Theory question 101
Company AccountsSection A (compulsory)
1. The following list of balances was extracted from the books of Zingarella (Nig.) Limited as at 31st December, 1994.
200,000 Ordinary shares of N1 each: N200,000 (Cr)
50,000 8% preference shares of each: N50,000 (Cr)
10% debentures: N50,000 (Cr)
Share premium: N8,000 (Cr)
General reserve: N10,000 (Cr)
Profit and Loss Account 1/1/94: N2,500 (Cr)
Freehold premises: N150,000 (Dr)
Plant and machinery (cost N300,000): N180,000 (Dr)
Stock 1st January, 1994: N23,800 (Dr)
Purchases and Sales: N281,600 (Dr); N409,641 (Cr)
Returns inwards and outwards: N10,300 (Dr); N17,350 (Cr)
Discounts allowed and received: N6,450 (Dr); N9,250 (Cr)
Debtors and creditors: N30,030 (Dr); N20,020 (Cr)
Provision for bad debt 1/1/94: N905 (Cr)
Wages and Salaries: N21,400
Postages and telephone: N5,800
Debenture interest: N3,000
Directors fees: N15,600
Insurance expenses: N2,000
Interim dividends: Preference N3,000; Ordinary N5,000
Cash and Bank balances: N39,686
Totals: N777,666 / N777,666
Additional information:
(a) The authorised share capital of the company is N400,000 ordinary shares of N1 each and 100,000 8% preference shares of N1 each.
(b) Stock on 31st December, 1994 was N27,280.
(c) During the year, goods worth N6,500 were lost to theft. No entry had been made in the books to reflect this.
(d) Insurance prepaid was N200.
(e) During the year, a plant originally costing N50,000 and on which N30,000 depreciation had been provided was sold for N22,000. This transaction had been included as sales.
(f) Depreciation has been and is to be provided on plant and machinery at 10% on cost.
(g) Provision for bad debt is to be maintained at N2,500
(h) The directors wish to provide for: (i) a final preference dividend; (ii) a final ordinary dividend of 5%
You are required to prepare:
(i) Trading, Profit and Loss and Appropriation Accounts for the year ended 31st December, 1994 and
(ii) Balance Sheet as at that date.
Show the model answer
Trading account: Sales 409,641 − plant sale wrongly in sales 22,000 − returns inwards 10,300 = net sales 377,341.
Opening stock 23,800 + purchases 281,600 − returns outwards 17,350 − goods stolen 6,500 = 281,550; less closing stock 27,280 = cost of sales 254,270.
Gross profit = 123,071.
Profit and loss: add discount received 9,250 and profit on sale of plant 2,000 (22,000 − NBV 20,000) = 134,321.
Expenses: discount allowed 6,450; increase in provision 1,595 (2,500 − 905); wages 21,400; postage 5,800; debenture interest 5,000 (10% × 50,000, so 2,000 accrued); directors' fees 15,600; insurance 1,800 (2,000 − 200); goods lost to theft 6,500; depreciation 25,000 (10% × cost 250,000) = 89,145.
Net profit = 45,176.
Appropriation: net profit 45,176 + balance b/f 2,500 = 47,676; less preference dividend interim 3,000 + proposed 1,000 (8% × 50,000 = 4,000); ordinary interim 5,000 + proposed 10,000 (5% × 200,000); total 19,000; retained profit c/f 28,676.
Balance sheet: Freehold premises 150,000; plant cost 250,000 less depreciation 115,000 (120,000 − 30,000 + 25,000) = 135,000; fixed assets 285,000.
Current assets: stock 27,280; debtors 30,030 − 2,500 = 27,530; prepaid insurance 200; cash and bank 39,686 = 94,696.
Current liabilities: creditors 20,020; proposed dividends 1,000 + 10,000; accrued debenture interest 2,000 = 33,020. Working capital 61,676.
Net assets 346,676 less 10% debentures 50,000 = 296,676.
Financed by: authorised capital shown as a note (400,000 ordinary + 100,000 preference); issued ordinary 200,000 + preference 50,000 + share premium 8,000 + general reserve 10,000 + retained profit 28,676 = 296,676.
Correct the sales figure for the plant sale first, then work through each adjustment once in the accounts and once in the balance sheet.