AF2101 – Intermediate Financial Accounting 1
LECTURE 3 Handout - VALENCIA
The following trial balance has been produced by the accountant of Valencia for the year
ended 31st December 2021.
£000s
£000s
Overdraft
8625
10% Loan (2029)
63250
Depreciation on equipment
3450
Depreciation on motor vehicles
9200
Share Capital
17250
Retained Earnings
57500
Provision for taxation
5750
Turnover (Sales)
345000
Payables
29900
Bank Interest
1150
Cash
4600
Receivables
28750
Directors’ pay
1150
Dividends
1725
Equipment
14950
Audit Fee
1150
Land (freehold)
57500
Buildings (freehold)
57500
Hire charges
300
Interest paid
6325
Light and power
920
Sundries
275
Motor expenses
9200
Motor vehicles
20700
Post/phone
1840
Purchases
258750
Insurance
3450
Repairs
2760
Salaries
18055
Income Tax
5750
Inventory at 1st January 2021
43125
-----------------Total
539925
539925
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You are provided with the following additional information:
(1) Inventory at cost on 31st December 2021 is £ 22,875,000. In addition there is extra
inventory which originally cost £4,000,000, but because the products are no longer
the most modern technology now has a NRV of £3,000,000.
(2) The company’s depreciation policy is to depreciate buildings at 2% straight line, and
it uses reducing balance method to depreciate equipment at 10% and motor
vehicles at 25%.
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AF2101 – Intermediate Financial Accounting 1
(3) There are repairs of £2,300,000 to be treated as a prepayment and salaries of
£5,175,000 to be accrued.
(4) A breakdown of salaries showed the following: Factory staff £11,500,000, Factory
inspectors £575,000, Warehouse staff £4,600,000, Accounts dept staff £575,000,
Drivers £3,680,000, and Sales staff £2,300,000.
(5) Directors are assumed to spend half their time on production and half on admin.
(6) Floor space is estimated to be 50% production, 25% distribution and 25% admin.
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