C hapter 10: The final accounts of limited

companies
Contents of chapter
This chapter describes how to draw up the final accounts for limited companies and some special items in them.

Notes for teachers

Nearly all large businesses are limited companies. This is because people prefer to invest in businesses
1
where they can enjoy limited liabilities.

Most limited companies are private limited companies. Many of these will have directors who all come
2
from the same family.

Shares dealt in stock exchanges are those of public limited companies only.
3

Directors in public companies are appointed to run the company on behalf of the shareholders. Executive
4
directors usually work full-time for the company. Non-executive directors are usually experienced
businessmen who attend board meetings, usually several times a year. They act as advisers to other
directors.

A transfer to reserves does not involve investing cash anywhere. It is simply:

5
A debit entry in the appropriation account; and
A credit entry in a reserve account.
This means that the balance on the appropriation account is reduced. This, in turn, means less profit is to
be paid out as dividends because the bank account is saved from paying out higher dividends.

92
Answers to MCQs and exercises
10.1 B 10.2 A 10.3 D 10.4 B 10.5 A

10.6
CA Company Ltd
Profit and Loss Appropriation Account for the year ended 31 December 20X4
$ $
Net profit 210,000
Add Retained profits brought forward from last year 17,000
227,000
Less Transfer to general reserve 30,000
Transfer to foreign exchange reserve 5,000
Goodwill written off 11,000
Preference dividend paid (250,000 × $1 × 10%) 25,000
Proposed ordinary dividend (500,000 × $2 × 10%) 100,000 171,000
Retained profits carried forward to next year 56,000

10.7
LMT Ltd
Balance Sheet as at 31 December 20X4
Cost Aggregate Net book
depreciation value
Fixed Assets $ $ $
Premises 45,000 18,000 27,000
Machinery 24,000 7,200 16,800
Fixtures 12,000 4,800 7,200
81,000 30,000 51,000
Current Assets
Stock 18,000
Debtors 9,000
Bank 6,000
33,000
Less Current Liabilities
Creditors 9,000
Net current assets 24,000
75,000
Less Long-term Liabilities
10% debentures 18,000
57,000
Financed by:
Share capital
Authorised 60,000 ordinary shares at $1 each 60,000

Issued 36,000 ordinary shares at $1 each 36,000

Reserves
General reserve 15,000
Profit and loss (C) ?
Proposed dividend 3,000 (B) ?
(A) ?
(A) is the figure needed to make balance sheet totals agree, i.e. $57,000.
(B) is the figure needed to add up to $57,000; therefore (B) = $57,000 – $36,000 = $21,000
(C) + $15,000 + $3,000 = (B). (C) must be $3,000.

93
 10.8X
(a) C B Ltd
Appropriation Account for the year ended 31 December 20X4
$ $
Net profit 11,340
Less Appropriations:
Transfer to general reserve 1,500
Preference dividend ($10,000 × 10%) 1,000
1
Ordinary dividend ($60,000 × 12 %) 7,500 10,000
2
Retained profits carried forward to next year 1,340

(b) C B Ltd
Balance Sheet as at 31 December 20X4
Fixed Assets $ $ $
Premises at cost 50,000
Equipment at cost 45,000
Less Provision for depreciation 4,500 40,500
90,500

Current Assets
Stock 8,800
Debtors 4,120
Less Provision for bad debts 350 3,770
Bank (balancing figure) 9,660
Cash 2,160
24,390

Less Current Liabilities

Creditors 3,550 20,840
111,340
Less Long-term Liability
Debentures 30,000
81,340

Financed by:
Share Capital
Authorised
10,000 10% preference shares of $1 each 10,000
90,000 ordinary shares of $1 each 90,000
100,000
Issued
10,000 preference shares $1 each 10,000
60,000 ordinary shares $1 each 60,000 70,000

Reserves
General reserve 1,500
Retained profits 1,340
Proposed dividends ($1,000 + $7,500) 8,500 11,340
81,340

94
10.9
Chang Ltd
Trading and Profit and Loss Account for the year ended 31 December 20X4
$ $
Sales 316,810
Less Cost of goods sold:
Opening stock 25,689
Add Purchases 201,698
227,387
Less Closing stock 29,142 198,245
Gross profit 118,565
Less Expenses:
Wages and salaries ($54,207 + $581) 54,788
Rent ($4,300 – $300) 4,000
Lighting expenses 1,549
Bad debts 748
Provision for doubtful debts ($938 – $861) 77
General expenses 32,168
Depreciation: Machinery ($55,000 × 10%) 5,500 98,830
Net profit 19,735
Add Unappropriated profits brought forward from last year 34,280
54,015
Less Proposed dividend 10,000
Unappropriated profits carried forward to next year 44,015

Chang Ltd
Balance Sheet as at 31 December 20X4
Fixed Assets $ $ $
Freehold premises 65,000
Machinery 55,000
Less Aggregate depreciation ($15,800 + $5,500) 21,300 33,700
98,700
Current Assets
Stock 29,142
Debtors 21,784
Less Provision for doubtful debts 938 20,846
Prepayments 300
Bank 23,101
73,389
Less Current Liabilities
Creditors 17,493
Expenses owing 581 18,074
Net current assets 55,315
154,015
Financed by:
Authorised and issued share capital 100,000
Reserves
Profit and loss 44,015
Proposed dividend 10,000 54,015
154,015

95
 10.10X
BBC Ltd
Trading and Profit and Loss Account for the year ended 31 December 20X5
$ $
Sales 97,500
Less Cost of goods sold:
Opening stock 41,415
Add Purchases 51,380
92,795
Less Closing stock 54,300 38,495
Gross profit 59,005
Less Expenses:
Wages and salaries 11,372
Motor expenses ($8,144 + $445) 8,589
Machinery repairs 2,308
Sundry expenses 1,076
Depreciation: Machinery ($45,000 – $18,000) × 20% 5,400
Motor vehicles ($28,000 – $12,600) × 20% 3,080
Directors’ remuneration 6,200 38,025
Net profit 20,980
Add Unappropriated profits brought forward from last year 6,138
27,118
Less Appropriations:
Proposed dividend ($75,000 × 20%) 15,000
General reserve 2,000 17,000
Unappropriated profits carried forward to next year 10,118

BBC Ltd
Balance Sheet as at 31 December 20X5
Cost Accumulated Net book
depreciation value
Fixed Assets $ $ $
Machinery 45,000 23,400 21,600
Motor vehicles 28,000 15,680 12,320
73,000 39,080 33,920

Current Assets
Stock 54,300
Debtors 28,560
Bank 16,255
99,115
Less Current Liabilities
Creditors 22,472
Expenses owing 445 22,917
Net current assets 76,198
110,118
Financed by:
Share Capital : Authorised 100,000
Issued 75,000

Reserves
General reserve ($8,000 + $2,000) 10,000
Profit and loss 10,118
Proposed dividend 15,000 35,118
110,118

96
10.11
T Ho Ltd
Trading and Profit and Loss Account for the year ended 31 December 20X4
$ $
Sales 135,486
Less Cost of goods sold:
Opening stock 40,360
Add Purchases 72,360
Carriage inwards 1,570
114,290
Less Closing stock 52,360 61,930
Gross profit 73,556
Less Expenses:
Salaries 18,310
Rates and occupancy expenses ($4,235 + $280) 4,515
Carriage outwards 1,390
Office expenses ($3,022 + $190) 3,212
Sundry expenses 1,896
Depreciation: Buildings ($100,000 × 5%) 5,000
Equipment ($45,000 × 20%) 9,000
Directors’ remuneration 9,500 52,823
Net profit 20,733
Add Unappropriated profits brought forward from last year 15,286
36,019
Less Appropriations:
Proposed dividend ($100,000 × 10%) 10,000
General reserve 1,000
Foreign exchange reserve 800 11,800
Unappropriated profits carried forward to next year 24,219

T Ho Ltd
Balance Sheet as at 31 December 20X4
Cost Accumulated Net book
depreciation value
Fixed Assets $ $ $
Buildings 100,000 37,000 63,000
Equipment 45,000 25,000 20,000
145,000 62,000 83,000
Current Assets
Stock 52,360
Debtors 18,910
Bank 6,723
77,993
Less Current Liabilities
Creditors 12,304
Expenses owing ($280 + $190) 470 12,774
Net current assets 65,219
148,219
Financed by:
Share capital: Authorised and issued 100,000
Reserves
Foreign exchange reserve ($4,200 + $800) 5,000
General reserve ($8,000 + $1,000) 9,000
Profit and loss account 24,219
Proposed dividend 10,000 48,219
148,219

97
 10.12X
RF Ltd
Trading and Profit and Loss Account for the year ended 30 June 20X6
$ $
Sales 99,500
Less Returns inwards 1,150 98,350
Less Cost of goods sold:
Opening stock 38,295
Add Purchases 66,350
Carriage inwards 240
104,885
Less Closing stock 49,371 55,514
Gross profit 42,836
Less Expenses:
Wages and salaries 10,360
Rent, rates and insurance ($5,170 + $700) 5,870
Discounts allowed 1,246
Debenture interest ($20,000 × 10%) 2,000
Depreciation: Equipment ($35,000 × 10%) 3,500
Motor vehicles ($28,500 × 20%) 5,700
Directors’ remuneration ($2,500 + $2,500) 5,000 33,676
Net profit 9,160
Add Unappropriated profits brought forward from last year 3,964
13,124
Less Appropriations:
General reserve 2,000
Fixed assets replacement reserve 1,000
Proposed dividend ($50,000 × 15%) 7,500 10,500
Unappropriated profits carried forward to next year 2,624

RF Ltd
Balance Sheet as at 30 June 20X6
Cost Accumulated Net book
depreciation value
Fixed Assets $ $ $
Equipment 35,000 11,900 23,100
Motor vehicles 28,500 16,050 12,450
63,500 27,950 35,550
Current Assets
Stock 49,371
Debtors 26,890
Bank 3,643
Cash 180
80,084
Less Current Liabilities
Creditors 12,310
Expenses owing ($1,000 + $700 + $2,500) 4,200 16,510
Net current assets 63,574
99,124
Less Long-term Liabilities
10% Debentures 20,000
79,124

98
 Financed by:
Share capital: Authorised and issued 50,000
Reserves
Fixed assets replacement reserve ($10,000 + $1,000) 11,000
General reserves ($6,000 + $2,000) 8,000
Profit and loss account 2,624
Proposed dividend 7,500 29,124
79,124

10.13
(a) Speed Limited
Manufacturing, Trading and Profit and Loss Account for the year ended 30 April 20X6
Cost of raw materials consumed: $ $ $
Stock as at 1 May 20X5 26,000
Add Purchases 559,000
585,000
Less Stock as at 30 April 20X6 52,000 533,000
Direct labour 70,200
Prime cost 603,200
Factory overhead expenses:
Rent and rates ($28,600 – $2,600) × 25% 6,500
Electricity ($13,650 + $1,950) × 25% 3,900
Depreciation of machinery ($520,000 – $130,000) × 10% 39,000 49,400
Production cost of goods manufactured 652,600

Sales 2,860,000
Less Cost of goods sold:
Stocks as at 1 May 20X5:
Manufactured goods 13,000
Other goods 221,000 234,000
Production cost of goods manufactured 652,600
Purchases of other goods 1,495,000
2,381,600
Less Stock as at 30 April 20X6:
Manufactured goods 16,250
Other goods 279,500 295,750 2,085,850
Gross profit 774,150
Less Expenses
Salaries ($334,100 – $70,200) 263,900
Rent and rates ($28,600 – $2,600) × 75% 19,500
Electricity ($13,650 + $1,950) × 75% 11,700
Debenture interest ($11,700 + $11,700) 23,400
Sundry expenses 9,230
1
Depreciation: Motor vehicles ($208,000 × 12 %) 26,000 353,730
2
Net profit 420,420
Add Retained profits brought forward from last year 213,980
634,400
Less Appropriations:
Transfer to general reserve 52,000
Proposed dividend ($260,000 × $0.50) 130,000 182,000
Retained profits carried forward to next year 452,400

99
 (b) Speed Limited
Balance Sheet as at 30 April 20X6
Fixed Assets $ $ $
Machinery at cost 520,000
Less Depreciation to date ($130,000 + $39,000) 169,000 351,000
Motor vehicles at cost 208,000
Less Depreciation to date 26,000 182,000
533,000
Current Assets
Stocks: Raw materials 52,000
Manufactured goods 16,250
Other goods 279,500 347,750
Debtors 208,000
Prepayments 2,600
Bank 65,000
623,350
Less Current Liabilities
Creditors 62,400
Accrued expenses ($1,950 + $11,700) 13,650 76,050
Net current assets 547,300
1,080,300
Less Long-term Liabilities
15% Debentures 156,000
924,300
Financed by:
Share capital: Ordinary shares $1 each 260,000
Reserves
General reserve ($29,900 + $52,000) 81,900
Retained profits 452,400
Proposed dividend 130,000 664,300
924,300

10.14
(a) Horizons Limited
Trading and Profit and Loss Account for the year ended 31 March 20X7
$ $
Sales 1,474,000
Less Cost of goods sold:
Opening stock 9,770
Add Purchases 849,100
Carriage inwards 2,900
861,770
Less Closing stock 12,380 849,390
Gross profit 624,610
Add Discounts received 1,270
625,880
Less Expenses:
Wages and salaries ($157,600 + $2,200) 159,800
Rent and rates ($164,250 – $3,100) 161,150
Sundry expenses 11,300
Bad debts 3,850
Provision for bad debts (W1) 1,793
Depreciation: Plant and machinery ($820,000 × 10%) 82,000
Furniture and fittings ($190,000 – $72,000) × 15% 17,700
Debenture interest (W2) 5,250 442,843
Net profit 183,037
Add Retained profits brought forward from last year 84,160
267,197
100
 Less Appropriations:
Transfer to general reserve 40,000
Preference dividends: Interim 8,000
Final 8,000
Ordinary dividends: Interim 10,000
Final 12,000 78,000
Retained profits carried forward to next year 189,197

W1: Debtors $230,100 × 3% = $6,903

$6,903 – Balance b/f $5,110 = Increase in provision $1,793

W2: (10% × $50,000) + (10% × $30,000 × 1 month) = $5,000 + $250 = $5,250

(b) Horizons Limited

Balance Sheet as at 31 March 20X7
Cost Depreciation Net book
to date value
Fixed Assets $ $ $
Plant and machinery 820,000 257,000 563,000
Furniture and fittings 190,000 89,700 100,300
1,010,000 346,700 663,300

Current Assets
Stock 12,380
Trade debtors 230,100
Less Provision for doubtful debts 6,903 223,197
Prepayments 3,100
Cash at bank 133,310
371,987
Less Current Liabilities
Trade creditors 180,640
Debenture interest owing ($5,250 – $2,500) 2,750
Wages and salaries owing 2,200 185,590
Net current assets 186,397
849,697
Less Long-term Liabilities
10% debentures ($50,000 + $30,000) 80,000
769,697
Financed by:
Share capital
200,000 8% preference shares $1 each 200,000
250,000 ordinary shares $1 each ($200,000 + $50,000) 250,000 450,000
Reserves
Share premium ($30,000 + $20,000* – debenture discount $1,500) 48,500
General reserve ($22,000 + $40,000) 62,000
Retained profits 189,197
Proposed dividends ($8,000 + $12,000) 20,000 319,697
769,697
*$50,000 × $0.4 = $20,000

101
 10.15X
(a) Wang Limited
Trading and Profit and Loss Account for the year ended 31 March 20X5
$ $
Sales 973,620
Less Cost of goods sold:
Stock 1.4.20X4 95,500
Add Purchases 585,740
681,240
Less Stock 31.3.20X5 106,490 574,750
Gross profit 398,870
Add Discounts received 940
399,810
Less Expenses:
Wages and salaries ($81,900 + $1,750) 83,650
Rent and rates ($57,200 – $1,980) 55,220
Sundry expenses 11,250
Discounts allowed 1,020
Administration expenses 37,770
Bad debts 8,760
Provision for doubtful debts ($185,600 x 3% – $4,720) 848
Debenture interest [$17,600 + ($20,000 × 11% × 3 months)] 18,150
Depreciation:
Office equipment ($445,000 × 15%) 66,750
Furniture and fittings [($363,000 – $101,500) × 10%] 26,150 309,568
Net profit 90,242
Add Retained profits from last year 59,570
149,812
Less Appropriations:
Transfer to general reserve 27,000
Preference share dividend ($120,000 × 10%) 12,000
Interim ordinary dividend 15,000
Proposed final ordinary dividend ($300,000 × 7%) 21,000 75,000
Retained profits carried forward to next year 74,812

(b) Wang Limited

Balance Sheet as at 31 March 20X5
Cost Depreciation Net book
to date value
Fixed Assets $ $ $
Office equipment 445,000 194,750 250,250
Furniture and fittings 363,000 127,650 235,350
808,000 322,400 485,600
Current Assets
Stock 106,490
Trade debtors 185,600
Less Provision for bad debts ($185,600 × 3%) 5,568 180,032
Prepayments 1,980
Bank 157,230
445,732
Less Current Liabilities
Trade creditors 109,720
Accrued expenses 1,750
Debenture interest 550 112,020
Net current assets 333,712
819,312
Less Long-term Liabilities
11% debentures ($160,000 + $20,000) 180,000
639,312
102
 Financed by:
Share Capital Authorised Issued
10% preference shares 200,000 130,000
Ordinary shares 400,000 320,000
600,000 450,000

Reserves
Share premium ($22,000 + $15,000 + $6,000) 43,000
General reserve ($17,500 + $27,000) 44,500
Profit and loss account 74,812
Preference shares final dividend ($120,000 × 10% – $6,000) 6,000
Ordinary shares final dividend ($300,000 × 7%) 21,000 189,312
639,312

10.16
(a) AT Ltd
Trading, Profit and Loss and Appropriation Account for the year ended 31 December 20X9
$000 $000
Sales 22,800
Less Cost of goods sold:
Opening stock 1,450
Add Purchases 10,200
11,650
Less Closing stock 920 10,730
Gross profit 12,070
Discount received 150
12,220
Less Operating expenses:
Discount allowed 200
Wages and salaries ($3,800,000 + $330,000) 4,130
Bad debts written off 48
Provision for bad debts ($2,500,000 × 1%) 25
Rent and rates ($600,000 – $60,000) 540
Depreciation on office equipment ($500,000 × 10%) 50
Sundry expenses 880
Debenture interest ($500,000 × 10%) 50 5,923
Net profit 6,297
Less Proposed dividends (800,000 × $4) 3,200
Retained profit for the year 3,097

103
 (b) AT Ltd
Balance Sheet as at 31 December 20X9
Fixed Assets $000 $000 $000
Office equipment, at cost 500
Less Provision for depreciation ($200,000 + $50,000) 250 250

Current Assets
Stock 920
Trade debtors 2,500
Less Provision for bad debts 25 2,475
Prepayment 60
Cash at bank and in hand 10,950
14,405
Less Current Liabilities
Trade creditors 1,380
6
Accruals ($330,000 + $500,000 × 10% × ) 355 1,735 12,670
12
12,920
Financed by:
Authorised share capital
1,000,000 ordinary shares of $1 each 1,000
Issued share capital
800,000 ordinary shares of $1 each 800
Share premium 200
Profit and loss account ($3,097,000 + $5,123,000) 8,220
Proposed dividends 3,200
12,420
Long-term Liabilities
10% debentures 500
12,920

104