Theory question 108
Company AccountsWeah Co. Ltd. has an authorized capital of $120,000 divided into 100,000 ordinary shares and 20,000 5% preference shares.
($) Issued and fully paid capital: Ordinary share capital 80,000; 5% Preference share capital 20,000
Land and building at cost 68,000
Motor vehicles at cost 30,000
Fixtures and fittings at cost 6,000
Stock 7,000
Debtors 6,300
Bank 2,000
Cash 70
Creditors 900
Call in arrears 2,000
Provision for doubtful debts 300
Profit for the year ended 31st December, 2014 13,570
Additional information: (i) Provide for depreciation on motor vehicles at 20% and furniture and fittings at 10% per annum. (ii) The directors decided to: - transfer $3,000 to reserve; - recommend a dividend of 10% on ordinary shares and pay preference shares dividend.
You are required to prepare: (a) Appropriation Account/Income Surplus Account for the year ended 31st December, 2014; (b) Balance Sheet as at that date.
Show the model answer
(a) Appropriation Account ($): net profit 13,570; less transfer to reserve 3,000; proposed preference dividend (5% × 20,000) 1,000; proposed ordinary dividend (10% × 80,000) 8,000; retained profit 1,570.
(b) Balance Sheet at 31 December 2014 ($): Fixed assets (cost / depreciation / NBV) - land and buildings 68,000 / - / 68,000; motor vehicles 30,000 / 6,000 / 24,000; fixtures and fittings 6,000 / 600 / 5,400; total 97,400.
Current assets - stock 7,000; debtors 6,300 less provision 300 = 6,000; calls in arrears 2,000; bank 2,000; cash 70 = 17,070. Total 114,470.
Authorised capital: 100,000 ordinary shares 100,000; 20,000 5% preference shares 20,000 = 120,000 (note only).
Issued capital: ordinary 80,000; preference 20,000 = 100,000; reserve 3,000; retained profit 1,570 = 104,570. Current liabilities - creditors 900; proposed dividends 8,000 + 1,000 = 9,900. Total 114,470.
The figures balance only if the profit of $13,570 is after depreciation, so the depreciation is shown in the balance sheet only.