Theory question 107
Company AccountsThe trial balance of Ewan as at December 2010, is as follows:
Share capital: Cr D100,000
Motor van (at cost): Dr D120,000
Provision for depreciation: Motor van 1/1/2010: Cr D44,000
Sales and purchases: Dr D389,814; Cr D538,266
Returns inwards and outwards: Dr D526; Cr D165
Rents and rates: Dr D7,500
Insurance: Dr D8,000
General expenses: Dr D9,000
Salaries and wages: Dr D59,628
Interest: Dr D5,000
Debtors and creditors: Dr D50,820; Cr D13,512
Bad debts: Dr D1,629
Provision for doubtful debts - 1/1/2010: Cr D2,053
Directors' salaries: Dr D28,000
Stock - 1/1/2010: Dr D85,716
Profit and Loss Account 1/1/2010: Cr D87,400
12% Debentures: Cr D50,000
Bank: Dr D69,763
Totals: Dr D835,396; Cr D835,396
Additional information: (i) Unpaid salaries and wages at 31st December, 2010 — D7,000. (ii) The provision for doubtful debts is to be made on debtors at 10%. (iii) Rents and rates owing at 31st December, 2010 — D4,000. (iv) Depreciation on motor van is to be charged at 20% per annum on cost. (v) Insurance paid in advance at 31st December 2010 — D2,800. (vi) Stock at 31st December, 2010 — D95,000. (vii) 10% dividend is proposed for 2010.
You are required to prepare: (a) Trading and Profit and Loss Account for the year ended 31st December, 2010. (b) Profit and Loss Appropriation Account for the year ended 31st December, 2010.
Show the model answer
(a) Trading Account
Sales 538,266 − returns inwards 526 = 537,740
Cost of sales: opening stock 85,716 + purchases (389,814 − 165) 389,649 = 475,365 − closing stock 95,000 = 380,365
Gross profit D157,375
Profit and Loss Account: expenses
Insurance (8,000 − 2,800) 5,200; general expenses 9,000; salaries and wages (59,628 + 7,000) 66,628; debenture interest (12% × 50,000; 5,000 paid + 1,000 owing) 6,000; bad debts 1,629; increase in provision (10% × 50,820 = 5,082 − 2,053) 3,029; directors' salaries 28,000; rent and rates (7,500 + 4,000) 11,500; depreciation of van (20% × 120,000) 24,000
Total expenses 154,986
Net profit D2,389
(b) Appropriation Account
Net profit 2,389 + balance b/f 87,400 = 89,789
Less proposed dividend (10% × 100,000) 10,000
Retained profit c/f D79,789
The interest in the trial balance is debenture interest: a full year at 12% is D6,000, so D1,000 is still owing.