1.5. Preparation of financial statements
A subsection of Accounting, 9706, through 1. Financial accounting (AS Level)
Listing 10 of 637 questions
S Limited is a private limited company. The directors have extracted the following information at 30 September 2019. $ $ 6% debentures (2021 – 2022) 68 000 Accrued expenses 2 480 Administrative expenses 63 810 Bank overdraft 12 770 Carriage inwards 3 600 Distribution costs 49 330 Interest paid 8 160 Inventory at 1 October 2018 62 500 Freehold property 220 000 Motor vehicles Cost 84 600 Provision for depreciation at 1 October 2018 38 760 Office equipment Cost 68 700 Provision for depreciation at 1 October 2018 32 300 Prepaid expenses 4 400 Purchases 392 340 Retained earnings 69 700 Returns inwards 3 470 Revenue 764 570 Share capital (ordinary shares of $1 each) 50 000 Share premium 15 000 Trade payables 48 730 Trade receivables 86 500 Wages and salaries 54 900 The following information is also available: The value of inventory at 30 September 2019 was $73 100 at cost. The directors now wish to write off $2000 in respect of damaged items. Purchase of new office equipment of $6000 had been posted to distribution costs in error. Motor vehicles are to be depreciated at 20% per annum using the straight-line method. The estimated residual value of the motor vehicles is $20 000. Depreciation is to be charged to distribution costs. Office equipment is to be depreciated at 15% per annum using the reducing balance method. Depreciation is to be charged to administrative expenses. At 30 September 2019 there was an additional accrual for wages and salaries of $1700. Wages and salaries are to be charged as 70% to administrative expenses and 30% to distribution costs. Interest paid included debenture interest paid to 30 June 2019. At 30 September 2019 there was an additional prepayment of $4800 for administrative expenses. The directors wish to create a provision for doubtful debts equal to 2% of trade receivables at 30 September 2019 and include it in administrative expenses. REQUIRED Prepare the income statement for the year ended 30 September 2019. Use the space on the next page to show your workings. S Limited Income statement for the year ended 30 September 2019 $ $ Revenue Cost of sales Gross profit Administrative expenses Distribution costs Profit from operations Finance costs Profit for the year Prepare the statement of financial position at 30 September 2019. Use the space provided on the next page for your workings. Workings: Explain the term ‘6% debentures (2021 – 2022)’, which appears in S Limited’s financial statements. Additional information Despite having made substantial profit for the year, the directors are concerned that the shareholders have not received any dividends. They are considering two options: option 1: paying the shareholders a dividend of $0.50 per share option 2: making a bonus issue of 1 ordinary share for every 2 shares held. REQUIRED Advise the directors on which option they should choose. Justify your answer.
9706_w19_qp_23
THEORY
2019
Paper 2, Variant 3
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At 1 April 2019 a business had a provision for doubtful debts of $3400. An analysis of trade receivables at 31 March 2020 was as follows. amount $ provision required 50 000 nil 40 000 5% 1 600 20% During the year an irrecoverable debt of $3000 had been written off in the customer’s account, but no entry made in the income statement. No entry had been made for the increase or the decrease in the provision for doubtful debts. The income statement for the year ended 31 March 2020 showed a draft profit for the year of $90 000. What was the effect on the draft profit for the year of these omissions?
9706_w20_qp_11
MCQ
2020
Paper 1, Variant 1
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Questions Discovered
637