ACC1110 Financial Accounting

SEMINAR SOLUTIONS: TERM 2

2009/2010

Module Leader: Ellie Franklin Academic Team: Agnes Grondin, John Walsh, Pallavi Kishore, Mark Ma

Accounting and Finance Department

Week 13 Seminar: Revision

1. Recording Business Transactions
May commenced business on 1st July 2006 as a wholesale greengrocer with capital in the bank of 2,000. Her transactions for July were as follows :1st 7th 11th 14th 15th 16th 18th 20th 23rd 27th 31st Bought a second hand van by cheque for 800 Purchased goods on credit costing 250 from A Brown Sold goods on credit to B Green amounting to 450 Purchased goods on credit costing 100 from M White Sold goods to N Black for 250 on credit Returned goods to A Brown of 50 B Green returned goods of 75 Sent A Brown a cheque for 140 Received a cheque from B Green for 240 Paid telephone bill of 65 by cheque Paid electric bill of 45 by cheque

You are required to enter the above transactions in the books of prime entry and the general ledger.

1.

Sales Day Book 11th B Green 15th N Black

450 250 700

Purchases Day Book 7th A Brown 250 14th M White 100 350 Purchases Returns Day Book 16th A Brown 50

Sales Returns Day Book 18th B Green 75

1st Capital 23rd B Green

1st

Balance b/d

Bank 2000 1st 240 20th 27th 31st 31st 2240 1190

Van A Brown Telephone Electricity Balance c/d

800 140 65 45 1190 2240

31st

Balance c/d

Capital 2000 1st 2000

Bank

2000 2000

1st

Balance b/d

2000

1st 1st

Bank Balance b/d

Van 800 31st 800 800

Balance c/d

800 800

Purchases 31st As per PDB 350 31st 31st 350 As per PRDB To IS 50 300 350

16th 20th 31st

Returns Bank Balance c/d

A Brown 50 7th 140 60 250 1st

Purchases

250

Balance b/d

250 60

31st

Balance c/d

M White 100 14th 100 1st

Purchases Balance b/d

100 100 100

31st 31st

As per SRDB To IS

Sales 75 31st 625 700

As per SDB

700 700

B Green

11th

Sales

1st

Balance b/d

450 18th Returns 23rd Bank 31st Balance c/d 450 135

75 240 135 450

15th 1st

Sales Balance b/d

N Black 250 31st 250 250

Balance c/d

250 250

27th

Bank

Telephone 65 31st 65

To IS

65 65

31st

Bank

Electricity 45 31st 45

To IS

45 45

2. Depreciation A company buys a machine for 40,000 on 1st January 2003. The estimated useful life of the machine was 4 years and its estimated residual value was 1,024. The reducing balance percentage is 30%. Using both straight-line and reducing balance methods of depreciation, calculate the net book value of the machine as at 31st December 2005 and show how this would be presented in the balance sheet as at 31st December 2005.

Solution: Straight Line 40000 1024 = 4 9744

Net book value as at 31st December 2005 :40000 (9744 x 3) = 10768

Reducing Balance 40000 x 30% (40000 12000) x 30% (40000 20400) x 30% = = = 12000 8400 5880

Net Book Value as at 31st December 2005 :40000 (12000+8400+5880) = 13720

Balance Sheets as at 31st December 2005 Non Current Assets Machinery (SL) Machinery (RB) Cost 40000 40000 Acc depn 29232 26280 NBV 10768 13720

3. Sale of Non Current Assets Flora commenced business on the 1st January 2002 as a florist and draws up accounts to year end 31st December. On the same date she purchased fixtures and fittings for 25,000 and a delivery van for 16,000. The fixtures and fittings were estimated to have a useful life of 8 years and a residual value of 1,800. During December 2006 the delivery van was involved in an accident and the insurance company considered it a write off. Flora received a cheque for 3,200 in December 2006 from the insurers in full settlement. Flora then purchased a replacement van in December 2006 for 12,000. Flora has a depreciation policy to charge a full year in the year of purchase and none in the year of disposal. Fixtures and fittings are depreciated on a straight-line basis and motor vehicles on a 25% reducing balance basis. Prepare the following ledger accounts for the year ending 31st December 2006 :- Fixtures and Fittings account - Motor Vehicles account - Depreciation expense account - Accumulated depreciation account fixtures and fittings - Accumulated depreciation account motor vehicles - Disposals account

3. Workings 1. Fixtures & fittings Acc depn to 31/12/05 2. Motor vehicles Acc depn to 31/12/05 16000 x 25% (16000-4000) x 25% 4000 3000 7000 2250 9250 1688 10938 3200 -5062 -1862 3000 31/12/02 (25000 - 1800) / 8 = 2900 x 4 years 2900 11600

31/12/03

(16000-7000) x 25%

31/12/04

(16000-9250) x 25%

31/12/05

3. Disposal of van

Proceeds NBV (16000-10938)

4. Depreciation on new van

12000 x 25%

Ledgers Fixtures and Fittings Bal b/d 25000 Bal b/d 25000 Motor Vehicles Bal b/d Van

Bal c/d

25000

16000 12000

Disposals Bal c/d

16000 12000

Bal b/d Depreciation F&F chg Van chg

28000 12000

28000

2900 3000 5900

To IS

5900 5900

Fixtures & fitting Acc Depn Bal c/d 14500 14500 Bal b/d depn chg Bal b/d Motor vehicles Acc Depn Disposals 10938 Bal c/d 3000 13938 11600 2900 14500 14500

Bal b/d depn chg Bal b/d

10938 3000 13938 3000

Disposal Van

16000

Acc Depn Proceeds Loss to P&L

16000

10938 3200 1862 16000

4. Accruals Prepayments, Bad Debts and Doubtful Debts Junes year end date is 31st March 2006. When June began to prepare her final accounts for 31st March 2006, she noticed the following : During the year she had paid rent for her business property of 15,000, which related to the year ending 31st December 2006. She was still waiting for the audit and accountancy fees for the year. Last years fees were for 1500. She has experienced difficulty chasing up one of her customers who owes 500. June has decided to write this off as a bad debt. June wants to carry on the 5% provision for doubtful debts this year. This years year end trade debtors amounts to 30,000 and last years provision was 1000. This year provision should be calculated after writing off any bad debts.

For the year ended 31st March 2006, calculate the prepayment, accrual, trade debtors and provision for doubtful debts which should be shown in the balance sheet as at 31st March 2006.

Prepayment 15000 paid for year ended 31st December 2006. Therefore 9 months prepayment is 15000 x 9/12 = 11250

Accrual Make an accrual based on last years bill - 1500

Bad Debt Write off 500 as a loss

Provision for Doubtful Debts This years provision 5% x (30000-500) Last years provision Therefore increase last years provision by 475. = 1475 1000

Balance Sheet as at 31st March 2006 Current Assets Trade Debtors Provision for DD Prepayments Current Liabilities Accruals

29500 (1475) 11250

1500

5. Share Issues XYZ Plc has 15 million 1 ordinary shares in issue. The directors have decided to make a two for five rights issue at a price of 1.80 per share (market value id 2.50 per share).

Calculate the rights issue and show the double entry. . Rights issue 15000000 x 2 = 5 = 6,000,000 shares

6,000,000 x 1.80 Dr Cr Cr

10,800,000 10,800,000 6,000,000 4,800,000

Bank Share Capital Share Premium

(6,000,000 x 1) (6,000,000 x 80p)

Week 14 Seminar: Year End Adjustments

1. Martine Ltd had the following trial balance at 31 December 2003: 100,000 150,000 100,000 200,000 350,000 750,000 3,000 100,000 60,000 120,000 50,000 230,000 203,000

Share capital Reserves at 1.1.03 Long term loans Opening stock at 1.1.03 Purchases Sales Sales returns Motor vehicles at cost Motor vehicles accumulated depreciation at 1.1.03 Office equipment at cost Office equipment accumulated depreciation at 1.1.03 Land General expenses

Selling expenses Trade Creditors Trade Debtors Interest paid Bank overdraft

10,000 200,000 194,000 5,000 5,000

You are given the following additional information: 1. 2. 3. 4. 5. Closing stock is 180,000. Insurance of 2,000 for the 12 months to 30 June 2004 is included in general expenses. Audit & accountancy fees for the year of 1,000 have not been paid and are to be provided for. A sum of 20,000 included in debtors relates to a customer who has gone bankrupt. Depreciation for the year is to be charged on the straight-line basis on motor vehicles at 20% and office equipment at 15%.

You are required to draw up an Extended Trial Balance for Martine Ltd for the year ended 31st December 2003.

Martine Ltd
Workings 1. Cost of Sales Opening stock + purchases closing stock 200000 + 350000 180000 = 370000 2. Prepayment Paid 2000 insurance for the year ended 30 June 2004. Therefore, prepayment of 6 months 2000 x 6/12 = 1000 Dr Cr 3. Accrual Dr Cr 4. Bad Debt Dr Cr 5. Depreciation Motor Vehicles (SL) Office Equipment (SL) Dr Cr Cr 100000 x 20% = 20000 120000 x 15% = 18000 38000 20000 18000 Bad debt exps Trade debtors 20000 20000 Audit fees Accruals 1000 1000 Prepayment General exps 1000 1000

Depreciation exps MV Acc Depn OE Acc Depn

Extended Trial balance for Martine Ltd for the year ended 31.12.03

TB Dr Share capital Reserves as at 1.103 Long term loans Opening stock as at 1.1.03 Purchases Sales Sales returns Motor vehicles at cost MV Acc Depn as at 1.1.03 Office Equipment at cost OE Acc Depn as at 1.1.03 Land at cost General expenses Selling expenses Trade Creditors Trade Debtors Interest paid Bank Overdraft Closing stock at 31.12.03 Prepayments Audit fees Accruals Bad debt Depreciation expense Profit for the year (bal) Total 1415 1415 60 20 38 1 1 194 5 5 230 203 10 200 3 100 60 120 50 200 350 750 Cr 100 150 100 Dr

Adj Cr Dr

IS Cr Dr

BS Cr 100 150 100

000 000 000 000 000 000 000 000

200 350 750 3 100 20 120 18 230 1 202 10 200 20 5 5 180 1 1 20 38 101 60 930 930 805 101 805 1 180 1 174 68 80

2. The Trial Balance of Summer Products Ltd as at 31.12.02 is as follows: 000's Turnover Purchases Overdraft Opening Stock Provision for Doubtful Debts 1.1.02 Motor Vehicles (At Cost) Fixtures and Fittings (At Cost) Accumulated Depreciation 1.1.02 Motor Vehicles Fixtures & Fittings Trade Creditors Trade Debtors Share Capital General Reserve Profit and Loss at 1.1.02 Salaries/Wages General Expenses Debenture Interest Long Term Investment 10% Debentures 950 500 30 174 6 150 45 75 15 90 375 150 35 100 200 180 12 55 240

Additional Information: 1. Closing Stock 31.12.02 126,000. 2. Provision for Doubtful Debts should equal 8% Debtors. 3. Audit Fees expected to be 10,000. 4. 20,000 of General Expenses have been pre-paid. 5. Depreciation: MV 40% Reducing Balance F&F 20% Straight Line You are required to draw up an Extended Trial Balance for Summer Products Ltd for the year ended 31st December 2002.

Summer Products Ltd Workings 1. Cost of Sales Opening stock + purchases closing stock 174 + 500 126 = 548 2. Provision for Doubtful Debts TY provision 8% x 375 LY provision Increase in provision Dr Cr 3. Accruals Dr Cr 4. Prepayment Dr Cr 5. Depreciation MV (40% RB) (150-75) x 40% = 30 FF (20% SL) 45 x 20% = 9 Dr Cr Cr 6. Depreciation exp MV Acc Depn FF Acc Depn 39 30 9 Prepayments General expenses 20 20 Audit fees Accruals 10 10 Doubtful debts Provision for DD = 30 6 24 24 24

Debenture interest Charge for the year 10% x 240 Paid in the year Therefore need to accrue Dr Cr Debenture interest Accrued interest 24 12 12 12 12

Extended trial Balance for Summer Products Ltd for the year ended 31.12.02

TB Dr Turnover Purchases Overdraft Opening stock Provision for DD at 1.1.02 Motor vehicles at cost Fixtures & Fittings at cost MV Acc Depn at 1.1.02 FF Acc Depn at 1.1.02 Trade Creditors Trade Debtors Share Capital General Reserve Profit & Loss a/c at 1.1.02 Salaries and wages General expenses Debenture interest Long term investment 10% Debentures Closing stock at 31.12.02 Doubtful debts Audit fees Accruals Prepayment Depreciation expense Accrued interest Loss for the year (bal) Total 1691 1691 105 20 39 24 10 200 180 12 55 240 375 150 35 100 174 6 150 45 75 15 90 500 30 Cr 950 Dr

Adj Cr Dr 500

IS Cr 950 Dr

BS Cr

000 000 000 000 000 000 000 000

30 174 24 150 45 30 9 375 150 35 100 200 20 12 160 24 55 240 126 24 10 10 20 39 12 55 105 1131 1131 55 826 826 12 10 126 105 24 90 30

Week 15 Seminar: Preparation of Final Accounts

1. The Trial Balance of Tutu Ltd as at 31.12.03 is given below. 000's 180 100

Fixtures & Fittings (At Cost) Motor Vehicles (At Cost) Accumulated Depreciation at 1.1.03 Fixtures & Fittings 20 Motor Vehicles 30 Stock at 1.1.03 60 Sales 200 Purchases 100 Provision for audit fees 6 Share Capital 100 Reserves 20 P/L account 1.1.03 94 Creditors 40 Debtors 50 Cash 25 10% Debentures 30 Admin. Expenses 25 Debenture Interest 2 Provision for Doubtful Debts 2 Additional Information:

1. Closing Stock 90,000. 2. Depreciation F&F Reducing Balance 10% MV Straight Line 30% 3. Doubtful Debt Provision should be equal to 10% Debtors. 4. Audit Fee provision should be increased to 10,000. 5. Admin. Expenses include prepayment of 17,000.

Prepare an income statement and a balance sheet for the year ended 31 December 2003.

Tutu Ltd Workings 1. Cost of Sales Opening stock + purchases closing stock 60000 + 100000 90000 = 70000 2. Depreciation F&F (RB) MV (SL) Dr Cr Cr 3. 10% x (180000-20000) = 16000 30% x 100000 = 30000 Depreciation exps FF Acc Depn MV Acc Depn 46000 16000 30000

Provision for DD TY provision LY provision Dr Cr 10% x 50000 = 5000 2000 3000 3000

Doubtful Debts exps Provision for DD

4.

Audit fee provision TY LY Dr Cr Audit fees Provision 10000 6000 6000 6000

5.

Prepayment Dr Cr Prepayment Admin exps 17000 17000

6.

Debenture Interest Charge for the year Paid already Dr Cr 10% x 30000 = 3000 2000 1000 1000

Debenture interest Accrued interest

Income Statement for Tutu Ltd for the year ended 31st December 2003 Sales Cost of sales (W1) Gross profit Admin expenses (25-17+3+4+46) Operating profit Interest Profit before tax Tax Profit for the year 200000 (70000) 130000 (61000) 69000 (3000) 66000 66000

Balance Sheet for Tutu Ltd as at 31st December 2003 Non Current Assets Fixtures & Fittings Motor Vehicles Current Assets Stock Trade Debtors Provision for DD Prepayments Bank Total Assets Equity Share capital Reserves Profit & loss a/c (94000+66000) Non Current Liabilities 10% debentures Current Liabilities Trade Creditors Accruals (10000+1000) Total Equity & Liabilities

180000 100000

36000 60000

144000 40000 184000

90000 50000 (5000) 17000 25000 177000 361000

100000 20000 160000 280000 30000

40000 11000 51000 361000

2. The Trial Balance of Tulsa Ltd as at 31st December 2004 is given below. '000s Profit & Loss a/c 1/1/04 Ordinary Share Capital 12% Debentures Freehold Land Building at cost Plant & Machinery at cost Fixtures & Fittings at cost Debtors Stock - 1/1/04 Cash Creditors Provision for Doubtful Debts AccumulatedDepreciation - Buildings - Plant & Machinery - Fixtures & Fittings Sales Purchases Bad Debts Wages & Salaries Administrative Expenses Distribution Costs Debenture Interest paid Additional Information: 1. Depreciation to be charged Buildings Plant & Machinery Fix. & Fittings 2. 3. - 5% straight line - 10% straight line - 10% straight line 1340 8600 1000 2700 4400 2300 1200 1200 2100 1200 800 100 400 300 200 20500 15600 90 1100 600 690 60

Stock as at 31/12/04 was 1,800,000 Provision for doubtful debts to be made equal to 10% of outstanding debtors as at 31/12/04. Provision for auditors fees 100,000

4.

Prepare an income statement and balance sheet for 31.12.04

Tulsa Ltd Workings 1. Depreciation Buidings (SL) PM (SL) FF (SL) Dr Cr Cr Cr 2. Cost of Sales Opening stock + purchases closing stock 2100000 + 15600000 1800000 = 15900000 5% x 4400000 10% x 2300000 10% x 1200000 Depreciation exps BuildingsAcc Depn PM Acc Depn FF Acc Depn = = = 220000 230000 120000

570000 220000 230000 120000

3.

Provision for DD TY provision LY provision Dr Cr 10% x 1200000 = 120000 100000

Doubtful Debts exps Provision for DD

20000 20000

4.

Accrual Dr Cr Audit fees Accruals 100000 100000

5.

Debenture Interest Charge for the year Paid already Dr Cr 12% x 1000000 = 120000 60000

Debenture interest Accrued interest

60000 60000

Income Statement for Tulsa Ltd for the year ended 31st December 2004 Sales Cost of sales (W2) Gross profit Admin expenses (600+90+1100+570+20+100) Distribution costs Operating profit Interest Profit before tax Tax Profit for the year 20500000 (1590000) 4600000 (2480000) (690000) 1430000 (120000) 1310000 1310000

Balance Sheet for Tulsa Ltd as at 31st December 2004 Non Current Assets Land Buildings Plant & Machinery Fixtures & Fittings Current Assets Stock Trade Debtors Provision for DD Bank Total Assets Equity Share capital Profit & loss a/c (1340000+1310000) Non Current Liabilities 10% debentures Current Liabilities Trade Creditors Accruals (100000+60000)

2700000 4400000 2300000 1200000

620000 530000 320000

2700000 3780000 1770000 880000 9130000

1800000 1200000 (120000) 1200000 4080000 13210000

8600000 2650000 11250000 1000000

800000 160000

Total Equity & Liabilities

960000 13210000

Week 16 Seminar: Preparation of Final Accounts

ACC1755 Exam 2006/2007 The following is the trial balance for Reservations 2000 Plc as at 31st December 2006. Reservations 2000 Plc Trial Balance as at 31st December 2006 DR CR Purchases Sales Stock as at 01.01.2006 Trade Debtors Trade Creditors Sales staff salaries and wages Selling and distribution expenses Advertising and marketing Administrative salaries and wages Administrative expenses Ordinary 1 share capital Share premium account Profit and loss a/c as at 01.01.2006 Land Buildings Office Equipment Motor Vehicles Accumulated Depreciation - Buildings Accumulated Depreciation Office Equipment Accumulated Depreciation Motor Vehicles 6% debentures Cash at Bank Cash on Hand 15,260 103,460 6,230 8,240 7,210 12,320 7,210 4,050 14,200 17,950 100,000 20,000 42,000 100,000 100,000 50,000 15,000 20,000 15,000 6,560 50,000 13,520 250 364,230

364,230

Additional information: 1. 2. The stock as at 31st December 2006 was valued at 4,560. Buildings and office equipment are depreciated at a straight line rate of 2% and 10% respectively. The depreciation charge is split 50% selling & distribution and 50% administrative. Motor Vehicles are only used by the sales staff and depreciated at 25% reducing balance. A 5% provision for doubtful debts needs to be made.

3. 4.

5. 6. 7. 8. 9.

10.

Tax for the year is estimated to be 1,200. The value of the Land has been reviewed and should be revalued to 150,000. Included in administrative expenses is insurance covering the period 1st October 2006 to 30th September 2007 for 8,000. The audit fee for the year ended 31st December 2006 is estimated to be 9,000. The directors have approved a bonus issue of ordinary shares to existing shareholders of two shares for every ten shares held. This has not been reflected in the accounts. Advertising and marketing and depreciation for motor vehicles should be included in selling and distribution expenses. The increase in provision for doubtful debts and audit fee should be included in administrative expenses.

Required Prepare an income statement for the year ended 31st December 2006 and a balance sheet as at that date. This should be in a form suitable for publication. (Notes to the accounts are not required) (25 Marks)

Workings 1. COS 6230+15260-4560 = 16930

2. Depreciation Buildings Office Equipment Motor Vehicles 2% x 100000 = 10% x 50000 = 25% x (15000-6560) = 2000 5000 2110

3. Provision for Doubtful Debts 5% x 8240 = 412 4. Taxation Dr Cr Taxation Tax payable 1200 1200

5. Revaluation Dr Cr Land 50000 Revaluation reserve 50000

6. Prepayment 9/12 x 8000 = 6000 Dr Cr Prepayments Admin exps 6000 6000

7. Accrual Dr Cr Audit Fees Accrual 9000 9000

8. Bonus Issue 100000 / 10 x 2 = Dr Cr Share Premium Share Capital 20000 20000 20000

9. Expenditure Selling & distribution 12320+7210+1000+2500+2110+4050 = Admin expenses 14200+17950+1000+2500+412-6000+9000 = 10. Debenture Interest 6% x 50000 = 3000 29190 39062

Income Statement for year ended 31st December 2006 Sales Cost of Sales Gross Profit Selling & Distribution Administrative Expenses Profit before interest Interest Profit before taxation Taxation Retained profit for the year Balance Sheet as at 31st December 2006 Non Current Assets Land Buildings Office Equipment Motor Vehicles Current Assets Stock Trade Debtors Prov for DD Prepayments Bank Cash Total Assets Equity Share Capital Revaluation Reserve Profit & Loss a/c Non Current Liabilities 6% Debentures Current Liabilities Trade Creditors Tax payable Accruals Total Equity & Liabilities 103460 (16930) 86530 29190 39062 (68252) 18278 (3000) 15278 (1200) 14078

150000 100000 50000 15000

0 22000 20000 8670

150000 78000 30000 6330 264330

4560 8240 (412) 6000 13520 250 32158 296488

120000 50000 56078 226078 50000

7210 1200 12000 20410 296488

Week 17: Reading Week no seminar

There are no seminars during this week.

Week 18 Seminar: Mock Test

Students will complete a mock test during seminar. That is collected (for review by tutor and to be able to tailor revision time in the areas where help is needed as well as identify students who are at risk of failing the exam). The individual mock test will not be specifically marked/returned to students. At the end of the time to complete the test, show solutions to students to mark their own script so that they recognise their errors with immediate effect. Tutor should run through common problems (instant feedback) Test scripts to be collected at the end and returned to Module Leader.

The following question was given to students as a prep for the mock test and they might approach you with questions (although no formal debrief of this question is planned). ACC1755 Exam 2006/2007 The trial balance of Greenwood Ltd as at 30th September 2005 was as follows: DR 1,200 5,320 92,360 CR

Audit fee Bad debts Trade Debtors Trade Creditors Provision for Doubtful Debts as at 1.10.04 Delivery expenses Production wages Warehouse wages Administrative salaries Purchases Sales Administrative expenses Rent Stock as at 1.10.04 Ordinary 50p shares Share premium Profit and loss a/c as at 1.10.04 Buildings Equipment Motor vehicles Accumulated depreciation as at 1.10.04 Buildings Equipment

108,450 3,000 22,060 32,300 30,200 15,200 426,500 623,300 5,600 12,600 18,950 100,000 50,000 26,000 275,000 12,000 18,500 3,750 3,600

Motor vehicles 7% Debentures Cash

6,500 95,000 51,810 1,019,600 1,019,600

The following additional information is available : 1. 2. 3. 4. 5. 6. 7. 8. Stock as a 30.09.05 was valued at 20,650. Buildings and equipment are used at 50% administrative and 50% distribution, and are to be depreciated at the rate of 1% and 10% on a straight line basis respectively. Motor vehicles are only used for distribution, and are depreciated at 20% on a reducing balance basis. This years provision for doubtful debts is to be set at 5%. 500 was prepaid for rent and 600 is owing for production wages as at 30.09.05. The estimated tax charge for this year is 22,680. The directors have agreed to pay a dividend of 3p per share. Production wages should be included in cost of sales. Bad debts, increase in provision for doubtful debts, delivery expenses, warehouse wages and motor vehicle depreciation should be included in Selling & Distribution. Audit fee, administrative salaries and rent should be included in Administrative Expenses.

Required Prepare an Income Statement for the year ended 30th September 2005 and a Balance Sheet as at that date. This should be in a form suitable for publication. (Notes to the accounts are not required) (25 marks)

SOLUTION (to compare your answer to). Ask your tutor in the next seminar or during their Open Door times re any problems you encounter/any questions that arise. 1. COS = 18950 + 426500 - 20650 = 424800

2. Depreciation Building = 1% x 275000 = 2750 (1375 to admin and 1375 to sell&dist) Equipment = 10% x 12000 = 1200 (600 to admin and 600 to sell&dist) 3. Depreciation Motor vehicles = 20% x (18500-6500) = 2400 (to sell&dist) 4. Provision for DD This years provision 5% x 92360 = 4618 Last years provision 3000 Increase in provision 1618 5. Prepayment and accrual Dr Cr Dr Cr Prepayments Rent Production wages Accruals 500 500 600 600

6. Taxation Dr Cr Taxation Corp tax payable 22680 22680

7. Dividend 100000 / 50p = 200000 ordinary shares x 3p = 6000 8. Debenture Interest Interest accrual 9. Expenditure Cost of sales 424800 + 32300 + 600 = 457700 7% x 95000 = 6650

Selling & Distribution 5320 + 1618 + 22060 + 30200 + 1375 + 600 + 2400 = 63573 Administrative exps 1200 + 15200 + 5600 + 12600 500 + 1375 + 600 = 36075

Income Statement for year ended 30th September 2005 Sales Cost of Sales Gross Profit Selling & Distribution Administrative Expenses 623300 (457700) 165600 63573 36075 99648 65952 (6650) 59302 (22680) 36622 (6000) 30622

Profit on ordinary activities before interest Interest payable Profit on ordinary activities before taxation Taxation Profit on ordinary activities after taxation Dividends Retained Profit for the year Balance Sheet as at 30th September 2005 Non Current Assets Buildings Equipment Motor Vehicles Current Assets Stock Trade Debtors Provision for DD Prepayment Bank Total Assets Equity Share Capital Share Premium Profit & Loss a/c Non Current Liabilities 7% Debentures Current Liabilities Trade Creditors Corporation tax payable Accruals Declared Dividends Total Equity & Liabilities

275000 12000 18500

6500 4800 8900

268500 7200 9600 285300

20650 92360 (4618) 500 51810 160702 446002

100000 50000 56622 206622 95000

108450 22680 7250 6000 144380 446002

Week 20 Seminar: Cash Flow Statements

1. Working Capital Plc The balance sheets of Working Capital Plc as at 31st December 2004 and 31st December 2003 are shown below. 2004 2003 000 000 Non Current Assets Accumulated depreciation Current Assets Stock Trade Debtors Cash Total Assets Total Equity Share Capital (1 each) Share Premium Profit and loss a/c Non Current Liabilities 15% Debentures Current Liabilities Trade Creditors Taxation Dividends Bank overdraft Total Equity Liabilities Additional Information: 1. There were no disposals of non current assets during the year 2004. 2. The company does not pay interim dividends. 3. New debentures and shares issued in 2004 were issued on 1st January 2004. 4. Debenture interest was paid during the year. 5. The operating profit for the year ended 31st December 2004 was 69,000. Prepare a cash flow statement for Working Capital Plc for the year ended 31st December 2004. 270 90 180 50 40 90 270 25 10 65 100 80 42 33 11 86 210 20 8 55 83 60 180 56 124

33 19 28 10 90 270

24 17 26 67 210

Working Capital Plc - Solution Cash Flow Statement for Working Capital Plc for the year ended 31st December 2004 000 000 Net cash flow from operating activities :Operating Profit 69 Add back depreciation (90-56) 34 Increase in stock (50-42) (8) Increase in trade debtors (40-33) (7) Increase in trade creditors (33-24) 9 Cash generated from operations 97 Interest paid (80 x 15%) (12) Taxation paid (last years liability) (17) Net cash inflow from operating activities 68 Net cash flow from investing activities :Purchase of non current assets (270-180) Net cash outflow from investing activities Net cash flow from financing activities :Proceeds from share issues (35-28) Proceeds from debenture issues (80-60) Dividend paid (last years liability) Net cash inflow from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period

(90) (90)

7 20 (26) 1 (21) 11 (10)

2. Axbrit Plc

The balance sheet of Axbrit Plc for the year ended 31st march 2002 is as follows: 2002 000 Non Current Assets Property, plant and equipment Accumulated depreciation Current Assets Stock Trade Debtors Cash Total Assets Equity Share Capital Capital Reserves Profit and loss a/c Non Current Liabilities Current Liabilities Trade Creditors Taxation Total Equity & Liabilities Additional information: 1. There were no non current assets disposed of in the year. 2. The increase in the long term liability took place on 1st April 2001 and carried a rate of 10% interest which was paid in the year. 3. Dividend paid during the year were 18,000. 4. The operating profit for the year ended 31st March 2002 was 73,200. Prepare a cash flow statement for Axbrit Plc for the year ended 31st March 2002. 230 60 170 25 15 27 237 2001 000 160 44 116 20 18 21 175

33 30 79 142 32

27 24 43 94 30

47 16 237

39 12 175

Axbrit Solution Cash Flow Statement for Axbrit Plc for the year ended 31st March 2002 000 Net cash flow from operating activities :Operating profit Add back depreciation (60-44) Increase in stock (25-20) Decrease in debtors (18-15) Increase in creditors (47-39) Cash generated from operations Interest paid (10% x 32) Tax paid (last years liability) Net cash inflow from operating activities Net cash flow from investing activities :Purchase of non current assets (230-160) Net cash outflow from investing activities Net cash flow from financing activities :Proceeds from share issues (63 51) Proceeds from long term loan (32-30) Dividends paid Net cash outflow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 73.2 16 (5) 3 8 95.2 (3.2) (12) 80 000

(70) (70)

12 2 (18) (4) 6 21 27