Financial reporting exercises

Exercise 1: The following is the statement of financial position of Moon’s business at 1 Jan of last yearThe following is the summary of the transactions that took place during the year:

Exercise 1: The following is the statement of financial position of Moon’s business at 1 Jan of last year

The following is the summary of the transactions that took place during the year:

1 Inventories were bought on credit for £17,000

2 Inventories were bought for £3,700 cash

3 Credit sales revenue amounted to £33,000 (cost £15,000)

4 Cash sales revenue amounted to £10,300 (cost £4,900)

5 Wages of £3,700 were paid

6 Rent of £3,000 was paid The annual rental amounts to £3,000

7 Electricity of £1,000 was paid

8 General expense of £500 was paid

9 Additional fittings were purchased on 1 Jan for £2,000 The cash for this was raised fromadditional borrowings of this amount The interest rate is 15% a year, the same as forexisting borrowings

10 £1,500 of the borrowings was repaid on 30 June

11 Cash received from trade payables amounted to £32,800

12 Cash paid to trade payables amounted to £18,000

13 The owner withdraw £10,000 cash and £500 inventories for private use

At the end of the year it was found that:

a The electricity bill for the last quarter of the year for £300 had not been paid

b Trade receivables amounting to £250 were unlikely to the received (Bad debt)

c The value of stationery remaining was estimated at £150 Stationery is included in general expense

d The borrowings carried interest of 15% a year and were unpaid at the year end

e Depreciation to be taken at 15% on the cost of the fittings owned at the year end

Buildings are not depreciated

You are required to:

a Prepare open ledger accounts and bring down all the balances in the opening statement

JOURNAL ENTRIES PAGE 1

To record repaid borrowings

To record electricity payable

To record bad debt

To record remaining of stationery

Interest expense (borrowings) 2nd 1,312.5

To record interest payables

Buildings Account No.

Depreciation expense J1 2,550

Dec 3 1

Dec 3

1

Dec 3

1

Trading inventories J1 15,000

Trading inventories J1 4,900

Dec 3

1

Rent expense Account No.

Dec 3

Trade payables Account No.

Trade receivables J1 33,000

Dec 3 1

Interest expense J2 1,425Interest expense J2 1,312.5

Dec 3 1

Dec 3

Prepaid rent Account No.

Electricity expense J2 30

Dec 3 1

Allowance for bad debt J2 250

Dec 3

1

Dec 3 1

MOON COMPANY ADJUSTED TRIAL BALANCE

MOON COMPANY INCOME STATEMENT

For the year ended 31 Dec 20XX

MOON COMPANY BALANCE SHEET

Freeland $500,000

Raw materials inventories at 31/12/20XX 150,000

Finished goods inventories 01/01/20XX 125,000

Raw materials and consumables used 675,000

3,088,75

0

Accrued preference dividend payable 90,000

Accumulated depreciation - Buildings 37,500

Accumulated depreciation - Equipment 15,000

The following addition details are relevant:

1 Provision of bad debts is to be maintained at 10% of trade receivables

2 The land was revalued at $700,000 but the effect is yet to be given in the accounts

3 The suspense account represented the following

Surplus on physical verification of inventory $15,000

5 Market value of investments (ignore deferred tax) $455,000

6 CEO is entitled for a remuneration of $15,500

7 Depreciation to be charged per annum using straight line method

Building 3%

Equipment 5%

8 Dividend on preference shares is in arrears for 5 years The board has decided to pay dividend for 4 years

9 Bills receivable maturing after the reporting date and discounted amounted to $ 18,000

10 Finished goods and work in process inventories at 31/12/20XX $140,000

11 Tax rate for the year is 25%

You are required to: Prepare financial statements from incomplete records Prepare financial statements in a form suitable for publication by sole trader

Moon Company LtdStatement of financial position

As at 31 December 20XX

Cost

Calculate retained earnings

Retained earnings, Jan 1 8,750

0295,750Less preference dividend 22,500

Retained earning Dec 11 273,250

Moon Company LtdStatement of Comprehensive IncomeFor the year ended 31 December 20XX

o

o Credit

Date Items Foli

o

o Credit

Fitting depreciation (Accumulated)

Sales revenue J1 33,100

Trade receivables J1 32,810 Rent Expense J1 3,000

Electricity expense J1 1,070 General expense J1 580

Trade payables J2 18,150 Owner’s Equity J2 10,400 Dec 3

Fitting cost J1 2,000 Dec 3

Date Items Foli

c/d

43,460 Wages expense

Interest on borrowings payables

Dec 3

1

Bad Debt expense

o

o

Credit Allowance for bad

Allowance for bad debt

Interest expense (borrowings)

o

o

Credit Interest on

The following is the statement of financial position of Moon’s business at 1 Jan of last year

£ £ The following is the summary of the transactions that took place

during the year:

14 Inventories were bought on credit for £17,000

ASSETS

Non-current assets

15 Inventories were bought for £3,700 cash

16 Credit sales revenue amounted to £33,000 (cost £15,000)

17 Cash sales revenue amounted to £10,300 (cost £4,900)

19 Rent of £3,000 was paid The annual rental amounts to £3,000

20 Electricity of £1,000 was paid

21 General expense of £500 was paid

22 Additional fittings were purchased on 1 Jan for £2,000 The cash for this was raised from additional borrowings of this amount

The interest rate is 15% a year, the same as for existing borrowings

23 £1,500 of the borrowings was repaid on 30 June.

24 Cash received from trade payables amounted to £32,800

25 Cash paid to trade payables amounted to £18,000

26 The owner withdraw £10,000 cash and £500 inventories for private use.

At the end of the year it was found that:

f The electricity bill for the last quarter of the year for £300 had not been paid

g Trade receivables amounting to £250 were unlikely to the received

(Bad debt)

h The value of stationery remaining was estimated at £150 Stationery

is included in general expense

i The borrowings carried interest of 15% a year and were unpaid at the year end

j Depreciation to be taken at 15% on the cost of the fittings owned at the year end Buildings are not depreciated.

You are required to:

e Prepare open ledger accounts and bring down all the balances in the opening statement of financial position.

f Make entries to record the transactions 1 to 13 and abcde (adjusting entries (above), opening any additional accounts as necessary.

g Open an income statement (part of the double entry, remember)

Make the necessary entries for the bulleted list above and the appropriate transfers to the income statement

h List the remaining balances in the same form as the opening statement of the financial position (above).

Property land and equipment

Fitting: Cost

Depreciation

15,00 0 2,000

13,000 Current assets

JOURNAL ENTRIES

Dec 31/1 Trading inventories

c Inventories of Stationery

Interest expense (borrowings) 2nd

1 st

2 nd

Buildings Account No.

Fittings cost Account No.

Fitting depreciation (Accumulated) Account No.

Depreciation expense J1 2,550

Trading inventories J1 15,000

Trading inventories J1 4,900

Rent expense Account No.

Sales revenue J1 10,300 Wages expense J1 3,700 Trade receivables J2 32,800 Rent Expense J1 3,000

Electricity expense J1 1,000 General expense J1 500

Trade payables J2 18,000 Owner’s Equity J2 10,000

Wages expense

Dec 3 1

Interest on borrowings payables

Interest expense J2 1,425 Interest expense J2 1,312.5

Allowance for bad debt J2 250

Bad debt expense J2 250

Interest expense (borrowings)

Interest on borrowings J2 1,425

Interest on borrowings J2 1,312.5

MOON COMPANY ADJUSTED TRIAL BALANCE

December 31, 20XX

MOON COMPANY INCOME STATEMENT For the year ended 31 Dec 20XX

MOON COMPANY

BALANCE SHEET

As at Dec 31, 20XX

Exercise 2: Company Accounts

The following balances have been extracted from the books of Moon Limited as at 31 December

20XX

Freeland $500,000 The following addition details are relevant:

1 Provision of bad debts is to be maintained at 10%

of trade receivables

2 The land was revalued at $700,000 but the effect

is yet to be given in the accounts

3 The suspense account represented the following Surplus on physical verification of inventory

$15,000

4 Provision for income tax $ 80,000

5 Market value of investments (ignore deferred tax)

$455,000

6 CEO is entitled for a remuneration of $15,500

7 Depreciation to be charged per annum using straight line method

Building 3%

Equipment 5%

8 Dividend on preference shares is in arrears for 5 years The board has decided to pay dividend for 4 years

9 Bills receivable maturing after the reporting date and discounted amounted to $ 18,000

10 Finished goods and work in process inventories

at 31/12/20XX $140,000

11 Tax rate for the year is 25%

You are required to: Prepare financial statements from incomplete records Prepare financial statements in a form suitable for publication by sole trader

Raw materials and consumables used 675,000

Employee benefit expense 150,000

Miscellaneous expenses 20,000

Investment in shares 450,000

Repairs and maintenance 3,750

3,088,750

Income from investments 10,000

Provision for bad debts 5,000

Accrued preference dividend payable 90,000

Provision in expenses 30,000

Accumulated depreciation - Buildings 37,500

Accumulated depreciation - Equipment 15,000

As at 31 December 20XX

C o s t

D ep re ci

V al u

e

at io

n

B o o k N et Assets

7 0 0, 0 0 0

Building

4 3 7 , 5 0 0

50 ,6 25

3 8 6, 8 7 5

Equipment

1 6 2 , 5 0 0

23 ,1 25

1 3 9, 3 7 5

Investment

s

4 5 5 , 0 0 0

4 5 5, 0 0 0

Total

non-current

assets

1, 6 8 1, 2 5 0 Current

assets

Inventories

29 0, 00 0

Trade

receivables

33 7, 50 0 Cash and

cash

equivalents

15 ,0 00

Total

current

assets

6 4 2, 5 0 0

Total assets

2, 3 2 3, 7 5 0

share

capital

25 0, 00 0

Retained

earnings

27 3, 25 0 Other

Revaluatio

n surplus

15 0, 00 0

equity

6 1 4, 5 0 0 Non-current

liabilities

Long-term

borrowings

13 0, 00 0 Deferred

tax

50 ,0 00

Total

non-current

liabilities

1 8 0, 0 0 0 Current

liabilities

Trade

payables

55 ,0 00

Short-term

borrowings

23 1, 25 0 Current

portions of

long-term

borrowings

20 ,0 00 Current

tax payable

65 ,0 00

Proposed

dividends

11 2, 50 0 Short term

provision

45 ,5 00

Total

current

liabilities

5 2 9, 2 5 0

Total liabilities

7 0 9, 2 5 0

Total equity and

liabilities

2, 3 2 3, 7 5 0 Calculate retained earnings

Retained earnings, Jan 1 8,750

295,750 Less preference dividend 22,500

Retained earning Dec 11 273,250

Moon Company Ltd Statement of Comprehensive Income For the year ended 31 December 20XX