Theory question 101
Manufacturing AccountsSection A (compulsory)
1. Ayodele and Adeolu are partners and manufacturers of men's singlets. They share profits and losses in the ratio 3:2 respectively. Their Trial Balance as at 31st December, 1995 is as follows:
Ayoade Singlet Manufacturer – Trial Balance as at 31st December, 1995
Capital: Ayodele N100,000 (Cr); Adeolu N70,000 (Cr)
Plant and Machinery at cost: N85,000 (Dr)
Motor Vehicles at cost: N62,000 (Dr)
Furniture and fittings at cost: N23,000 (Dr)
Stock of raw materials 1st Jan.: N35,000 (Dr)
Land and building: N120,000 (Dr)
Stock of finished goods 1st Jan.: N41,000 (Dr)
Purchases of raw materials: N140,500 (Dr)
Returns outwards: N3,500 (Cr)
Sales: N360,500 (Cr)
Debtors and creditors: N22,100 (Dr); N14,400 (Cr)
Direct labour: N43,800 (Dr)
Bank overdraft: N50,000 (Cr)
Direct expense: N1,300 (Dr)
Factory electricity: N12,400 (Dr)
Salaries: N28,500 (Dr)
Salesmen commission: N6,000 (Dr)
Motor Vehicle expenses: N5,900 (Dr)
Depreciation – Plant and Machinery 1st Jan.: N28,300 (Cr)
Depreciation – Motor Vehicles 1st Jan.: N23,000 (Cr)
Depreciation – Furniture and fittings 1st Jan.: N4,800 (Cr)
Provision for bad debt: N1,600 (Cr)
Cash in hand: N2,200
Current Account – Ayodele: N2,600
Current Account – Adeolu: N1,300
Rates: N5,000
Insurance: N6,600
Interest on loan: N4,500
Repairs – Plant and Machinery: N10,000
Totals: N657,400 / N657,400
Additional Information:
(a) Closing stock of raw materials was valued N48,000 while that of finished goods was valued N49,500.
(b) Insurance of N1,400 was prepaid while rate of N1,000 was owed. ¾ of the insurance was for plant and machinery.
(c) Wages in arrears was N6,200.
(d) Partners agreed on 10 percent interest on capital.
(e) Adeolu received monthly salaries of N500 which had been included in the salaries.
(f) Depreciate assets as follows: Plant and Machinery – 10% per annum on cost; Motor Vehicles – 15% per annum on cost; Furniture and fittings – 5% per annum on cost
(g) Provision for bad debt is to be made up to 10% of debtors.
You are required to prepare:
(i) Manufacturing Account
(ii) Trading, Profit and Loss and Appropriation Accounts for the year ended 31st December, 1995 and
(iii) Balance Sheet as at that date.
Show the model answer
Note: the trial balance only totals 657,400 if Adeolu's current account (1,300) is a credit balance; treat it so.
Manufacturing account: raw materials 35,000 + purchases 140,500 − returns 3,500 − closing 48,000 = 124,000 used; direct labour 43,800 + 6,200 = 50,000; direct expenses 1,300; prime cost 175,300.
Factory overheads: electricity 12,400; insurance ¾ × (6,600 − 1,400) = 3,900; repairs 10,000; depreciation of plant 10% × 85,000 = 8,500; total 34,800. Cost of production 210,100.
Trading: sales 360,500; opening finished goods 41,000 + 210,100 − 49,500 = cost of sales 201,600; gross profit 158,900.
Profit and loss: salaries 28,500 − 6,000 (Adeolu's) = 22,500; commission 6,000; motor expenses 5,900; rates 5,000 + 1,000 = 6,000; office insurance 1,300; interest on loan 4,500; depreciation of motor vehicles 9,300 (15% × 62,000) and furniture 1,150 (5% × 23,000); increase in provision 610 (2,210 − 1,600); total 57,260. Net profit 101,640.
Appropriation: interest on capital Ayodele 10,000, Adeolu 7,000; salary Adeolu 6,000; remaining 78,640 shared 3:2: Ayodele 47,184, Adeolu 31,456.
Current accounts: Ayodele −2,600 + 10,000 + 47,184 = 54,584 Cr; Adeolu 1,300 + 7,000 + 6,000 + 31,456 − 6,000 salary already drawn = 39,756 Cr.
Balance sheet: land and building 120,000; plant 85,000 − 36,800 = 48,200; motor vehicles 62,000 − 32,300 = 29,700; furniture 23,000 − 5,950 = 17,050; fixed assets 214,950.
Current assets: raw materials 48,000; finished goods 49,500; debtors 22,100 − 2,210 = 19,890; prepaid insurance 1,400; cash 2,200 = 120,990.
Current liabilities: creditors 14,400; overdraft 50,000; rates owing 1,000; wages owing 6,200 = 71,600. Working capital 49,390.
Net assets 264,340 = capital 170,000 + current accounts 54,584 + 39,756.
Split costs carefully between factory (manufacturing account) and office (profit and loss), and remember the partner's salary is an appropriation, not an expense.