May you help me with the following question.
The following list of balances were extracted from the books of PM as at 31 March 2016:
$'000
Suspense account 5
Cost of sales 1 605
Trade Receivables 130
Deferred Development expenditure 150
Equity dividend paid 1 September 2015 62
Sales 2 220
10% loan notes 500
Trade Payables 190
Share Premium 1 April 2015 310
Retained earnings 1 April 2015 621
Administrative expenses 190
Cash and cash equivalent 58
Amortisation of deferred development expenditure 30
K1.00 Ordinary shares fully paid 1 April 2015 930
Inventory at 31 March 2016 214
Loan interest paid 10
Income tax 8
Land and Buildings at cost on1 April 2015 2 410
Allowance for depreciation at 1 April 2015: Buildings 386
Distribution costs 72
Plant and equipment at cost on 1 April 2015 560
Allowance for depreciation 1April 2015: Plant and equipment 185
Provision for deferred tax 1 April 2015 86
The following additional information is relevant to the preparation of financial statements of PM:
a) PM has not previously made any provisions for legal claims or irrecoverable debts.
b) On 1 August 2015 PM was advised that one of its customers, that had been in some financial difficulties at 31 March 2016 had gone into liquidation and that the balance K32 000 outstanding at 31 March 2016 was very unlikely to be paid.
c) Deferred development expenditure is being amortised at 10% per annum on the straight line basis. The bank reconciliation at the end of the period revealed that a cheque for development expenditure that had been cancelled was re-issued for K80 000. There is not record of the cheque re-issue in the accounts.
d) The income tax balance in the trial balance represents an over-estimation of the tax liability for the year to 31 March 2015. The tax due for the year ended 31 March 2016 is estimated at K83 000, and the deferred tax provision needs to be reduced by K 12 000.
e) On 1 July 2015 one of JM’s customers started litigation against PM, claiming damages caused by an allegedly faulty product. JM has been advised that it will probably lose the case and the claim for K 25 000 will probably succeed.
f) The breakdown of the suspense account is as follows:
I. Expenditure of K 20 000 incurred in the year on original research aimed at possibly finding new material for use in PM’s manufactured products.
II. Cash received from the disposal of some plant and equipment was K 15 000. The plant had an original cost of K82 000 and a carrying amount of K 3 000
The only entries made in PM’s accounts are for the disposal proceeds.
g) Depreciation should be charged as follows: 3% straight line on buildings and, 12.5% on plant and equipment using the reducing balance method. The cost of land included in the value of land and buildings is K 800 000
h) PM’s policy is to charge a full year’s depreciation in the year of acquisition and none in the year of disposal. Depreciation on plant and equipment is taken to cost of sales and that on buildings is treated and an administration expense.
REQUIRED
1. Prepare a trial balance, separating debit entries from credit entries and treating the suspense account balance as a receivable.
2. Prepare the statement of Profit or Loss and Other Comprehensive Income for the year ended 31 March 2016.
3. Prepare a statement of Changes in Equity for the year ended 31 March 2016
4. Prepare a statement of financial position as at 31 March 2016.