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Symmetry is a limited liability company. Financial statements need to be produced for the year ended 31 December 20X1. An initial trial balance is presented below:
DR CR
Revenue 405,000Purchases 140,000
Administration expenses 105,000
Distribution expenses 55,000
Plant and machinery at cost 120,000
Plant and machinery accumulated depreciation 35,000
Trade receivables 30,500
Allowance for receivables 3,000
Inventory 1 January 20X1 16,000
Share capital 3,000
Trade payables 24,000
Retained earnings 7,000
6% loan 100,000
Cash 110,500
TOTALS 577,000 577,000
The following notes are relevant to the preparation of the financial statements for the year ended 31 December 20X1:
(1) The current tax bill has been estimated at $5,000
(2) Trade receivables include $2,000, which is now considered irrecoverable. The allowance for receivables needs to be increased to $5,000
(3) The cost of inventory as at 31 December 20X1 is $14,000. This includes a damaged item which cost $100. It can be sold for $130 if repaired. These repairs will cost $40
(4) No interest has been accrued on the loan which was taken out on 1 July 20X1
(5) Plant and machinery is depreciated on a reducing balance basis at a rate of 10%. Depreciation is charged to cost of sales.
Prepare a statement of profit or loss and a statement of financial position as at 31 December 20X1.
Notes:
(1)
Dr Tax Expense $5,000
Cr Tax Payable $5,000(2)
Dr Bad Debts $4,000
Cr Receivables $2,000
Cr Allowance for Receivables $2,000(3) Closing Inventory = $14,000 – $100 + ($130-$40) = $13,990
Dr SoFP $13,990
Cr SoPL $13,990(4) Interest = $100,000×6%x6/12 = $3,000
Dr Interest Expense $3,000
Cr Interest Payable $3,000(5) Depreciation = $120,000×10% = $12,000
Dr Cost of Sales $12,000
Cr P&M Accumulated Depreciation $12,000Thanks @secondstar. But don’t you think your depreciation calculation is inaccurate, Note (5) suggests we use reducing balance method. You ought to have subtracted the accumulated depreciation before calculating the new depn value i.e (120,000 – 35,000) * 10% = 8,500.
@ishyaka26 said:
Thanks @secondstar. But don’t you think your depreciation calculation is inaccurate, Note (5) suggests we use reducing balance method. You ought to have subtracted the accumulated depreciation before calculating the new depn value i.e (120,000 – 35,000) * 10% = 8,500.Sorry, my bad 🙁
Correct amount should be $8,500.
It’s fine. But still the SoFP doesn’t balance, I’m really having trouble identifying my error and all our calculations are similar.
Mine balanced 😉
Assets:
P&M NBV 76,500
Receivables 23,500
Inventory 13,990
Cash 110,500
Total 224,490Equity & Liabilities:
Share Capital 3,000
Retained Earnings 7,000
Profit 82,490
Payables 24,000
Tax Payable 5,000
Interest Payable 3,000
Loan 100,000
Total 224,490I’m getting a profit of 99,490. That’s where I’m having trouble from, below is an extract of my SoPL:
Revenue 405,000
Purchases (140,000)
Opening inventory (16,000)
Closing Inventory (13,990)
Depreciation (8,500)Gross Profit 271,490
Admin expenses (105,000)
Distribn expenses (55,000)
Bad Debts (4,000)Operating profit 107,490
Finance charge (3,000)
Income tax expense (5,000)Net profit 99,490
The gross profit figure is wrong.
Why on earth would you SUBTRACT closing inventory from revenue?Cost of Sales:
Add:Opening Inventory 16,000
Add: Purchases 140,000
Add: Depreciation 8,500
Less: Closing Inventory (13,990)
Cost of Sales = 150,510Revenue 405,000
Cost of Sales (150,510)
Gross Profit = 254,490Everything else is correct.
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