Week 8Q

.xlsx

School

London School of Economics**We aren't endorsed by this school

Course

FINANCE 471

Subject

Accounting

Date

Jan 5, 2025

Pages

Uploaded by PresidentResolveJaguar44

Below is a draft trial balance for Aragog Ltd for the year ended 30 September 20Aragog Ltd Answers£'000Equity shares of £1 each8% DebentureRetained earnings – 30 September 20X0Land (£3 million) and building (£20 million) at cost23,000Plant and equipment at cost67,400Accumulated depreciation:- buildings- plant and equipment – 30 September 20X0Inventory at 30 September 20X119,800Trade receivables24,000Bank15,000Trade payablesRevenueCost of sales128,500Administrative expenses6,500

Distribution costs8,500Debenture interest paid800Bank interest300Suspense account293,800Further information:(1) The building has a useful life of 40 years.Plant and equipment is being depreciated at 12.5% per annum using the reducing Required:Prepare a statement of profit or loss, a statement of financial position and a statemStatement of profit or loss for the year ended 30th September 20X1£'000 Revenue 181,400Cost of sales (W1)135,750No depreciation has yet been charged on any non-current asset for the year ended 30 September 20X1. All depreciation is charged to cost of sales.(2) On 1 November 20X0, Aragog Ltd issued 1.5 million shares at their full market price of £2.20. The proceeds were credited to a suspense account (a holding account for errors).(3) The debenture was issued on 1 January 20X1 and is repayable 5 years after issu(4) A provision for income tax for the year ended 30 September 20X1 of £5.6 millio

Gross profit45,650Distribution costs -8,500Administrative expenses -6,500Profit from operations30,650Finance cost (1,200 + 300)-1,500Profit before tax29,150Income tax expense-5,600Profit for the year23,550b)Statement of financial position as at 30th September 20X1£'000 Non-current assetsProperty , plant and equipment (W2)64,750Current assetsInventories19,800Trade receivables 24,000Bank15,00058,800Total assets123,550EquityOrdinary share capital W441,500Share premium account W41,800Retained earnings W632,55075,850Current liabilitiesTrade payables 21,700Loan interest accrual W5400Tax payable W45,600Total equity

27,700Non-current liabilities8 % debentures20,000Total liabilities47,700Total equity liabilities123,550W1 cost of sale Per TB128,500Building Depreciation500Plant Depreciation6,750135,750W2 PPEPPECostB/FCarrying ValueW3 Share issue£'000Original entry should have beenDr Bank (1.5 million shares x £2.20)3,300Cr Share capital (1.5 million shares x 1)Cr Share premium (balance) (1.5 X1.2)W4 taxDr Tax expense 5,600Cr Tax payable 5,600Cost of Sales£ less:Accumulated depreciationless:Depreciation charge for yea

W5£'000Interest payable ( 1 January 20X1 - 30 September 20X1)1,200Interest paid (per TB)800400Dr Finance cost 400Cr Loan interest accrual 400W6Retained earningsRetained earnings Per TB9,000Approporitaion Dividends Profit of the year 23,55032,550Share capitalBeginning balance 40,000 Issue of shares 1,500 Add: Profit for the yearLess: AppropriationsTransfers to/from reservesDividendsEnding balance41,500

£'00040,00020,00012009,000Land and Building Plant and Equipment 5,00023,00067,40013,4005,00013,40050067507,250Carrying value 17,50047,25064,75021,700181,400

3,300293,800not paid S1128,000+Depreciation for the year 7,250 =135,750

S2Finance Cost = Bank Interst + Debenture Interest Bank Interest = 300 Debenture Interest = interest rate X Debenture Value * period 8% X 20,000*9/12 (from Jan 1 to Sep 30 ) = 1200 £'000 Original Share Capital + New Issuance of Ordinary shares =40,000 + 1500 = 41,5001.2 share premium X 1500 shares= 1800New Issuance = 1.5 Million shares X 1 = 1,500,000Share Premuim = Market Price - Share Procie X New Numbe rof shares issued (2.2 - 1 ) X 1,5 Million shares = 1800 Loan Interest Accrual = Interest for the period - Paid Interest =1200-800 = 400

£'000£'000£'000Building & LandPlant££23,00067,40090,4005,00013,40018,4005006,7507,250SPL17,50047,25064,750SFP8425£'0001,5001,800Total£

Share premiumGeneral reserve Retained profitsTotal-9,000 49,000 1,800 3,300 23,550 23,550 -----1,800 -32,550 75,850

SPLSFP

The following trial balance has been extracted from the books of Exeter ltd as at 30 June 2020:DRCR££Share capital337,500 Share premium22,500 Retained earnings56,301 Delivery vans at cost61,875 Delivery vans accumulated depreciation 1July 201921,465 Property at cost372,360 Property accumulated depreciation 1July 201933,750 Purchases536,011 Administration expenses118,878 Salaries110,827 Rent60,970 Bad debts written off1,792 Revenue (sales)956,776 Inventory at 1 July 201961,776 Cash at bank69,417 Trade receivables66,437 Trade payables39,278 Dividend paid7,227 1,467,570 1,467,570 You are given the following additional information: i. A further adjustment is required in respect of accounts receivable of £5,977 in respect of an amount due from Ali Adam. This customer has ceased trading and will almost certainly not be able to pay any of their outstanding debts. ii. The board of Exeter plc has decided to introduce a new policy of including a general provision for doubtful debts of 10% of year-end accounts receivable. This has not yet been included in the trial balance.

Property10% straight lineDelivery vans 20% reducing balanceRequirements: iii. Rent includes a £3,600 prepayment and a total of £4,500 accrued expenses. iv. The company has the following depreciation policy: v. The year-end bank reconciliation identified that a cash receipt of £6,000, in respect of a credit sale, had been omitted from the cashbook in error. i. The net realisable value of inventory at 30 June 2020 was £20,000 less than its cost of £350,000. ii. A transfer of £7,000 is required from retained earnings to general reserves. iii. Corporation tax of £50,500 has been estimated and is to be recognised in the financial statements for the year ended 30 June 2020.(a) Prepare a statement of profit or loss for Exeter Ltd for the year ended 30 June 2020.

(a)Statement of profit or loss for Exeter for the year ended 30th June 2020Revenue956,776Cost of sales W1-267,787Gross profit688,989Administrative expenses118,878Salaries110,827Rent61,870Bad debts written off7,769The provsiosn for doubtful debts W36,046Depreciation vehicles 8,082 Depreciation Property 37,236 Profit from operations 338,281Finance costsinvestement incomeProfit before tax 338,281Income tax expanse50,500Net profit after tax287,781(b) Prepare a statement of financial position for Exeter Ltd as at 30 June 2020.(c) Explain why companies depreciate their non-current assets and discuss why the reducing balance method of depreciation might be more appropriate than the straight-line method for depreciating certain types of assets.

(b)Statement of financial position Exeter Plc as at 30th June 2020Non-current assetsProperty, plant and equipment W4333,702333,702Current assetsInventory 350,000 -20,000330,000 Trade receivable 54,414 - 6,00048,414prepayment3,600Cash and cash equivalents 69,417+ 6,00075,417457,431Total assets791,133EQUITY AND LIABILITIESEquityShare capital (£1)337,500Share premium22,500Retained earnings W2329,855General reserve W27,000Total equity696,855Non-current liabilitiesCurrent liabilitiesTrade and other payable 39,278 + 4,50043,778Tax Payable 50,50094,278Total equity and liabilities791,133Year ended 30 June 2021Share capitalShare premiumBeginning balance 337,500 22,500 Issue of shares Add: Profit for the yearW3:Statement of Changes in Equity West West Quay plc

Less: AppropriationsTransfers to/from reservesDividendsEnding balance337,500 22,500 MarksW1Cost of Sale Opening inventory61,776 Purchases536,011 - 330,000 267,787 Administrative ExpensesAdministration expenses118,878 salaries 110,827 Rent 60,970 +4,500 - 3,60061,870 Bad debts = 1,792+ 5,977 W37,769 The provsiosn for doubtful debts W36,046 305,390 W2Profit for the year287,781 Retained profits b/f56,301Less:Dividends paid7,227Transfer to general reserve7,000Retained profits c/f329,855W3Provision for doubtful debts receivable per trial balance66,437 Less:Closing inventory 350,000 -20,000

bad debts not included in TB5,977 60,460 Provision required ( 60,460 x 10%)6,046 Net receivable54,414 W4PPER/BS/LDepreciation vehiclesDepreciation PropertyCOST61,875.00 372,360.00 Acc dep21,465.00 33,750.00 this yer DEP8,082.00 37,236.00 Total NBV32,328.00 301,374.00 20% 0.10 C)Non-current assets are the assets that have a useful life of more than one year.It means that the company expects to receive benefits from such asset for more than one accounting periodWhen a company acquires such asset, it capitalizes it and then depreciates the asset over its useful life as it oThe purpose of depreciating the asset is to allocate its cost over the accounting periods in which it will be useCertain assets lose value at different rates throughout their lifetime. To determine the Dep policy companies An exampleof this would be motor vehicles that lose value more quickly at the start of their lives and this is

Share Capital 337,500 Share Premium 22,500 Retained Profit 329,855 General Reserve 7000Total Equity 696,855

Trial Balance no transactions W1Trial Balance no transactions Trial Balance no transactions Rent from Trial Balance + Accrued Rent - Prepayments 60,970 +4500 - 3,600Bad debts from trial Balance + Uncollectiable Amounts (Written off) =1,792 +5,977(Account Receivables from Trial balance - Uncollectible amount ) * Allowance % =( 66437 -5,977 )* 10% W4W4Corporate tax note

425458,668 6000 the collected cash from the credit sales which not included in the trial balance (Dr. Cash 5000 Cr. AccounPrepaid rent as note iii6000 the collected cash from the credit sales which not included in the trial balance (Dr. Cash 5000 Cr. AccounNo new issued shares , take it the current from T/BNo new issued shares , take it the current from T/BGeneral reserve Retained profitsTotal56,301 416,301 -287,781 287,781

-7,000 - 7,000 -- 7,227 - 7,227 -7,000 329,855 696,855

Total 45,318 SPL333,702 SFP

The following balances have been extracted from the books and records of West Quay plc at 30 JuneDRCR££Share capital (£1)400,000 Share premium22,500 Retained earnings 1 July 2020 56,301 Delivery vans at cost81,875 Delivery vans accumulated depreciation 1 July 202021,465 Property at cost382,860 Property accumulated depreciation 1 July 202033,750 Purchases536,010 Administration expenses118,878 Salaries111,827 Rent60,971 Bad debts1,792 Revenue (sales)956,776 Inventory at 1 July 202061,776 Cash at bank80,417 Trade receivables86,437 Trade payables39,278 Dividend paid7,227 1,530,070 1,530,070 a) P&L for the year ended 30 June 2021Sales956,776Cost of sales:Opening inventory61,776Purchases536,010Closing inventory -400,000-197,786Gross profit758,990Less Expenses:Administrative expenses118,878

Depreciation Delivery vans W112,082Depreciation Property W138,286salaries 111,827Rent 60,971 - 245058,521Bad debts = 5,877+ 1,7927,669The provsiosn for doubtful debts 8,056355,319Operating Profit403,671Less: Taxation 30,650Net profit after tax373,021(c) SOFP as at 30 June 2021Non-current assetsDelivery vans W148,328Property W1310,824359,152Current assetsAccounts receivable 72,504 (W2) -7,60064,904prepayment2,450Inventory 400,000Bank 80,417+ 7,600 + 15,000103,017570,371Total assets929,523EquityShare capital410,000 Share premium27,500 Retained profits 412,095 General reserve 10,000 Total equity859,595Current liabilitiesTax Payable 30,650Accounts payable 39,278 Total liabilities69,928

Total equity and liabilities929,523Year ended 30 June 2021Share capitalShare premiumBeginning balance 400,000 22,500 Issue of shares 10,000 5,000 Add: Profit for the yearLess: AppropriationsTransfers to/from reservesDividendsEnding balance410,000 27,500 W1:DepreciationDelivery vans PropertyCOST81,875 382,860 Acc dep21,465 33,750 this yer DEP12,082 38,286 NBV48,328 310,824 W2:Provision for doubtful debts receivable per trial balance86,437 bad debts not included in TB5,877 80,560 Provision required ( 80,560x 10%)8,056.00 Net receivable72,504 W3:Statement of Changes in Equity West West Quay plc

Share Capital 410,000 Share Premium 27,500 Retained Profit 412,095 General Reserve 10000Total Equity 859,595

General reserve Retained profitsTotal 56,301 478,801 15,000 373,021 373,021 -10,000 - 10,000 -- 7,227 - 7,227 -10,000 412,095 859,595