Theory question 105
Company AccountsABC Ltd, manufacturing toys. Its authorized Share Capital is ₦800,000 made up of 600,000 ordinary shares of ₦1 each and 400,000 3% Preference shares of ₦0.50 each. During the year ended 31st December, 1989, the following balance were extracted from the financial records of the company:
Issued and fully paid capital: Ordinary shares of ₦1 each ₦500,000; 3% Preference shares of ₦0.50 each ₦100,000
General Reserve ₦30,000
Goodwill ₦20,000
5% Debentures ₦20,000
Stock at 31st Dec. 1989 ₦25,000
Net profit for the year ₦80,000
Land and building at cost ₦517,500
Fixtures and fittings at cost ₦25,000
Motor vehicles at cost ₦80,000
Provision for Depreciation: Fixtures and Fittings ₦2,500; Motor Vehicles ₦16,000
Creditors ₦10,000
Debtor ₦50,000
Bank ₦40,000
Cash in hand ₦1,000
Additional information: (a) Provision is to be made for the preference shares dividend. The directors recommended ordinary share dividends of 4%. (b) Goodwill to be written off over four years.
Prepare: (i) Appropriation Account for the year ended 31st December, 1989 and (ii) Balance Sheet as at that date.
Show the model answer
(i) Profit and Loss Appropriation Account for the year ended 31 December 1989: net profit 80,000; less goodwill written off (20,000 ÷ 4) 5,000; proposed preference dividend (3% × 100,000) 3,000; proposed ordinary dividend (4% × 500,000) 20,000; retained profit c/f ₦52,000
(ii) Balance Sheet as at 31 December 1989
Fixed assets (cost − depreciation): land and building 517,500; fixtures 25,000 − 2,500 = 22,500; motor vehicles 80,000 − 16,000 = 64,000; total 604,000; goodwill 20,000 − 5,000 = 15,000
Current assets: stock 25,000; debtors 50,000; bank 40,000; cash 1,000; total 116,000
Current liabilities: creditors 10,000; proposed dividends 3,000 + 20,000; total 33,000; working capital 83,000
Net assets 604,000 + 15,000 + 83,000 = 702,000; less 5% debentures 20,000 = ₦682,000
Financed by: authorised capital shown as a note (600,000 ordinary at ₦1, 400,000 preference at 50k = ₦800,000); issued: ordinary 500,000; 3% preference 100,000; general reserve 30,000; profit and loss 52,000; total ₦682,000
The preference dividend is 3% of the nominal value issued (₦100,000), i.e. ₦3,000.