FR – L2 – Q67 – Presentation of Financial Statements

Prepare Wenchi Exports' profit/loss statement and financial position for 20X4 using trial balance, with adjustments for inventory, patents, revaluation, bad debts, and tax.

Question

The trial balance of Wenchi Exports Limited at 31 December 20X4 is as follows.

	GH₵ in million
	Dr	Cr
Patent rights	60
Work-in-progress, 1 January 20X4	125
Buildings at cost	300
Ordinary share capital		600
Revenue		1,740
Staff costs	260
Accumulated depreciation on buildings, 1 January 20X4		60
Inventories of finished games, 1 January 20X4	155
Consultancy fees	44
Directors’ salaries	360
Computers at cost	50
Accumulated depreciation on computers, 1 January 20X4		20
Dividends paid	125
Cash	440
Receivables	420
Trade payables		294
Sundry expenses	94
Accumulated profits, 1 January 20X4		279
	2,633	2,633

The following information is also relevant.
(1) Closing inventories of finished games are valued at GH₵180 million. Work in progress has increased to GH₵140 million.
(2) The patent rights relate to a computer program with a three-year lifespan.
(3) On 1 January 20X4 buildings were revalued to GH₵360 million. This has not yet been reflected in the accounts. Computers are depreciated over five years. Buildings are now to be depreciated over 30 years.
(4) An allowance for bad debts (irrecoverable debts) of 5% is to be created.
(5) There is an estimated bill for current tax of GH₵120 million which has not yet been recognised.

Required
Prepare a statement of profit or loss (analysing expenses by nature) for the year ended 31 December 20X4 and a statement of financial position as at that date.

Answer

Statement of profit or loss for the year-ended 31 December 20X4

	GH₵ in million
Revenue	1,740
Change in inventories of finished goods and work-in-progress (W3)	40
Staff costs (W3)	(620)
Depreciation and other amortisation expense (W3)	(42)
Other expenses (W3)	(359)
Profit before tax	759
Income tax expense	(120)
Profit for the period	639

Statement of financial position as at 31 December 20X4

Assets	GH₵ in million
Non-current assets
Property, plant and equipment (W1)	368
Intangible assets (W2)	40
	408
Current assets
Inventories (180 + 140)	320
Trade and other receivables (420 × 95%)	399
Cash	440
	1,159
Total assets	1,567
Equity and liabilities
Equity
Share capital	600
Other reserves	120
Retained earnings	635
	1,355
Current liabilities
Trade and other payables	92
Current tax payable	120
	212
Total equity and liabilities	1,567

Statement of changes in equity for the year-ended 31 December 20X4

	Share capital	Revaluation	Retained earnings	Total
	GH₵ in million	GH₵ in million	GH₵ in million	GH₵ in million
Balance at 31 December 20X3	600		121	721
Dividends paid			(125)	(125)
Net revaluation surplus in the year (360 – (300 – 60))		120		120
Profit after tax for the period			639	639
Balance at 31 December 20X4	600	120	635	1,355

Workings

(1) Property, plant and equipment

	GH₵ in million
Cost brought forward
Buildings	300
Computers	50
Revaluation	60
Cost carried forward	410
Accumulated depreciation brought forward (60 + 20)	80
Revaluation	(60)
Charge for the year
Buildings (360 ÷ 30)	12
Computers (50 ÷ 5)	10
Accumulated depreciation carried forward	42
Carrying amount carried forward	368

(2) Intangible assets

	GH₵ in million
Cost	60
Amortisation (60 ÷ 3)	(20)
Carried forward	40

(3) Allocation of costs

	Staff costs	Depreciation	Other expenses	Total
	GH₵ in million	GH₵ in million	GH₵ in million	GH₵ in million
Work-in-progress (140 – 125)			15	15
Staff costs	260			260
Finished goods (180 – 155)			25	25
Consultancy fees			44	44
Directors’ salaries	360			360
Doubtful receivables (420 × 5%)			21	21
Sundry			94	94
Amortisation of patent (W2)		20		20
Depreciation (12 + 10) (W1)		22		22
	620	42	199	861

Tags: Amortisation, Bad Debts, Depreciation, Inventory Valuation, Revaluation, Statement of Financial Position, Statement of profit or loss, Tax Provision, Trial Balance
Level: Level 2

Topic: Presentation of Financial Statements (IAS 1)

Uploader: Samuel Duah