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Advanced Financial Accounting

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Advance Financial Accounting (FIN-611)
VU
LESSON # 22
Solved Problems
Q. 1
Simple Co. has been trading for a number of years manufacturing domestic
appliances. Its trial balance for the year ending 31 August 2005 is noted below, along
with some additional information.
Simple Co.
Trial Balance
As at 31st August 2005
Dr.
Cr
(Rs. 000)
(Rs. 000)
Sales
14,345
Opening inventories
1,456
Purchases
4,239
Manufacturing wages
2,386
Other manufacturing costs
646
Selling and distribution costs
1,895
Administration costs
998
Interest expense
400
Interim dividend paid
900
Long-term investments
900
Non-current assets at cost
6,579
Depreciation
2,756
Trade receivables
1,923
Prepayments
489
Staff loans
12
Bank and cash balances
267
450
Bank overdraft
534
Trade payables
Accruals
123
3,000
Debenture redeemable in 2009
Two million ordinary shares of 25 paisa each
500
Share premium
250
Retained profits: 1 September 2004
1,132
23,090
23,090
Additional Information:
1. Closing inventories have been counted and valued at Rs. 978,000.
2. The tax charge for the year has been estimated at Rs. 879,000.
3. An interim dividend of 45 paisa per share was paid. A final dividend of 75
paisa per share has been proposed.
4. All other routine adjustments have been made (e.g. depreciation, bad debts).
5. Transfer Rs. 600,000 to debenture redemption reserve.
102
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Advance Financial Accounting (FIN-611)
VU
Required:
Prepare Simple Co.'s income statement, balance sheet and statement of changes in
equity for the year ending 31 August 2005.
Solution
Simple Co.
Income statement
For the year ending 31st August 2005
Rs. 000
Sales
14,345
Cost of sales
(7,749)
Gross profit
6,596
Sales and distribution
(1,895)
Administration
(998)
Profit from operations
3,703
Interest received/paid and similar items
(400)
Profit before tax
3,303
Income tax expense
(879)
Profit for the year
2,424
Statement of changes in equity
Year ending 31st August 2005
Shares
Shares
Debenture
Retaine
Total
capital
premiu
redemptio
d
(Rs.000
(Rs.000)
m
n reserve
earning
)
(Rs.000)
(Rs.000)
s
(Rs.000)
Opening
500
250
1,132
1,882
2,424
2,424
Profit for the year
Transfer
to
600
(600)
-
reserve
(900)
(900)
Dividends
Closing
500
250
600
2,056
3,406
Simple Co.
Balance Sheet
As at 31st August 2005
Assets
(Rs. 000)
(Rs. 000)
Non-current assets
Investments
600
Tangible non-current assets
Note 2
3,823
4,723
Current Assets
Inventories
978
Trade & other receivable
(1,923+12)
1,935
103
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Advance Financial Accounting (FIN-611)
VU
Prepayments
489
Cash
267
3,669
Total Assets
8,392
Equity and Liabilities
Equity
Share capital
500
250
Share premium
Debenture redemption
600
reserve
2,056
Retained earnings
Total Equity
3,406
Non-Current Liabilities
3,000
Current Liabilities
Bank overdrafts
450
Trade and other payables
534
Accruals
123
Income tax
879
1,986
Total Equity and Liabilities
8,392
* Notes to the Accounts
Note 1 Dividend
Rs. 000
Interim dividend paid of 45 paisa per
900
share
Final dividend proposed of 75 paisa per
1,500
share
Note 2 Tangible non-current assets
Rs. 000
Cost or valuation
6,579
Depreciation
(2,756)
Net book value
3,823
(W1) Cost of Sales
Rs. 000
Opening inventories
1,456
Purchases
4,239
Manufacturing wages
2,386
Other manufacturing costs
646
Less: closing inventories
(978)
7,749
104
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Advance Financial Accounting (FIN-611)
VU
Q. 2
Straight Co. has been trading for a number of years manufacturing steel girders. Its
trial balance for the year-ending 31st March 2006 is noted below, along with some
additional information.
Straight Co.
Trial Balance
As at 31st March 2006
Dr.
Cr
(Rs. 000)
(Rs. 000)
Sales
28,353
Opening inventories
3,206
Purchases
8,162
Manufacturing wages
7,333
Other manufacturing costs
974
Selling and distribution costs
2,020
Administration costs
835
Investment income
246
Interest paid on the bank overdraft
50
Interim dividend
800
Long-term investment
2,885
Fixed assets at cost
15,753
Depreciation
4,396
Trade receivables
2,967
Prepayments
132
Staff loans
23
Bank and cash balances
110
Bank overdraft
1,978
Trade payables
756
Accruals
423
10% Debenture redeemable in 2005
3,000
Four million ordinary shares of 50 paisa each
2,000
Share premium
300
Retained profits: 1st April 2005
3,598
45,050
Additional Information:
1.
Closing inventories have been counted and valued at Rs. 1,263,000.
2.
The tax charge for the year has been estimated at Rs. 1,924,000.
3.
A final dividend of sixty paisa per share has been proposed.
4.
No interest has been paid or charged on the debenture. The debenture was
raised on 1st April 2005. This will have to be accrued for.
5. All other routine adjustments have been made (e.g. depreciation, bad debts).
105
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Advance Financial Accounting (FIN-611)
VU
Required:
Prepare Straight Co. income statement, balance sheet and statement of changes in
equity for the year ending 31st March 2006. You should answer in Rs. 000s.
Solution
Straight Co.
Income Statement
For the year ending on 31st March 2006
Rs. 000
Sales
28,353
Cost of sales
(18,412)
Gross profit
9,941
Sales and distribution
(2,020)
Administration
(635)
Profit from operations
7,286
Investment income
Note 2
(104)
Profit before tax
7,182
Income tax expense
(1,924)
Profit for the year
5,258
Statement of changes in equity
Year ending 31st March 2006
Shares
Retaine
Total
Shares
capital
premiu
d
(Rs.000
m
earning
)
(Rs.000)
(Rs.000)
s
(Rs.000)
Opening
2,000
300
3,598
5,898
Profit for the year
--
--
5,258
5,258
Dividends
--
--
(800)
(800)
Closing
2,000
300
8,056
10,356
Straight Co.
Balance Sheet
As at 31st March 2006
(Rs. 000)
(Rs. 000)
Assets
Non-current assets
2,885
Investments
Tangible non-current assets
Note 3
11,357
14,242
Current Assets
1,263
Inventories
Trade & other receivable
(2,967+23)
2,990
Prepayments
132
Cash
110
4,495
106
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Advance Financial Accounting (FIN-611)
VU
Total Assets
18,737
Equity and Liabilities
Equity
Share capital
2,000
300
Share premium
Retained earnings
8,056
Total Equity
10,356
Non-Current Liabilities
3,000
Current Liabilities
Bank overdrafts
1,978
Trade and other payables
756
Accruals
(300 + 423)
723
Income tax
1,924
5,381
Total Equity and Liabilities
19,737
* Notes to the Accounts
Note 1 Dividend
Rs. 000
Interim dividend paid of 20 paisa per
800
share
Final dividend proposed of 60 paisa per
2,400
share
Note 2 Interest received and similar items
Rs. 000
Investment income
246
Debenture interest expense (Rs. 3,000 @
(300)
10%)
Bank interest expense
(50)
Net book value
(104)
Note 3 Tangible non-current assets
Rs.
000
Cost or valuation
15,753
Depreciation
(4,396)
Net book value
11,357
107
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Advance Financial Accounting (FIN-611)
VU
(W1) Cost of Sales
Rs. 000
Opening inventories
3,206
Purchases
8,162
Manufacturing wages
7,333
Other manufacturing costs
974
Less: closing inventories
(1,263)
18,412
108
Table of Contents:
  1. ACCOUNTING FOR INCOMPLETE RECORDS
  2. PRACTICING ACCOUNTING FOR INCOMPLETE RECORDS
  3. CONVERSION OF SINGLE ENTRY IN DOUBLE ENTRY ACCOUNTING SYSTEM
  4. SINGLE ENTRY CALCULATION OF MISSING INFORMATION
  5. SINGLE ENTRY CALCULATION OF MARKUP AND MARGIN
  6. ACCOUNTING SYSTEM IN NON-PROFIT ORGANIZATIONS
  7. NON-PROFIT ORGANIZATIONS
  8. PREPARATION OF FINANCIAL STATEMENTS OF NON-PROFIT ORGANIZATIONS FROM INCOMPLETE RECORDS
  9. DEPARTMENTAL ACCOUNTS 1
  10. DEPARTMENTAL ACCOUNTS 2
  11. BRANCH ACCOUNTING SYSTEMS
  12. BRANCH ACCOUNTING
  13. BRANCH ACCOUNTING - STOCK AND DEBTOR SYSTEM
  14. STOCK AND DEBTORS SYSTEM
  15. INDEPENDENT BRANCH
  16. BRANCH ACCOUNTING 1
  17. BRANCH ACCOUNTING 2
  18. ESSENTIALS OF PARTNERSHIP
  19. Partnership Accounts Changes in partnership firm
  20. COMPANY ACCOUNTS 1
  21. COMPANY ACCOUNTS 2
  22. Problems Solving
  23. COMPANY ACCOUNTS
  24. RETURNS ON FINANCIAL SOURCES
  25. IASBíS FRAMEWORK
  26. ELEMENTS OF FINANCIAL STATEMENTS
  27. EVENTS AFTER THE BALANCE SHEET DATE
  28. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
  29. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 1
  30. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 2
  31. BORROWING COST
  32. EXCESS OF THE CARRYING AMOUNT OF THE QUALIFYING ASSET OVER RECOVERABLE AMOUNT
  33. EARNINGS PER SHARE
  34. Earnings per Share
  35. DILUTED EARNINGS PER SHARE
  36. GROUP ACCOUNTS
  37. Pre-acquisition Reserves
  38. GROUP ACCOUNTS: Minority Interest
  39. GROUP ACCOUNTS: Inter Company Trading (P to S)
  40. GROUP ACCOUNTS: Fair Value Adjustments
  41. GROUP ACCOUNTS: Pre-acquistion Profits, Dividends
  42. GROUP ACCOUNTS: Profit & Loss
  43. GROUP ACCOUNTS: Minority Interest, Inter Co.
  44. GROUP ACCOUNTS: Inter Co. Trading (when there is unrealized profit)
  45. Comprehensive Workings in Group Accounts Consolidated Balance Sheet