St.

Joseph’s College of Commerce

[Link] (Professional – International Accounting and Finance)
Financial Accounting
Module 5 – Company Financial Statements

1. Which of the following are adjusting events for Big Co? The accounting
year end is 30 June 20X6 and the financial statements are approved on 18
August 20X6.
(1) Sales of year-end inventory on 2 July 20X6 were at less than cost. –
Adjusting event
(2) The issue of new equity shares on 4 July 20X6. – Non adjusting event
(3) A fire in the main warehouse occurred on 8 July 20X6. All inventories
were destroyed. – Non adjusting event
(4) A major credit customer was declared bankrupt on 10 July 20X6 -
Adjusting event
(5) All of the share capital of a competitor, Teeny Co was acquired on 21
July 20X6.
(6) On 1 August 20X6, $500,000 was received in respect of an insurance
claim dated 13 February 20X6. – Adjusting event
Soln :
Adjusting events – existing evidence
Non adjusting – no existing conditions
2. The trial balance of Crown Co as at 31 December 2015 was as flows:
Debit $ Credit $
Ordinary share capital – SOFP- 100,000
Eq
Sales and Purchases – SOPL- 266,800 365,200
Reve and COS
Inventory as at 1 January 2015 23,340
– SOPL - COS
Returns – SOPL – Rev & COS 1,200 – SR - Rev 1,600 – PR - COS
Wages 46,160
Rent 13,000
Motor expenses 3,720
Insurance 760
Irrecoverable debts 984
Allowances for receivables
- 1 January 2015 (Prov DD) 588
Sundry Income 1,622
Light and Heat 3,074
Bank overdraft interest 74
Motor vehicles at cost 24,000
Motor vehicles – accumulated 12,240
depreciation
Fixtures and Fittings at cost- 28,000
SOFP
Fixtures and Fittings – 16,800
accumulated depreciation -
SOFP
Land - SOFP 1,00,000
Receivables and payables - 17,300 23,004
SOFP
Bank - SOFP 3,312
Income tax under provision 100
Buildings at cost 1,00,000
Buildings aggregate 6,000
depreciation – 1 Jan 2015
Retained Earnings 104,800
631,854 631,854

You are given the following additional information:

(1) Inventory at 31 December 20X5 was $25,680. – SOPL – Cost of Sales
( Op st + Net pur – cl st) SOFP – Current Asset
(2) Rent was prepaid by $1,000 and light and heat owed was $460 at 31
December 20X5. – SOPL - Other expenses (+/- ) , SOFP – Current asset ,
Current Liability
 (3) Land is to be revalued to $250,000 at 31 December 20X5. – revalued
amount is $150000 – OCI – revaluation gain , SOCIE (from where it goes to
B/S)
(4) Following a final review of the receivables at 31 December 20X5,
Crown Co decided to write off another debt of $130. The entity also
adjusted the allowance for receivables to $516 at 31 December 20X5. –
Other exp – SOPL , Receivables in SOFP
Bad debts (old) - 984
Bad debts (new) - 130
New prov - 516
(-) Old prov – (588)
= SOPL – Dr – 1042
Drs –
(-) New bad
(-) New prov - 516

(5) Crown Co estimated that the income tax charge on profit for the year
was $7,300. – SOPL – Deducted from PBT, SOFP – Current liability –
Provision for taxation
* Under provision - add to this 7300* (Under provision is when a company
provided less provision for tax payable than the actual amount of tax
paid)
(6) Depreciation is to be provided as follows: (a) building – 2% annually,
straight-line (b) fixtures & fittings – straight line method, assuming a
useful economic life of five years with no residual value (c) motor vehicles
– 30% annually on a reducing balance basis. A full year’s depreciation is
charged in the year of acquisition and none in the year of disposal.
SLM – Deprn is calculated on cost
Building 10000 x 2% = 2000
RBM – Deprn is calculated on Book value
Book value = cost – acc deprn
= 24000 – 12240 = 11760 x 30% = 3528 - SOPL
Prepare a statement of profit or loss and other comprehensive income for
the year ended 31 December 20X5 and a statement of financial position
as at that date for Crown Co.

3. The trial balance of Penguin Co, a limited liability entity, as at 31

December 2015 was as follows:
Dr Cr
$ $
Sales and Purchases – SOPL 20,000 50,000
Inventory – COS, SOPL 8,000
Distribution costs - SOPL 8,000
Administration expenses - SOPL 15,550
Receivables and Payables – CA, CL 10,000 20000
Fundamental reorganisation costs – other 2,400
exp
Cash at Bank – CA 7,250
Ordinary shares 50c – SOCIE - Under 8,000
Equity
10% Irredeemable preference shares $1- 9,000
SOCIE - Under Equity
10% Loan notes – NCL* 8,000
Non-current assets at carrying amount - 35,000
NCA
Share premium – SOCIE - Under equity 3,000
Accumulated profits at 1 January 2015 – 3,000
SOCIE - RE
Loan note interest paid – SOPL* 800
Preference dividend paid – SOCIE (-RE) 900
Interim ordinary dividend paid – SOCIE (- 1,600
RE)
Tax – (Provision for tax)- adjusted against 500 – Over
current year tax - SOPL provision
Suspense 8,000
109,500 109,500
The following is to be taken into account.
(1) A building whose carrying amount is currently $5,000 is to be revalued
to $11,000. – revaluation surplus amount - $6000 ( OCI – 6000 , Added to
the asset in NCA)
(2) A final ordinary dividend of 10c per share is to be proposed. (Note :
Dividend declared in AGM / Proposed Dividend – NOT to be shown in the
financial statements)
(3) The balance on the income tax account represents an overprovision of
tax for the previous year. Tax for the current year is estimated at $3,000.
Note:
Under provision in T/B – Add to the current tax expense
Over provision in T/B – Deduct from the current tax expense
SOPL = 3000 – 500 = 2500
(4) Closing inventory is $12,000. COS - SOPL
(5) The balance on the suspense account represents the proceeds from
the issue of 4,000 ordinary shares.
Suspense a/c – Cr - $8000
Share capital = 4000 shares x $0.5 = $2000 - SOCIE
Share premium = 4000 x$1.5 = $6000 (B/F) - SOCIE
Prepare the following financial statements of Penguin Co for the year
ended 31 December 20X5: (1) statement of profit or loss and other
comprehensive income (2) statement of financial position (3) statement of
changes in equity.

Redeemable preference shares – repayable shares after some time -

Liability
Irredeemable preference shares – Never paid back – Equity

4. Page prints and publishes study materials. She prepared the following
trial balance as at 30 June 2017.
Debit $ Credit $
Purchases - COS 60,000
Inventory at 1 July 2016 – COS 10,000
Sales - SOPL 120,000
Distribution costs - SOPL 13,200
Administrative and selling expenses - 5,600
SOPL
Trade receivables – CA - SOFP 12,200
Irrecoverable debts - SOPL 1,550
Bank balance – CL - SOFP 4,150 – O/D
Capital account at 1 July 2016 - SOFP 73,100
Discount received – Other income - SOPL 2,500
6% Bank Loan – NCL - SOFP 10,000
Non-current assets at carrying amount – 102,500
SOFP - NCA
Capital introduced in the year - SOFP 5,000
Loan interest paid – Fin Cost - SOPL 300
Drawings – SOFP (Deducted from capital) 8,000
Trade payables – CL - SOFP 5,600
Wages – COS & Admin 15,000
Suspense 8,000
228,350 228,350

The following is to be taken into account.

(1) Inventory valuation at 30 June 20X7 was $12,000. – SOPL - COS
(2) Phillipa decided to write off an irrecoverable debt of $1,000. This
should be accounted for as an administrative and selling expense. –
SOPL , deducted from the receivables in SOFP
(3) The wages cost should be split equally between cost of sales and
administrative and selling expenses.
(4) The bank loan was taken out on 1 July 20X6. (Interest 10000 x 6% =
600 (300+300) ) SOPL – Interest expense– 600 (300 + 300 o/s) , SOFP –
o/s CL – 300)
(5) The depreciation charge for the year of $5,000 on property, plant and
equipment has not yet been accounted for. It should be classified as a
cost of sale. SOPL – COS- 5000 , SOFP – NCA PPE (-) 5000
(6) The balance on the suspense account represents the proceeds from
the disposal of an item of property, plant and equipment. At the date of
disposal, that item had a net carrying amount of $10,000. The gain or loss
on disposal should be accounted for as a cost of sale. (Proceeds from sale
= 8,000, Loss in sale =Proceeds - CA =10000 = (2000) – COS
(Suspense account amount is received from sale of an asset - $8000,
carrying amount of asset = $10,000, there is loss in sale $2000 to be
adjusted with COS)
Prepare the statement of profit or loss for the year ended 30 June 20X7,
together with the statement of financial position as at 30 June 20X7 on
behalf of Phillipa Page.

5. The following is an extract from the trial balance of an entity Lafford, at

30 September 20X1.
 Dr $000 Cr $000
Revenue – SOPL – revenue 41,600
Purchases – SOPL - COS 22,600
Inventory at 1st October 2010 – SOPL - 13,000
COS
Distribution costs – SOPL 6,000
Administrative expenses – SOPL 5,000
Irrecoverable debts written off - SOPL 600
Hire of Machinery - SOPL 500
Production wages - SOPL 400
Loan interest (Loan repayable 2019) – 1,050
SOPL – Finance cost
Dividends received – Other income - 900
SOPL
Warehouse machinery:
Cost 3,000
Accumulated depreciation at October 1,700
2010
Motor vehicle
Cost 1,000
Accumulated depreciation at 1 October 500
2010

The following information should also be taken into account:

1. Closing inventory at 30 September 20X1 was $15.6 million. – COS -
SOPL
2. Irrecoverable debts written off are to be included in administrative
expenses. – SOPL - ADMIN
3. Depreciation is to be provided for on the straight -line basis as
follows:
- Warehouse machinery 10 percent
- Motor vehicles 25 percent

4. Depreciation of motor vehicles is to be divided equally between

distribution costs and administrative expenses, and depreciation of
warehouse machinery is to be charged wholly to cost of sales.
5. The estimated income tax expense for the year ended 30
September 20X1 is $3 million.
Produce Lafford’s statement of profit or loss and other
comprehensive income for the year ended 30 September 20X1 in a
form suitable for publication.

6. The following information has been extracted from the accounting

reports of an entity P.
P – Trial balance as at 31 March 20X1.
Dr $000 Cr $000
 Revenue - SOPL 5,300
Cost of sales - SOPL 1,350
Dividends received – Other income - 210
SOPL
Administrative expenses - SOPL 490
Distribution costs - SOPL 370
Interest payable – SOPL – Finance cost 190
Prepayments – Asset - CA 25
Dividends Paid – SOCIE - RE 390
Property, plant and Equipment – SOFP - 4,250
NCA
Short term investments – SOFP - CA 2,700
Inventory at 31 March 20X1 – SOFP - CA 114
Trade Receivables – CA - SOFP 418
Cash and cash equivalents – CA - SOFP 12
Trade payables – CL - SOFP 136
Long-term loans (repayable 20X9) – NCL 1,200
- SOFP
Share capital - SOCIE 1,500
Share premium - SOCIE 800
Retained earnings at 31 March 20X0 - 1,163
SOCIE
10,309 10,309

The following information should also be taken into account:

1. During the year, P paid a final dividend of $240,000 in respect of
the year ended 31 March 20X0. This was in addition to the
interim dividend paid on 1 September 2010 in respect of the year
ended 31 march 20X1. – SOCIE – Deduct from RE ( 240 + 390)
2. The tax charge for the year has been estimated at $470,000.-
SOPL
3. The directors declared a final dividend of $270,000 on 3 April
20X1. – IGNORE
Produce in a form of suitable for publication, the statement of
profit or loss and other comprehensive income, statement of
financial position and statement of changes in equity for the year
ended 31 March 20X1.

7. The following information has been extracted from the books of an

entity Picklette for the year ended 31 March 20X1.
Dr Cr
$000 $000
Administrative expenses - SOPL 170
Interest paid – Finance cost - SOPL 5
Distribution costs - SOPL 240
Share capital (Ordinary $1 shares) - SOCIE 200
Dividends paid – SOCIE – Deducted from RE 6
Cash and cash equivalents – CA 9
Land and Buildings - PPE
Cost at 1 April (Land $110, Buildings $100) 210
Accumulated Depreciation at 1 April 20X0 48
Plant and machinery - PPE
Cost at 1 April 20X0 125
Accumulated depreciation at 1 April 20X0 75
Accruals – Ex: Outstanding salary – CL – Cr 90
bal - SOFP
Retained earnings at 1 April 20X0 - SOCIE 270
Trade receivables and payables - SOFP 738 60
Inventory as at 1 April 20X0 – COS - SOPL 150
Purchases – COS - SOPL 470
10% Loan – SOFP 80
[ 1,300
2,123 2,123

1. Inventory at 31 March 20X1 was valued at $250,000.

COS – SOPL , CA - SOFP
2. Buildings and Plant & Machinery are depreciated on a straight
line basis (assuming no residual value) at the following rate:
On cost- Buildings – 5% and Plant & machinery – 20%
SOPL – Building $100 x 5% = $5 (SOFP = Cost – (Accm deprn op
bal+ current year) P&M 125 x 20% = 25
3. There was no purchases or sales of non-current assets for the
year to 31 March 20X1.
4. The depreciation charges for the year to 31 March 20X1 are to be
apportioned as follows:
Cost of sales – 60% (Building - $5 x 60% = $3) (P&M – 25X
60%=15)
Distribution costs – 20% (Building - $5 x 20%= $1) (P&M – 25 x
20% = 5)
Administrative expenses – 20% (Building - $5 x 20% = $1) (P&M
– 25 x 20% = 5)
5. Income tax for the year to 31 March 20X1 is estimated at
$135,000.
SOPL – PBT , SOFP - CL
6. The loan is repayable in five years and the balance has been
outstanding for the whole year.
10% Loan is a NCL , Interest on Loan = 80 x 10% = $8 , actual
interest paid is only $5, balance $3 to be CL , SOPL - $8
7. Land is revalued by $50,000 - OCI and Add to the asset in SOFP.

Prepare a statement of profit or loss and other comprehensive

income, statement of financial position and a statement of
changes in equity for the year to 31 March 20 X1 for Picklette.
Note : Accruals / Prepaid / Earned not received etc. – Given in TB
– appears only once – SOFP (never in SOPL)

Statement of Profit or loss for the year ending 31 march 20X1

Particulars $000 20X1 $000
20X0
Revenue 1300
(-) Cost of sales 388
Gross Profit 912

Other Income Nil

Administrative expenses 176
Distribution expenses 246
Finance cost 8

Profit before tax 482

Tax expense 135
Profit after tax 347

Other comprehensive income:

Gain on revaluation 50

Total comprehensive income statement 397

Statement of Changes in Equity for the year ending 31 March

20X1
Particulars Share Share Retained Revaluatio Total
capital premium Earnings n surplus $000
$000 $000 $000 $000
Opening 200 - 270 - 470
balance
+ Profit 347
(-) (6)
Dividend
paid
+ 50
revaluatio
n gain
Closing 200 - 611 50 861
balance

Statement of Financial Position

Particulars $000 $000
20X1 20X0
Non Current Asset
Property, Plant and Equipment 232
L(110 + 50)B (100 – 48 – 5) P&M(125-75-
25)
Current Assets
Inventory 250
Trade Receivables 738
Cash and Cash equivalent 9

Total 1229

Equity and Liabilities

Equity 200
Revaluation Surplus 50
Retained Earnings 611

Non Current Liabilities

10% Loan 80

Current Liabilities
Accruals (90+3 Int on loan) 93
Tax Payable 135
Trade Payables 60

Total 1229
Some important items: ( Not connected with any of the problems
given above)

1. Closing stock – $150000, but $10000 worth of goods are

damaged and can be sold for $8000.
Value of closing stock is Cost or NRV whichever is less
150000 – 10000 + 8000 = 148000
150000 – 2000 = 148000 – B/S and COS

2. Depreciation charges:
Building – Cost $200000 , Accumulated depreciation – 30,000,
Depreciation – 10%, SLM , residual value NIL
Plant and Machinery - $100000, Accumulated depreciation -
$20,000, Depreciation – 20%, WDV

Depreciation is allocated to COS and Administration expenses

in the ratio 60 : 40

Compute depreciation:
Building
SLM is always computed on Cost
Depreciation = (200000 – scrap) x 10% = $20000 p.m.
Allocated to COS = 20000 x 60% = 12000
Allocated to Admin exp = 20000 x 40% = 8000
 Plant and Machinery
Cost - $100000, Accumulated depreciation - $20,000
Depreciation is computed on carrying amount
Carrying amount = cost – acc dep = 100000 – 20000 =80000
Depreciation = 80000 x 20% = 16000

Allocated to COS = 16000 x 60%= $9600

Allocated to Admin exp = 16000 x 40% = $6400

Computation of value of asset in SOFP

Building = carrying amount = cost – (accumulated
depreciation + current year depreciation)

Building - CA= 200000 – (30000 + 20000) = 150000

P& M - CA = 100000 – (20000 + 16000) = 64000

PPE = $214000 – NCA – SOFP

3. Revaluation of Asset
Land - $250000 – Given in T/B
Adj: Land to be revalued by $50,000

OCI – gain by revaluation - $500000 – to SOCIE – Equity – SOFP

Added to the Land value – Total #300000 – NCA – add to PPE

Adj: Land to be revalued to $400000

OCI – gain by revaluation - $150000 – SOCIE – Equity - SOFP
4. Outstanding expenses – ADD to the concerned expense , CL
5. Prepaid exp – Deduct from concerned exp, CA
6. Accrued Income – ADD to the concerned income – CA
7. Income received in advance – Deduct from the concerned inc,
CL

8. Tax expense – given in adjustment

Deducted from Profit before tax in SOPL

Under CL – Tax payable in SOFP

In T/B , if tax is given -on credit side- over provision – DEDUCT

from tax expense - SOPL
If given on debit side – under provision – ADD to tax expense –
in SOPL

9. Dividend declared / Proposed dividend – given in adjustment –

NOT to be shown in financial statements – IGNORE
 Interim dividend paid / Dividend paid given in T/B – to de
deducted from Retained Earnings in SOCIE

10. Issue of share capital ( split the issue – Share capital and
share premium)
10,000 shares issued @ $5
Shares $1 – given in T/B

Share capital – 10000 x 1 = $ 10000 – SOCIE , Equity

Share premium – 10000 x 4 =$40000 – SOCIE, Equity

11. Hidden adjustment

10% Loan notes - $100000 , given in T/B
Interest on Loan - $500 – given in T/B
Interest on Loan – 100000 x 1% = $1000 – SOPL
SOFP – CL – (1000 – 500) = $500

12. Bad debts – given in T/B – Add SOPL

13. Allowances for receivables in T/B – Deduct in SOPL
14. Irrecoverable debts given in adj -Add SOPL , Deduct
from receivables SOFP
15. Allowances for receivables in adj – ADD SOPL , Deduct
from receivables in SOFP