Chapter 5
Last minute adjustments
E5.1 Croxteth has been in the retail trade for many years. The following is his trial
balance as at 31 July 2008:
Bank
Capital
Creditors
Delivery vans at cost
Depreciation of delivery vans (at 1
August 2007)
Shop equipment at cost
Depreciation of equipment (at 1 August
2007)
Drawings
Purchases
Sales
Shop expenses
Stock (at 1 August 2007)
Dr
£
2,000
Cr
£
35,000
4,800
40,000
12,000
8,000
2,400
8,000
70,000
85,000
7,200
4,000
139,200
______
139,200
Additional information:
1) Stock at 31 July 2008: £14,000.
2) Depreciation on delivery vans at a rate of 30% per annum on cost, and on shop
equipment at a rate of 10% per annum on cost.
Required:
Prepare Croxteth’s trading and profit and loss account for the year to 31 July 2008 and a
balance sheet as at that date.
E5.2 Daly’s book-keeper has extracted the following trial balance as at 31 January
2001:
Administrative expenses
Capital
Cash at bank and in hand
Creditors
Debtors
Drawings
Furniture and fittings:
Dr
£’000
63
Cr
£’000
252
9
8
1
18
At cost
Accumulated depreciation (at 1
February 2000)
Motor vehicles:
At cost
Accumulated depreciation (at 1
February 2000)
Purchases
Rent, rates, heat and light
Sales
Stock (at 1 February 2000)
Trade creditors
Trade debtors
Wages and salaries
200
90
800
480
500
9
760
35
170
70
55
1,760
_____
1,760
Additional information:
1) Stock at 31 January 2001: £40,000.
2) Depreciation is charged on the furniture and fittings at a rate of 15% on cost and on
the motor vehicles at a rate of 60% on the reduced balance.
3) A trade debt of £10,000 is to be written off.
4) A provision for bad and doubtful debts is to be established equivalent to 5% of
outstanding trade debtors at the end of the year.
Required:
Prepare Daly’s trading and profit and loss account for the year to 31 January 2001 and a
balance sheet as at that date.
E5.3
Elm is a wholesaler. The following is his trial balance at 30 June 2006:
Advertising
Bank
Capital
Cash
Depreciation (at 1 July 2005):
Furniture
Vehicles
Discounts allowed
Discounts received
Drawings
Electricity
Furniture, at costs
Dr
£
3,000
400
Cr
£
73,500
100
1,800
7,000
400
500
10,000
3,200
12,000
General expenses
Interest on investments
Investments
Provision for bad and doubtful debts (at 1
July 2005)
Purchases
Purchases returns
Rates
Sales
Sales returns
Stock (at 1 July 2005)
Telephone
Trade creditors
Trade debtors
Vehicles, at cost
Wages and salaries
28,900
800
5,000
2,300
645,000
2000
6,000
820,000
4,000
47,000
1,300
13,000
42,000
35,000
77,600
920,900
______
920,900
Additional information:
1) Stock at 30 June 2006: £50,000.
2) The provision for bad and doubtful debts is to be made equal to 5% of the trade
debtors as at 30 June 2006.
3) Furniture is to be depreciated at a rate of 15% on cost, and the vehicles at a rate of
20% on a reducing balance basis.
4) At 30 June 2006, amount owing for electricity: £300; rates paid in advance: £1,000.
Required:
Prepare Elm’s trading and profit and loss account for the year to 30 June 2006 and a
balance sheet as at that date.
E5.4 Teak has extracted the following trial balance from his books of account as at 31
December 2008:
Building society deposit
Capital
Cash at bank and in hand
Depreciation (at 1 January 2008):
Plant and equipment
Vehicles
Dividends received (interim)
Interest received from building society
Interest received from Gray
Dr
£
20,000
Cr
£
66,500
400
30,000
16,000
100
700
500
Investments at cost
Loan to Gray (repayable 1 October 2009)
Office expenses
Plant and equipment at cost
Purchases
Sales
Stock (at 1 January 2008)
Trade debtors/trade creditors
Vehicles at cost
Vehicle expenses
5,000
10,000
39,000
50,000
83,000
164,000
2,800
13,200
64,000
12,600
300,000
22,200
_______
300,000
Additional information:
1) Stock at 31 December 2008: £15,800.
2) During the year to 31 December 2008, Teak had used some goods (purchased through
the business) for his own personal consumption. At cost price these goods were
estimated to be worth £6,000. No entries had been made in the books of account to
reflect this transaction.
3) At 31 December 2008 there was an amount outstanding for office expenses of £1,200.
At the same date Teak was due to receive interest from the building society of £800,
and a final dividend of £600 from a company in which he had some investments.
4) Depreciation is to be charged on plant and equipment at a rate of 30% per annum on
cost, and on vehicles at a rate of 25% on the reduced balance.
5) Office expenses include Teak’s drawings for the year of £9,000.
Required:
Prepare Teak’s trading and profit and loss account for the year to 31 December 2008 and
a balance sheet as at that date.
E5.5 Patsy Chan has been in business for several years. The following trial balance
was extracted from her books of account as at 30 September 2009:
Bad debt
Capital
Carriage inwards
Carriage outwards
Cash at bank and in hand
Discounts allowed
Discounts received
Dividends received
Drawings
Investments at cost
Dr
£’000
15
Cr
£’000
653
10
34
7
18
27
2
12
20
Motor vehicles:
At cost
Accumulated depreciation (at 1
October 2008)
Office expenses
Plant and equipment:
At cost
Accumulated depreciation (at 1 October
2008)
Provision for bad and doubtful debts
(at 1 October 2008)
Purchases
Salaries
Sales
Stock (at 1 October 2008)
Trade creditors
Trade debtors
Wages
600
300
35
240
144
3
570
105
900
200
71
160
74
2,100
_____
2,100
Additional information:
1) Stock at 30 September 2009: £180,000.
2) Depreciation on motor vehicles is charged at a rate of 25% on cost and on plant and
equipment at a rate of 30% on cost.
3) Wages owing at 30 September 2009: £2,000.
4) Business rates paid in advance at 30 September 2009: £5,000.
5) A provision for bad and doubtful debts is maintained at a rate equivalent to 2.5% of
outstanding trade debtors as at the end of the year.
Required:
Prepare Patsy Chan’s trading and profit and loss account for the year to 30 September
2009 and a balance sheet as at that date.
E5.6 Essce Limited is a new company. Following the end of its first financial year to
31 March 2004, it is now considering what accounting policies and methods it should
adopt in preparing its accounts. The following data are relevant to some of the issues
which it has to face:
Sales
Purchases
Stocks (at 31 March 2004, based on the latest prices paid;
the replacement cost of this stock is estimated to be
£330,000)
£’000
1,500
900
300
Fixed assets at cost:
Plant and equipment (estimated life: 10 years; estimated
residual value: £100,000)
Motor vehicles (estimated life: 5 years; estimated
residual value: £50,000)
Trade debtors (at 31 March 2004, including a debt
outstanding of £20,000 since April 19X3)
Fuel and power (for the 11 months to 28 February 2004;
invoice received in June 2004 for £15,000 for the three
months to 31 May 2004)
Insurance (for the 18 months to 30 September 2004)
1,500
500
270
30
90
Note:
By using the latest prices for valuing its closing stock, the Company would appear to be
using what is known as the LIFO (last-in, first-out) method for pricing the cost of selling
(or issuing) goods. This method is the opposite of the FIFO (first-in, first-out) method.
LIFO is not common in the United Kingdom as SSAP 9 does not approve of it and it is
not allowable for taxation purposes.
Required:
Insofar as the information permits, advise management on (i) the accounting policies and
methods, and (ii) the suggested amounts that should be included in the financial accounts
for the year to 31 March 2004 in respect of each of the following items:
(a) stock valuation; (b) depreciation; (c) bad and doubtful debts; (d) fuel and power; and
(e) insurance.