Inkprop Ltd(a) Sales Budget

Asterisk CommaBudgeted Quantities 11,000 14,000Expected Sales Price 120 130Budgeted Sales €1,320,000 €1,820,000

(b) Unit Production Budget Asterisk Comma

Budgeted Sales 11,000 14,000+ Budgeted Closing Stock 4,500 4,000– Opening Stock (3,000) (5,500)= Budgeted Production 12,500 units 12,500 units

(c) Direct Labour Budget Asterisk Comma

Budgeted Production 12,500 units 12,500 unitsx Labour Hours per unit 4 hours 6 hours= Budgeted Labour Hours 50,000 hours 75,000 hoursx Labour rate per hour €11 €11= Budgeted Direct Labour Costs €550,000 €825,000

Fonplus Ltd(a) Sales Budget

Red BlueBudgeted Quantities 4,500 3,000Expected Sales Price €150 €180Budgeted Sales €675,000 €540,000

(b) Unit Production Budget Red Blue

Budgeted Sales 4,500 3,000+ Budgeted Closing Stock 750 800– Opening Stock (1,000) (400)= Budgeted Production 4,250 units 3,400 units

(c) Direct Labour Budget Dept. X Dept. Y

Red (4,250 x 7) 29,750 hours(4,250 x 9) 38,250 hours

Blue (3,400 x 4) 13,600 hours(3,400 x 12) 40,800 hours

Budgeted Labour Hours 43,350 hours 79,050 hoursx Labour rate per hour €9 €9= Budgeted Direct Labour Costs €390,150 €790,500

Solutions

301

QUESTION 30.5

Deprints Ltd(a) Sales Budget

Basic DeluxeBudgeted Quantities 5,000 7,000Expected Sales Price 150 200Budgeted Sales €750,000 €1,400,000

(b) Unit Production Budget Basic Deluxe

Budgeted Sales 5,000 7,000+ Budgeted Closing Stock 600 900– Opening Stock (500) (7,000)= Budgeted Production 5,100 units 7,200 units

(c) Raw Materials Usage Budget Material C Material D

Basic (5,100 x 4) 20,400(5,100 x 7) 35,700

Deluxe (7,200 x 6) 43,200(7,200 x 6) 43,200

Budgeted Materials Usage 63,600 mtrs 78,900 mtrs

(d) Raw Materials Purchases Budget Material C Material D

Budgeted Materials Usage 60,300 78,900+ Budgeted Closing Stock 12,000 14,500– Opening Stock (10,000) (13,000)= Budgeted Material Purchases 65,600 mtrs 80,400 mtrsx Expected Prices €3 €5= Budgeted Material Purchases (€) €196,800 €402,000

(e) Direct Labour Budget Basic Deluxe

Budgeted Production 5,100 units 7,200 unitsx Labour Hours per unit 6 hours 10 hours= Budgeted Labour Hours 30,600 hours 72,000 hoursx Labour Rate per hour €12 €12= Budgeted Direct Labour Costs €367,200 €864,000


302

QUESTION 30.6

Bankfort Ltd

QUESTION 30.7

Chinblon Ltd

Cash BudgetReceipts from Sales Jan Feb Mar Apr May June TotalDebtors on 1 January 7,200 – – – – – 7,200Jan Sales 1,600 6,400 – – – – 8,000Feb Sales – 2,000 8,000 – – – 10,000Mar Sales – – 2,000 8,000 – – 10,000Apr Sales – – – 2,400 9,600 – 12,000May Sales – – – – 2,600 10,400 13,000June Sales – – – – – 2,800 2,800Total Receipts = 8,800 8,400 10,000 10,400 12,200 13,200 63,000Payments for PurchasesCreditors on 1 January 3,600 – – – – – 3,600Jan Purchases 2,400 3,600 – – – – 6,000Feb Purchases – 2,800 4,200 – – – 7,000Mar Purchases – – 3,600 5,400 – – 9,000Apr Purchases – – – 3,600 5,400 – 9,000May Purchases – – – – 3,600 5,400 9,000Jun Purchases – – – – – 4,000 4,000

6,000 6,400 7,800 9,000 9,000 9,400 47,600Expenses 3,000 3,000 3,000 3,500 3,500 3,500 19,500Total Payments = 9,000 9,400 10,800 12,500 12,500 12,900 67,100Net Cash Inflow (Outflow) (200) (1,000) (800) (2,100) (300) 300 (4,100)Opening Balance 5,300 5,100 4,100 3,300 1,200 900 5,300Closing Balance 5,100 4,100 3,300 1,200 900 1,200 1,200

Cash BudgetReceipts from Sales Jan Feb Mar Apr May June TotalNov Sales 15,200 – – – – – 15,200Dec Sales 16,000 16,000 – – – – 32,000Jan Sales 8,000 16,000 16,000 – – – 40,000Feb Sales – 9,000 18,000 18,000 – – 45,000Mar Sales – – 10,000 20,000 20,000 – 50,000Apr Sales – – – 11,000 22,000 22,000 55,000May Sales – – – – 12,000 24,000 36,000Jun Sales – – – – – 14,000 14,000Total Receipts = 39,200 41,000 44,000 49,000 54,000 60,000 287,200Payments for PurchasesCreditors on 1 January 20,000 – – – – – 20,000Jan Purchases 16,000 16,000 – – – – 32,000Feb Purchases – 18,000 18,000 – – – 36,000Mar Purchases – – 20,000 20,000 – – 40,000Apr Purchases – – – 22,000 22,000 – 44,000May Purchases – – – – 24,000 24,000 48,000Jun Purchases – – – – – 28,000 28,000

36,000 34,000 38,000 42,000 46,000 52,000 248,000Expenses 4,000 4,000 4,000 5,000 5,000 5,000 27,000Total Payments = 40,000 38,000 42,000 47,000 51,000 57,000 275,000Net Cash Inflow (Outflow) (800) 3,000 2,000 2,000 3,000 3,000 12,200Opening Balance (5,200) (6,000) (3,000) (1,000) 1,000 4,000 (5,200)Closing Balance (6,000) (3,000) (1,000) 1,000 4,000 7,000 7,000

Solutions

303

QUESTION 30.8

Rafton Ltd

(a)

Cash BudgetReceipts from Sales Jan Feb Mar Apr May Jun TotalDebtors on 1 January 21,000 – – – – – 21,000Jan Sales 10,000 40,000 – – – – 50,000Feb Sales – 12,000 48,000 – – – 60,000Mar Sales – – 14,000 56,000 – – 70,000Apr Sales – – – 14,000 56,000 – 70,000May Sales – – – – 18,000 72,000 90,000Jun Sales – – – – – 19,200 19,200Total Receipts = 31,000 52,000 62,000 70,000 74,000 91,200 380,200Payments for PurchasesCreditors on 1 January 14,500 – – – – – 14,500Jan Purchases 15,000 15,000 – – – – 30,000Feb Purchases – 18,000 18,000 – – – 36,000Mar Purchases – – 21,000 21,000 – – 42,000Apr Purchases – – – 22,000 22,000 – 44,000May Purchases – – – – 27,000 27,000 54,000Jun Purchases – – – – – 28,800 28,800

29,500 33,000 39,000 43,000 49,000 55,800 249,300Rent 300 300 300 300 300 300 1,800Wages 7,000 7,000 7,000 7,000 7,000 7,000 42,000Other Expenses 400 400 400 400 400 400 2,400Machinery – – – – 60,000 – 60,000Total Payments = 37,200 40,700 46,700 50,700 116,700 63,500 355,500Net Cash Inflow (Outflow) (6,200) 11,300 15,300 19,300 (42,700) 27,700 24,700Opening Balance 1,500 (4,700) 6,600 21,900 41,200 (1,500) 1,500Closing Balance (4,700) 6,600 21,900 41,200 (1,500) 26,200 26,200

(b) Budgeted Balance Sheet as at 30 JuneFixed Assets (90,000 + 60,000) 150,000Current Assets – Stock 13,800

– Debtors (80% of June Sales) 76,800– Bank 26,200

116,800Current Liabilities – Creditors (50% of June Purchases) (28,800)

88,000238,000

Financed By:Share Capital 110,000Profit and Loss Balance 128,000

238,000


304

QUESTION 30.9

Quinset Ltd

(a)

Cash BudgetReceipts from Sales Jan Feb Mar Apr May Jun TotalDebtors on 1 January 18,000 – – – – – 18,000Jan Sales 16,800 25,200 – – – – 42,000Feb Sales – 19,200 28,800 – – – 48,000Mar Sales – – 18,400 27,600 – – 46,000Apr Sales – – – 20,800 31,200 – 52,000May Sales – – – – 20,000 30,000 50,000Jun Sales – – – – – 22,400 22,400Total Receipts = 34,800 44,400 47,200 48,400 51,200 52,400 278,400Payments for PurchasesCreditors on 1 January 16,000 – – – – – 16,000Jan Purchases 16,800 16,800 – – – – 33,600Feb Purchases – 19,200 19,200 – – – 38,400Mar Purchases – – 21,600 21,600 – – 43,200Apr Purchases – – – 23,500 23,500 – 47,000May Purchases – – – – 23,000 23,000 46,000Jun Purchases – – – – – 23,000 23,000

32,800 36,000 40,800 45,100 46,500 46,000 247,200Wages 2,000 2,000 2,000 2,000 2,000 2,000 12,000Rent 400 400 400 400 400 400 2,400Other Expenses 600 600 600 600 600 600 3,600Delivery Van – – – 15,000 – – 15,000Total Payments 35,800 39,000 43,800 63,100 49,500 49,000 280,200Net Cash Inflow (Outflow) (1,000) 5,400 3,400 (14,700) 1,700 3,400 (1,800)Opening Balance 9,000 8,000 13,400 16,800 2,100 3,800 9,000Closing Balance 8,000 13,400 16,800 2,100 3,800 7,200 7,200

(b) Budgeted Trading and Profit and Loss Account for six months ended 30 JuneSales 294,000Less Cost of SalesOpening Stock 19,000+ Purchases 254,200

273,200– Closing Stock (20,000)

(253,200)Gross Profit 40,800Less ExpensesWages 12,000Rent 2,400Other Expenses 3,600

(18,000)Net Profit 22,800

Solutions

305

QUESTION 30.10

Quaestor Ltd

(c) Budgeted Balance Sheet as at 30 JuneFixed Assets (120,000 + 15,000) 135,000Current Assets

Stock 20,000Debtors (60% of June Sales) 33,600Bank 7,200

60,800Current Liabilities Creditors (50% of June Purchases) (23,000)

37,800172,800

Financed ByShare Capital 150,000Profit and Loss Balance 22,800

172,800

(a) Sales BudgetProduct 1 Product 2

Budgeted Quantities 10,000 16,000Expected Sales Price €440 €400Budgeted Sales €4,400,000 €6,400,000

(b) Unit Production Budget Product 1 Product 2

Budgeted Sales 10,000 16,000+ Budgeted Closing Stock 600 400– Opening Stock (700) (500)= Budgeted Production 9,900 units 15,900 units

(c) Raw Materials Usage Budget Material A Material B Material C

Product 1 (9,900 x 4) 39,600(9,900 x 6) 59,400(9,900 x 10) 99,000

Product 2 (15,900 x 6) 95,400(15,900 x 4) 63,600(15,900 x 8) 127,200

Budgeted Materials Usage 135,000 kgs 123,000 kgs 226,000 kgs

(d) Raw Materials Purchases Budget Material A Material B Material C

Budgeted Usage 135,000 123,000 226,200+ Budgeted Closing Stock 5,000 6,000 10,000– Opening Stock (6,000) (7,000) (9,000)

134,000 kgs 122,000 kgs 227,200 kgsx Expected Prices €3 €7 €4= Budgeted Material Purchases €402,000 €854,000 €908,800


306

(e) Direct Labour Budget Dept X Dept Y

Product 1 (9,900 x 10) 99,000 hours(9,900 x 12) 118,800 hours

Product 2 (15,900 x 4) 63,600 hours(15,900 x 16) 254,400 hours

Budgeted Labour Hours 162,600 hours 373,200 hoursx Labour Rate per hour €8 €10= Budgeted Labour Costs €1,300,800 €3,732,000

(f) Variable Overhead BudgetProduct 1 Product 2

Budgeted Labour Hours 162,600 373,200x Overhead Rate per hour €2 €2= Budgeted Variable Overheads €325,200 €746,400

(g) Budgeted Manufacturing Account for the year€ €

Opening Stock Raw MaterialsA – 6,000 kgs at €2 per kg = 12,000B – 7,000 kgs at €6 per kg = 42,000C – 9,000 kgs at €4 per kg = 36,000

90,000+ Purchases of Raw MaterialsA – 402,000B – 854,000C – 908,800 2,164,800

2,254,800– Closing Stock of Raw MaterialsA – 5,000 kgs at €3 per kg = 15,000B – 6,000 kgs at €7 per kg = 42,000C – 10,000 kgs at €4 per kg = 40,000

(97,000)= Cost of Raw Materials Consumed 2,157,800+ Direct Labour CostsDept X – 1,300,800Dept Y – 3,732,000 5,032,800= Prime Cost 7,190,600+ OverheadsVariableProduct 1 – 325,200Product 2 – 746,400 1,071,600Fixed 527,000

1,598,600= Cost of Production 8,789,200

Solutions

307


Martella Ltd

(h) Budgeted Trading Account for the yearSalesProduct 1 4,400,000Product 2 6,400,000

10,800,000Less Cost of SalesOpening Stock of Finished GoodsProduct 1 – 700 units at €310 per unit = 217,000Product 2 – 500 units at € 298 per unit = 149,000

366,000+ Cost of Production 8,789,200

9,155,200Closing Stock of Finished GoodsProduct 1 – 600 units at €339 per unit = 203,400Product 2 – 400 units at €311 per unit = 124,400

(327,800)(8,827,400)

Gross Profit 1,972,600

(a) Sales BudgetRegular High Spec

Budgeted Quantities 3,000 1,800Expected Sales Price 310 450Budgeted Sales €930,000 €810,000

(b) Unit Production Budget Regular High Spec

Budgeted Sales 3,000 1,800+ Budgeted Closing Stock 300 144– Opening Stock (250) (120)= Budgeted Production 3,050 1,824

(c) Raw Materials Usage Budget Material G Material H

Regular (3,050 x 3) 9,150(3,050 x 6) 18,300

High Spec (1,824 x 5) 9,120(1,824 x 4) 7,296


(d) Raw Materials Purchases Budget Material G Material H

Budgeted Usage 18,270 25,596+ Budgeted Closing Stock 2,400 3,600– Opening Stock (2,000) (3,000)

18,670 kgs 29,196 kgsx Expected Prices €4 €2= Budgeted Material Purchases €74,680 €52,392


308

(e) Direct Labour Budget Regular High Spec

Budgeted Production 3,050 units 1,824 unitsx Labour Hours per Unit 12 hours 18 hours= Budgeted Labour Hours 36,600 hours 32,832 hoursx Labour Rate per hour €12 €12= Budgeted Direct Labour Costs €439,200 €393,984

(f) Variable Production Overhead BudgetRegular High Spec

Budgeted Labour Hours 36,600 32,832x Overhead Rate per hour €4 €4= Budgeted Overhead Costs €146,400 €131,328


Opening Stock of Raw MaterialsMaterial G – 2,000 kgs at €3.50 per kg = 7,000Material H – 3,000 kgs at €1.50 per kg = 4,500 11,500+ Purchases of Raw MaterialsMaterial G – 74,680Material H – 52,392 127,072

138,572– Closing Stock of Raw MaterialsMaterial G – 2,400 kgs at €4 per kg = 9,600Material H – 3,600 kgs at €2 per kg = 7,200 (16,800)= Cost of Raw Materials Consumed 121,772+ Direct Labour CostsRegular – 439,200High Spec – 393,984 833,184= Prime Cost 954,956+ Overheads:VariableRegular – 146,400High Spec – 131,328 277,728Fixed 173,580 451,308= Cost of Production 1,406,264

(h) Budgeted Trading Account for the yearSalesRegular – 930,000High Spec – 810,000 1,740,000Less Cost of SalesOpening Stock of Finished GoodsRegular – 250 units at €210 = 52,500High Spec – 120 units at €315 = 37,800 90,300+ Cost of Production 1,406,264

1,496,564Closing Stock of Finished Goods (Note 1)Regular – 300 units at €246 = 73,800High Spec – 144 units at €361 = 51,984

(125,784)(1,370,780)


Solutions

309

*


Frictex Ltd

Note 1 Valuation of Closing Stock of Finished GoodsRegular High Spec

Material G (€4 per kg) 12 20Material H (€2 per kg) 12 8Direct Labour (€12 per hour) 144 216Variable Overheads (€4 per hour) 48 72Fixed Overheads (€2.50 per hour)* 30 45Total Unit Cost 246 361

(a) Sales BudgetNormal Extra

Budgeted Quantities 12,000 5,000Expected Sales Price €400 €570Budgeted Sales €4,800,000 €2,850,000

(b) Unit Production Budget Normal Extra

Budgeted Sales 12,000 5,000+ Budgeted Closing Stock 1,980 540– Opening Stock (2,200) (600)= Budgeted Production 11,780 units 4,940 units

(c) Raw Materials Usage Budget Material P Material Q

Normal (11,780 x 10) 117,800(11,780 x 5) 58,900

Extra (4,940 x 6) 29,640(4,940 x 12) 59,280


(d) Raw Materials Purchases Budget Material P Material Q

Budgeted Usage 147,440 118,180+ Budgeted Closing Stock 27,000 21,600– Opening Stock (30,000) (24,000)

144,440 kgs 115,780 kgsx Expected Prices €5 €8= Budgeted Material Purchases €722,200 €926,240

(e) Direct Labour Budget Dept. 1 Dept. 2

Normal (11,780 x 4) 47,120 hours(11,780 x 7) 82,460 hours

Extra (4,940 x 6) 29,640 hours(4,940 x 10) 49,400 hours

Budgeted Labour Hours 76,760 hours 131,860 hoursx Labour Rate per hour €14 €14= Budgeted Labour Costs €1,074,640 €1,846,040

Total Fixed OverheadsTotal Labour Hours

-------------------------------------------------- 173,58036,600 32,832+----------------------------------- 173,580

69,432----------------- €2.50= = =


310

(f) Variable Production Overhead Budget

Normal ExtraBudgeted Labour Hours 76,760 131,860x Overhead Rate per hour €5 €5= Budgeted Overhead Costs €383,800 €659,300


Opening Stock of Raw MaterialsMaterial P – 30,000 kgs at €4 per kg = 120,000Material Q – 24,000 kgs at €7 per kg = 168,000 288,000+ Purchases of Raw MaterialsMaterial P – 722,200Material Q – 926,240 1,648,440

1,936,440– Closing Stock of Raw MaterialsMaterial P – 27,000 kgs at €5 per kg = 135,000Material H – 21,600 kgs at €8 per kg = 172,800 (307,800)= Cost of Raw Materials Consumed 1,628,640+ Direct Labour CostsDept 1 – 1,074,640Dept 2 – 1,846,040 2,920,680= Prime Cost 4,549,320+ Overheads:VariableNormal – 383,800Extra – 659,300 1,043,100Fixed 625,860 1,668,960= Cost of Production 6,218,280

(h) Budgeted Trading Account for the yearSalesNormal – 4,800,000Extra – 2,850,000 7,650,000Less Cost of SalesOpening Stock of Finished GoodsNormal – 2,200 units at €298 per unit = 655,600Extra – 600 units at €428 per unit = 256,800 912,400+ Cost of Production 6,218,280

7,130,680Closing Stock of Finished Goods (Note 1)Normal – 1,980 units at €332 per unit = 657,360Extra – 540 units at €478 per unit = 258,120 (915,480)

(6,215,200)Gross Profit 1,434,800

Solutions

311

*


Famteb Ltd

Note 1 Valuation of Closing Stock of Finished GoodsNormal Extra

Material P (€5 per kg) 50 30Material Q (€8 per kg) 40 96Direct Labour (€14 per hour)Dept. 1 56 84Dept. 2 98 140Variable Overheads (€5 per hour) 55 80Fixed Overheads (€3 per hour)* 33 48Total Unit Cost 332 478

(a) Sales BudgetJAN FEB MAR TOTAL

Budgeted Quantities 12,000 13,000 15,000 40,000Expected Sales Prices 50 50 55Budgeted Sales (€) 600,000 650,000 825,000 2,075,000

(b) Unit Production BudgetJAN FEB MAR TOTAL

Budgeted Sales 12,000 13,000 15,000 40,000+ Budgeted Closing Stock 6,500 7,500 7,500 21,500– Opening Stock (6,000) (6,500) (7,500) (20,000)= Budgeted Production (Units) 12,500 14,000 15,000 41,500

(c) Raw Materials Usage BudgetJAN FEB MAR TOTAL

Budgeted Production 12,500 14,000 15,000 41,500x Usage in kgs 8 8 8 8= Budgeted Usage (kgs) 100,000 112,000 120,000 332,000

(d) Raw Materials Purchases BudgetJAN FEB MAR TOTAL

Budgeted Usage 100,000 112,000 120,000 332,000+ Budgeted Closing Stock 22,400 24,000 24,800 71,200– Opening Stock (21,000) (22,400) (24,000) (67,400)

101,400 113,600 120,800 335,800x Expected Price €2.50 €2.50 €2.50 2.50= Budgeted Materials Purchases (€) 253,500 284,000 302,000 839,500

Total Fixed OverheadsTotal Labour Hours

-------------------------------------------------- 625,86076,760 131,860+-------------------------------------- 625,860

208,620----------------- €3.00= = =


312


Acrod Ltd

(e) Cash BudgetReceipts from Sales JAN FEB MAR TOTALDebtors on 1 January 290,000 – – 290,000Jan Sales 240,000 360,000 – 600,000Feb Sales – 260,000 390,000 650,000Mar Sales – – 330,000 330,000Total Receipts = 530,000 620,000 720,000 1,870,000Payments for PurchasesCreditors on 1 January 198,000 – – 198,000Jan Purchases 48,165 202,800 – 250,965Feb Purchases – 53,960 227,200 281,160Mar Purchases – – 57,380 57,380

246,165 256,760 284,580 787,505Wages 15,000 15,000 15,000 45,000Variable Overheads 25,000 28,000 30,000 83,000Fixed Overheads 4,000 4,000 4,000 12,000Administration Expenses 2,000 2,000 2,000 6,000Distribution Costs 12,000 13,000 15,000 40,000Total Payments = 304,165 318,760 350,580 973,505Total Cash Inflow 225,835 301,240 369,420 896,495Opening Balance (305,645) (79,810) 221,430 (305,645)Closing Balance (79,810) 221,430 590,850 590,850

(a) Sales BudgetJAN FEB MAR APR MAY JUNE TOTAL

Budgeted Quantities 500 1,000 2,000 3,000 5,000 6,000 17,500Expected Sales Prices 20 20 22 23 23 23Budgeted Sales 10,000 20,000 44,000 69,000 115,000 138,000 396,000

(b) Unit Production BudgetJAN FEB MAR APR MAY JUNE TOTAL

Budgeted Sales 500 1,000 2,000 3,000 5,000 6,000 17,500+ Budgeted Closing Stock 250 500 750 1,250 1,500 1,500 5,750– Opening Stock – (250) (500) (750) (1,250) (1,500) (4,250)= Budgeted Production 750 1,250 2,250 3,500 5,250 6,000 19,000

(c) Raw Materials Usage BudgetJAN FEB MAR APR MAY JUNE TOTAL

Budgeted Production 750 1,250 2,250 3,500 5,250 6,000 19,000x Usage in kgs 5 5 5 5 5 5 5= Budgeted Usage (kgs) 3,750 6,250 11,250 17,500 26,250 30,000 95,000

(d) Raw Materials Purchases BudgetJAN FEB MAR APR MAY JUNE TOTAL

Budgeted Usage 3,750 6,250 11,250 17,500 26,250 30,000 95,000+ Budgeted Closing Stock 3,125 5,625 8,750 13,125 15,000 15,625 61,250– Opening Stock – (3,125) (5,625) (8,750) (13,125) (15,000) (45,625)

6,875 8,750 14,375 21,875 28,125 30,625 110,625x Expected Price (€) 2 2 2 2 2 2 2= Budgeted Materials Purchases (€) 13,750 17,500 28,750 43,750 56,250 61,250 221,250

Solutions

313


Grantar Ltd

(e) Cash BudgetReceipts from Sales JAN FEB MAR APR MAY JUNE TOTALJan SalesFeb SalesMar SalesApr SalesMay SalesJun Sales

1,900–––––

4,0003,800––––

4,0008,0008,360

–––

–8,000

17,60013,110

––

––

17,60027,60021,850

–

–––

27,60046,00026,220

9,90019,80043,56068,31067,85026,220

Total Receipts = 1,900 7,800 20,360 38,710 67,050 99,820 235,640Payments for PurchasesJan PurchasesFeb PurchasesMar PurchasesApr PurchasesMay PurchasesJun Purchases

––––––

6,875–––––

6,8758,750

––––

–8,750

14,375–––

––

14,37521,875

––

–––

21,87528,125

–

13,75017,50028,75043,75028,125

–

WagesVariable OverheadsFixed Overheads (– 9,000)Administration ExpensesDistribution CostsEquipmentLoan Interest

5,0001,5002,0001,000

250––

6,8755,0002,5002,0001,000

500100,000

–

15,6255,0004,5002,0001,0001,000

–1,000

23,1255,0007,0002,0001,0001,500

–1,000

36,2505,000

10,5002,0001,0002,500

–1,000

50,0005,000

12,0002,0001,0003,000

–1,000

131,87530,00038,00012,0006,0008,750

100,0004,000

Total Payments = 9,750 117,875 30,125 40,625 58,250 74,000 330,625Net Cash Inflow (Outflow)Opening BalanceLoan

(7,850)5,000

–

(110,075)(2,850)

100,000

(9,765)(12,925)

–

(1,915)(22,690)

–

8,800(24,605)

–

25,820(15,805)

–

(94,985)5,000

100,000Closing Balance (2,850) (12,925) (22,690) (24,605) (15,805) 10,015 10,015

(a) Purchases BudgetJAN FEB MAR APR MAY JUNE TOTAL

Budgeted Sales (at 60%)+ Budgeted Closing Stock– Opening Stock

12,0002,640

–

13,2003,120(2,640)

15,6003,000(3,120)

15,0003,360(3,000)

16,8003,600(3,360)

18,0003,840(3,600)

90,60019,560(15,720)

= Budgeted Purchases (€) 14,460 13,680 15,480 15,360 17,040 18,240 94,440

(b) Schedule of Receipts from SalesJAN FEB MAR APR MAY JUNE TOTAL

Jan SalesFeb SalesMar SalesApr SalesMay SalesJun Sales

7,600–––––

8,0008,360––––

3,6008,8009,880–––

–3,960

10,4009,500––

––

4,68010,00010,640

–

–––

4,50011,20011,400

19,20021,12024,96024,00021,84011,400

7,600 16,360 22,280 23,860 25,320 27,100 122,520

(c) Schedule of Payments for PurchasesJAN FEB MAR APR MAY JUNE TOTAL

Jan PurchasesFeb PurchasesMar PurchasesApr PurchasesMay PurchasesJun Purchases

1,464–––––

10,2481,368––––

2,9289,5761,548–––

–2,736

10,8361,536––

––3,096

10,7521,704–

–––3,072

11,9281,824

14,64013,68015,48015,36013,6321,824

1,464 11,616 14,052 15,108 15,552 16,824 74,616


314

QUESTION 30.16Blinstap Ltd

* Calculation of Interest Payable on the Loan€7,000 at 12% for 5 months (Jan 31st⇒ June 30th) =

(a) Purchases BudgetJAN FEB MAR APR MAY JUNE TOTAL

Budgeted Sales (at 80%)+ Budgeted Closing Stock– Opening Stock

8,0006,400(4,000)

12,8007,200(6,400)

14,4006,000(7,200)

12,0005,600(6,000)

11,2004,800(5,600)

9,6004,000(4,800)

68,00034,000(34,000)

= Budgeted Purchases (€) 10,400 13,600 13,200 11,600 10,400 8,800 68,000

(b) Cash BudgetReceipts from Sales JAN FEB MAR APR MAY JUNE TOTALDebtors on 1 JanuaryJan SalesFeb SalesMar SalesApr SalesMay SalesJun Sales

5,0006,000

–––––

–4,0009,600

––––

––

6,40010,800

–––

–––

7,2009,000

––

––––

6,0008,400

–

–––––

5,6007,200

5,00010,00016,00018,00015,00014,0007,200

Total Receipts = 11,000 13,600 17,200 16,200 14,400 12,800 85,200Payments for PurchasesCreditors on 1 JanuaryJan PurchasesFeb PurchasesMar PurchasesApr PurchasesMay PurchasesJun Purchases

6,0001,040

–––––

–9,3601,360

––––

––

12,2401,320

–––

–––

11,8801,160

––

––––

10,4401,040

–

–––––

9,360880

6,00010,40013,60013,20011,60010,400

880

RentWagesMotor Van

7,040–400

10,000

10,720240400–

13,560–400–

13,040240400–

11,480–400–

10,240240400

–

66,080720

2,40010,000

Total Payments = 17,440 11,360 13,960 13,680 11,880 10,880 79,200Net Cash Inflow (Outflow)Opening Balance

(6,440)1,800

2,2402,360

3,2404,600

2,5207,840

2,52010,360

1,92012,880

6,0001,800

LoanLoan Repaid

(4,640)7,000

–

4,600––

7,840––

10,360––

12,880––

14,800–

(7,350)*

7,8007,000(7,350)

Closing Balance 2,360 4,600 7,840 10,360 12,880 7,450 7,450

(c) Budgeted Trading and Profit and Loss Account for six months ended 30 JuneSalesLess Cost of SalesOpening Stock+ Purchases

4,00068,000

85,000


(68,000)= Gross Profit– ExpensesRent (720 + 200 – 240)WagesLoan Interest Depreciation on EquipmentDepreciation on Motors

6802,400

3501,0001,000

17,000

(5,430)= Net Profit 11,570

€84012

------------ 5× €350.=

Solutions

315

QUESTION 30.17 (HIGHER LEVEL)Corden Ltd

(d) Budgeted Balance Sheet as at 30 JuneFixed Assets Cost Depr Value

Equipment 20,000 1,000 19,000Motor Van 10,000 1,000 9,000

30,000 2,000 28,000Current Assets

Stock 4,000Debtors (40% of June Sales) 4,800Bank 7,450Rent Prepaid 240


Creditors (90% of June Purchases) (7,920)8,570

36,570

Financed ByShare Capital 25,000Profit and Loss Account 11,570

36,570

(a) Purchases BudgetJAN FEB MAR TOTAL

Budgeted Sales Units 450 500 600 1,550+ Budgeted Closing Stock 250 300 275 825– Opening Stock (225) (250) (300) (775)= Budgeted Purchases Units 475 550 575 1,600x Expected Prices €25 €25 €30= Budgeted Purchases (€) 11,875 13,750 17,250 42,875

(b) Cash BudgetReceipts from Sales JAN FEB MAR TOTALDebtors on 1 January 16,000 – – 16,000Jan Sales 4,275 18,000 – 22,275Feb Sales – 4,750 20,000 24,750Mar Sales – – 6,840 6,840Total Receipts = 20,275 22,750 26,840 69,865Payments for PurchasesCreditors on 1 January 6,150 – – 6,150Jan Purchases 4,275 7,125 – 11,400Feb Purchases – 4,950 8,250 13,200Mar Purchases – – 6,210 6,210

10,425 12,075 14,460 36,960Wages 9,000 9,000 9,000 27,000Rent 500 – – 500Other Expenses 600 600 600 1,800Equipment 60,000 – – 60,000Total Payments = 80,525 21,675 24,060 126,260Net Cash Inflow (Outflow) (60,250) 1,075 2,780 (56,395)Opening Balance 2,000 2,750 3,825 2,000

(58,250) 3,825 6,605 (54,395)Loan 61,000 – – 61,000Closing Balance 2,750 3,825 6,605 6,605


316

(c) Budgeted Trading and Profit and Loss Account for three months ended 31 MarchSales (450 x 50) + (500 x 50) + (600 x 60) 83,500Less Cost of SalesOpening Stock 4,500+ Purchases 42,875

47,375– Closing Stock (275 x 30) (8,250)

(39,125)= Gross Profit 44,375+ IncomeDiscount Received ((42,875 x .4) x .1) 1,715

46,090– ExpensesWages 27,000Rates 300Other Expenses 1,800Discount Allowed ((83,500 x .2) x .05) 835Depreciation on Motors 1,800Depreciation on Equipment 3,000Loan Interest (61,000 at 12% for two months) 1,220

(35,955)Net Profit 10,135+ Profit and Loss Balance b/f 5,850Profit and Loss Balance c/d 15,985

(d) Budgeted Balance Sheet as at 31 MarchFixed Assets Cost Depr Value

Buildings 100,000 – 100,000Motors 40,000 1,800 38,200Equipment 60,000 3,000 57,000

200,000 4,800 195,200Current Assets

Stock 8,250Debtors (80% of March Sales) 28,800Bank 6,605


Creditors (60% of March Purchases) 10,350Rates Due 300Loan Interest Due 1,220

(11,870)31,785

226,985Financed ByShare Capital 150,000Profit and Loss Account 15,985

165,985Loan 61,000

226,985

Solutions

317


Slimpton Ltd


Marthan Ltd


Fedusa Ltd

(a) Classification of Costs (i) Direct Materials

These are variable costs as they vary directly with activity:

(ii) Direct LabourThese are variable costs as they vary directly with activity:

(iii) Variable production overheads are variable as they vary directly with activity:

(a) Comparison of Actual Costs with Static BudgetCosts Actual Budgeted VarianceDirect Materials 320,000 300,000 20,000 AdverseDirect Labour 231,000 220,000 11,000 AdverseVariable Production Overheads 141,000 130,000 11,000 AdverseFixed Production Overheads 80,000 70,000 10,000 Adverse

772,000 720,000 52,000 Adverse

(b) Comparison of Actual Costs with Budget flexed to 22,000 unitsCosts Actual Budgeted VarianceDirect Materials 320,000 330,000 10,000 FavourableDirect Labour 231,000 242,000 11,000 FavourableVariable Production Overheads 141,000 143,000 2,000 FavourableFixed Production Overheads 80,000 70,000 10,000 Adverse

772,000 785,000 13,000 Favourable

(a) Comparison of Actual Costs with Static BudgetCosts Actual Budgeted VarianceDirect Materials 466,990 469,000 2,010 FavourableDirect Labour 351,750 360,500 8,750 FavourableVariable Production Overheads 261,300 269,500 8,200 FavourableFixed Production Overheads 158,000 159,000 1,000 Favourable

1,238,040 1,258,000 19,960 Favourable

(b) Comparison of Actual Costs with Static Budget flexed to 67,000 unitsCosts Actual Budgeted VarianceDirect Materials 466,990 448,900 18,090 AdverseDirect Labour 351,750 345,050 6,700 AdverseVariable Production Overheads 261,300 257,950 3,350 AdverseFixed Production Overheads 158,000 159,000 1,000 Favourable

1,238,040 1,210,900 27,140 Adverse

56,2509,000--------------- 81,250

13,000--------------- 100,000

16,000----------------- €6.25 per unit= = =

47,7009,000--------------- 68,900

13,000--------------- 84,800

16,000--------------- €5.30 per unit= = =

26,1009,000--------------- 37,700

13,000--------------- 46,400

16,000--------------- €2.90 per unit= = =


318

(iv) Fixed production overheadsTotally fixed at €13,000 regardless of activity

(v) Administrative expensesThese are mixed costs as they vary indirectly with activity:

Using the high-low method to separate into fixed and variable:Activity Cost

High 16,000 38,600Low 9,000 25,650Difference 7,000 €12,950

Variable Cost per unit = €12,950/7,000 = €1.85 per unitHigh Low

Total Cost 38,600 25,650– Variable Cost 29,600 16,650= Fixed Costs €9,000 €9,000Administration expenses are €9,000 fixed and €1.85 per unit variable

(vi) Distribution costsThese are mixed costs as they vary indirectly with activity:

Using the high-low method to separate into fixed and variable:Activity Cost

High 16,000 54,800Low 9,000 35,200Difference 7,000 €19,600

Variable Cost per unit = €19,600/7,000 = €2.80 per unitHigh Low

Total Cost 54,800 35,200– Variable Cost 44,800 25,200= Fixed Costs €10,000 €10,000Distribution costs are €10,000 fixed and €2.80 per unit variable


Weargo Ltd

(a) Classification of CostsDirect materials and direct labour are variable costs.Administrative expenses are fixed costs.Production overheads and distribution costs are mixed costsDirect material costs are €4.50 per unit (and 1.50 per kg)Direct labour costs are €10 per unit (and €5 per hour)Production overheads are €45,000 fixed and €1.80 per unit variableAdministration expenses are fixed at €77,000Distribution costs are €60,000 fixed and €0.25 per unit variable

(b) Budget Flexed to 14,000 units

Direct Materials (14,000 x €6.25) 87,500Direct Labour (14,000 x €5.30) 74,200Variable Production Overheads (14,000 x €2.90) 40,600Fixed Production Overheads 13,000Administration Expenses (€9,000 + 14,000 x €1.85) 34,900Distribution Costs (€10,000 + 14,000 x €2.80) 49,200Total Cost €299,400

25,6509,000---------------- 33,050

13,000---------------- 38,600

16,000----------------≠ ≠

35,2009,000--------------- 46,400

13,000--------------- 54,800

16,000---------------≠ ≠

Solutions

319

QUESTION 30.22 (HIGHER LEVEL)Cobstand Ltd

(a) Classification of CostsSales are variable at €35.15 per unitDirect materials are variable at €15.85 per unitDirect labour costs are variable at €7.62 per unitProduction overheads are €7,000 fixed and €3.14 variable per unitAdministration expenses are fixed at €5,000Distribution costs are €11,000 fixed and €2.79 variable per unit

Break-even Point

=

(b) Budget Flexed to 75,000 units (€)Direct Materials (75,000 x €4.50) 337,500Direct Labour (75,000 x €10.00) 750,000Production Overheads (45,000 + 75,000 x €1.80) 180,000Administration Expenses 77,000Distribution Costs (€60,000 + 75,000 x €0.25) 78,750Total Cost 1,423,250

(c) Comparison of Actual Costs with Budget flexed to 75,000 unitsCosts Actual Budgeted VarianceDirect Materials 435,000 337,500 97,500 AdverseDirect Labour 618,750 750,000 131,250 FavourableProduction Overheads 195,000 180,000 15,000 AdverseAdministration Expenses 80,000 77,000 3,000 AdverseDistribution Costs 85,250 78,750 6,500 Adverse

1,414,000 1,423,250 9,250 Favourable

(d) Direct Materials Variance = €97,500 AdversePrice Variance = (€150 – €1.45) x 300,000 kgs. = €15,000 FavourableUsage Variance = (225,000 kgs – 300,000 kgs) x €150 = €112,500 AdverseTotal Direct Materials variance = €97,500 Adverse

Direct Labour Variance = €131,250 FavourablePrice Variance = (€5.00 – €5.50) x 112,500 hours = €56,250 AdverseUsage Variance = (112,500 hours – 150,000 hours) x €50 = €187,500 FavourableTotal Direct Labour variance = €131,250 Favourable

(b) Budget Flexed to 7,000 units (€)Sales Revenue 246,050Direct Materials (7,000 x €15.85) 110,950Direct Labour (7,000 x €7.62) 53,340Production Overheads (€7,000 + 7,000 x €3.14) 28,980Administration Expenses 5,000Distribution Costs (€11,000 + 7,000 x €2.79) 30,530Total Cost 228,800Profits 17,250

(c) Marginal Costing Statement at 7,000 unitsTotal Per unit

Sales 246,050 35.15– Variable Costs 205,800 29.40= Contribution 40,250 5.75– Fixed Costs 23,000= Profit 17,250

Fixed CostsContribution per Unit------------------------------------------------- 23,000

5.75--------------- 4,000 units(€140,600)= =

Documents

C ONTENTS · (a) Trading Account (b) Profit and Loss Account (c) Balance Sheet (d) Balance Sheet (e) Trading account (f) Profit and Loss Account (g) Profit and Loss Account (h)