Theory question 107
Company AccountsThe authorized and issued share capital of Ozideli Limited comprised 400,000 ordinary shares of Le 1 each and 100,000 8% preference shares of Le 1 each.
The trial balance at the end of the year was as follows:
Trial Balance as at 31st December 2018 (Dr / Cr, Le)
Sales / 1,500,000
Purchases 1,000,000
General expenses 280,000
Debenture interest 8,400
7% Debentures / 120,000
Ordinary share capital / 400,000
8% Preference share capital / 100,000
Plant and machinery at cost 160,000
Motor vehicle at cost 70,000
Profit and loss account (31/12/17) / 8,600
Creditors / 172,400
Debtors 500,000
General reserve / 10,000
Provision for depreciation: Plant and machinery / 20,000; Motor vehicle / 10,000
Bank 22,600
Stock (31/12/17) 300,000
Totals 2,341,000 / 2,341,000
Additional information: (i) Stock on hand at 31/12/2018 was Le 400,000; (ii) The directors were to receive remuneration of Le 70,000; (iii) Depreciation is to be calculated on plant and machinery at Le 32,000 and motor vehicle at Le 14,000; (iv) The directors decided to transfer Le 12,000 to general reserve; (v) Preference dividend for 2018 will be paid on 10/01/2019.
You are required to prepare:
(a) Trading, Profit and Loss and Appropriation Account for the year ended 31st December 2018;
(b) Balance Sheet as at that date.
Show the model answer
(a) Trading (Le): sales 1,500,000; cost of sales (300,000 + 1,000,000 − 400,000) 900,000; gross profit 600,000.
Profit and loss: general expenses 280,000; debenture interest (7% × 120,000) 8,400; directors' remuneration 70,000; depreciation – plant 32,000, motor vehicle 14,000 = 404,400; net profit 195,600.
Appropriation: net profit 195,600 + balance b/f 8,600 = 204,200; less transfer to general reserve 12,000; proposed preference dividend (8% × 100,000) 8,000; retained profit c/f 184,200.
(b) Balance Sheet at 31 December 2018 (Le): Fixed assets – plant 160,000 − 52,000 = 108,000; motor vehicle 70,000 − 24,000 = 46,000; total 154,000.
Current assets: stock 400,000; debtors 500,000; bank 22,600 = 922,600. Less current liabilities: creditors 172,400; directors' remuneration owing 70,000; preference dividend 8,000 = 250,400. Working capital 672,200. Total 826,200 less 7% debentures 120,000 = 706,200.
Financed by: ordinary shares 400,000; 8% preference shares 100,000; general reserve (10,000 + 12,000) 22,000; profit and loss 184,200 = 706,200.
Charge directors' pay and depreciation in profit and loss; reserves and dividends go in the appropriation account.