- 20 Marks
FA – L1 – Q76 – Preparation of limited liability company financial statements
Question
The trial balance of Etabila Travel Limited as at 31 December 20X9 is as follows:
| DR (GH¢000) | CR (GH¢000) | |
|---|---|---|
| Ordinary share capital (GH¢1 shares) | 600 | |
| Cash at bank | 23 | |
| Tax (over-provision in 20X8) | 25 | |
| 10% loan notes (repayable in 2020) | 300 | |
| General administrative expenses | 300 | |
| Administrative salaries | 46 | |
| General distribution expenses | 160 | |
| Distribution salaries | 24 | |
| Directors’ remuneration | 35 | |
| Loan notes interest paid | 10 | |
| Development costs (incurred during 20X9) | 30 | |
| Dividend paid | 15 | |
| Dividends received | 30 | |
| Investments | 45 | |
| Land and buildings – at cost | 2,600 | |
| – accumulated depreciation at 1 January 20X9 | 200 | |
| Plant and machinery – at cost | 320 | |
| – accumulated depreciation at 1 January 20X9 | 75 | |
| Retained earnings at 1 January 20X9 | 64 | |
| Purchases and sales | 1,250 | 2,250 |
| Profit on disposal of factory | 60 | |
| Trade receivables and trade payables | 100 | 220 |
| Inventory at 1 January 20X9 | 60 | |
| Irrecoverable debts | 5 | |
| Total | 4,824 | 4,824 |
Additional Information:
(1) Closing inventory is valued at the lower of cost or net realisable value. At 31 December 20X9 it amounted to GH¢55,000.
(2) Non-current assets are depreciated on a straight-line basis assuming no residual value. The following depreciation rates are to be applied:
- Buildings: 5%
- Plant and machinery: 20%
The depreciation charge for the year is to be apportioned as follows:
| Distribution costs | Administrative expenses | |
|---|---|---|
| Buildings | 70% | 30% |
| Plant and machinery | 75% | 25% |
The cost of the land was GH¢3,200,000. There were no purchases or sales of non-current assets during the year.
(3) Development costs are an intangible asset and are to be amortised (depreciated) over a three-year period. The amortisation (depreciation) charge is to be allocated to cost of sales.
(4) The profit (after tax) on disposal of the factory is considered to be a material amount for which separate disclosure is required.
(5) Tax on the profits for the year is estimated at GH¢95,000.
(6) Directors’ remuneration is to be analysed between distribution costs and administrative expenses as follows:
- Distribution: GH¢15,000
- Administration: GH¢20,000
Required:
Prepare the company’s statement of profit or loss for the year ended 31 December 20X9 and statement of financial position as at 31 December 20X9.
Answer
Etabila Travel Limited: Statement of profit or loss for the year ended 31 December 20X9
| GH¢000 | |
|---|---|
| Revenue | 2,250 |
| Cost of sales (W2) | (1,265) |
| Gross profit | 985 |
| Other operating income (dividends received) | 30 |
| Profit on disposal of factory | 60 |
| Distribution costs (W3) | (216) |
| Administrative expenses (W4) | (376) |
| Profit before tax | 483 |
| Income tax expense (95 – 25) | (70) |
| Profit for the year | 413 |
Etabila Travel Limited: Statement of financial position as at 31 December 20X9
| GH¢000 | GH¢000 | |
|---|---|---|
| Non-current assets | ||
| Land and buildings (W1) | 1,550 | |
| Plant and machinery (W1) | 85 | |
| Property, plant and equipment | 1,635 | |
| Intangible assets (30 – 10) | 20 | |
| Investments | 45 | |
| 1,700 | ||
| Current assets | ||
| Inventory | 55 | |
| Trade receivables | 100 | |
| Cash | 23 | |
| 178 | ||
| Total assets | 1,878 | |
| Equity and liabilities | ||
| Share capital and reserves | ||
| Share capital | 600 | |
| Retained earnings (W5) | 412 | |
| Total equity | 1,012 | |
| Non-current liabilities | ||
| 10% loan notes repayable 2020 | 300 | |
| Current liabilities | ||
| Trade payables | 220 | |
| Taxation payable (25 + 70) | 95 | |
| Accrued loan note interest | 20 | |
| 335 | ||
| Total equity and liabilities | 1,647 |
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