Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Answers Answer to Question 1.4A BA 2 (a) All in £000 Balance b/d Goods to branch Branch accounts receivable: returns
Balance b/d Returns from branch Head office trading a/c
Returns from branch Branch inventory deficiency Branch profit and loss Unrealised profit c/d
Balance b/d Branch inventory
Branch Inventory (Selling price) 75 Returns 600 Cash sales 8 Branch accounts receivable Inventory deficiency to branch adjustment Balance c/d 683
30 120 437 6 90 683
90 Goods Sent to Branch (Cost price) 20 Branch inventory 380 400
400 400
Branch Adjustment (Profit loading) 10 Unrealised profit b/d 6 Goods to branch 179 30 225
225
Unrealised profit b/d
30
Branch Accounts receivable 66 Branch inventory: returns 437 Bank Discounts Bad debts Balance c/d 503
Balance b/d
81
Balance b/d Cash sales Branch accounts receivable
Branch Bank 3 General expenses 120 To HO bank 390 Balance c/d 513
Balance b/d
12
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25 200
8 390 9 15 81 503
42 459 12 513
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
(b) Revenue: Cash Credit Less
Paper Products Income Statement for the year ending 31 March 2016 Head Office Branch 1,500 120 1,960 429 3,460 549
Cost of goods Opening inventory Add Purchases
180 2,400 2,580 220
Less Closing inventory Gross profit Less Expenses: General expenses Discounts allowed Bad debts Net profit
2,360 1,100
410 29 24
463 637
50 380 430 60 42 9 15
370 179
66 113
Total 1,620 2,389 4,009 230 2,780 3,010 280 452 38 39
2,730 1,279
529 750
(c) See text, but merits mainly concern tight control as HO can see what profits the branch ought to be making; also saves branch staff having to keep full accounting records. Demerits depend on whether branch staff are given room for initiative within the above system, or else the HO stupidly lets the system strangle all initiative.
Answer to Question 1.6A BA 2 LR Income Statement for the year ending 31 December 2016 Head Office Revenue 83,550 Less Cost of goods sold: Purchases 123,380 Goods to branch 44,264 79,116 Less Closing inventory 12,276 66,840 Gross profit 16,710 Less General expenses 8,470 Net profit 8,240
Branch 51,700 44,264 2,664
41,600 10,100 6,070 4,030
Statement of Financial Position as at 31 December 2016 Non-current assets Current assets Inventory Accounts receivable Cash in transit Bank
39,000 14,940 15,020 1,000 5,260
Less Current liabilities Accounts payable
12,690 62,530
Equity Capital introduced Add Net profit Less
36,220 75,220
52,000 12,270 64,270 1,740 62,530
Drawings
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Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Workings: Inventory: Head office Purchases Less Cost of sales: 100/125 × £83,550 Cost of goods to branch: 100/125 × £56,250 Add
123,380 66,840 45,000
111,840 11,540 736 12,276
Cost of goods in transit: 100/125 × £920
Inventory: Branch Cost of goods sent Less Cost of sales: 100/125 × £51,700 Cost of goods in transit: Inventory shortage at cost: 100/125 × £300
45,000 41,360 736 240
42,336 2,664
Answer to Question 1.8A BA 2 (a) (All in £000)
Star Stores Income Statements for the year ending 31 December 2016 Head Office Revenue 1,200 Goods transferred to branch 360 1,560 Less Cost of goods sold: Opening inventory 80 Add Purchases 880 Transfer of goods from head office 960 Less Closing inventory 100 860 Gross profit 700 Less Administrative expenses 380 Distribution costs 157 Increase in provision for profit included in branch inventory* 13 550 Net profit 150 * (48 × 1/6) − 5 + (60 × 1/6)
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Branch 570 570 30 300 330 48
282 288
30 172 202 86
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
(b) Statement of Financial Position as at 31 December 2016 Non-current assets Cost Plant and equipment 330 Motor vehicles 700 1,030 Current assets Inventory (100 + 48 + 60 − 18) Accounts receivable and prepayments Bank and cash (25 + 2 + 15)
Depn 150 400 550 190 206 42
Less Current liabilities Accounts payable and accruals
Net 180 300 480
438 918 196 722
Capital: Balance at 1.1.2016 Add Net profit
550 236 786 64 722
Less Drawings
Workings Balance b/d Net profit
Balance c/d
Answer to Question 1.11A
Branch Current Account 255 Inventory in transit c/d 86 Cash in transit c/d Balance c/d 341 Head Office Current Account 266 Balance b/d Net profit 266
180 86 266
BA 2
Conversion of currency to sterling: Dr Balances: Non-current assets at cost Accounts receivable and cash Operating costs Cr
60 15 266 341
Balances: Sales Accounts payable HO current account Accumulated depreciation
Mics 900,000 36,000 225,000 1,161,000
Rate 8 to £ 4 to £ 5 to £
£ 112,500 9,000 45,000 166,500
480,000 25,000 420,000 236,000 1,161,000
5 to £ 4 to £ actual 8 to £
96,000 6,250 42,600 29,500 174,350
Difference represents exchange loss: to be written off
Home Ltd Income Statement for the year ending 31 December 2017 Revenue (96,000 + 186,300) Less Operating costs (103,700 + 45,000) Exchange losses Net profit for the year Add Retained profit 31 December 2016 Retained profit at 31 December 2017
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7,850 166,500
282,300 148,700 7,850
156,550 125,750 110,800 236,550
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Statement of Financial Position as at 31 December 2017 Non-current assets (W1) Current assets Accounts receivable and cash (17,600 + 9,000) Creditors: amounts falling due within one year Trade accounts payable (9,700 + 6,250)
425,900 26,600 15,950
Capital and reserves Called-up share capital Retained profits
10,650 436,550 200,000 236,550 436,550
(W1) Cost 450,000 + 112,500 = 562,500 – accumulated depreciation 107,100 + 29,500 = (net) 425,900.
Answer to Question 2.2A BA 2 (a) 2015 Jan 1 Pear Ltd 2015 Dec 31 Balance c/d 2016 Dec 31 Balance c/d
2017 Dec 31 Balance c/d
2015 Jan 1 Bank Dec 31 Bank 31 Balance c/d 2016 Dec 31 Bank 31 Balance c/d 2017 Dec 31 Bank
Computer 2,192 Accumulated Provision for Depreciation 2015 836 Dec 31 Profit and loss 2016 1,338 Jan 1 Balance b/d Dec 31 Profit and loss 1,338 2017 1,640 Jan 1 Balance b/d Dec 31 Profit and loss 1,640 Dowe Ltd 2015 600 Jan 1 600 Dec 31 1,041 2,241 2016 600 Jan 1 545 Dec 31 1,145
Computer HP interest (10% of 1,492)
Balance b/d HP interest (10% of 1,041)
600 (b) Statement of Financial Position as at 31 December 2015 (extract) Non-current assets Computer at cost 2,092 Less Depreciation 836 1,256 Current liabilities Owing on HP 1,041
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836 502 1,338 1,338 302 1,640
2,092 149 2,241
2017 Jan 1 Balance b/d Dec 31 HP interest (10% of 545)
600
836
1,041 104 1,145 545 55 600
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Answer to Question 2.4A BA 2 (a) 2016 July 31 Nov 30
2017 Jan
1
Motor Vehicles HP Company: Cash price DL1 HP Company: Cash price DL2
27,000
2016 Dec 31 Balance c/d
63,000
36,000 63,000
Balance b/d
63,000
63,000 2017 Sept 1 Disposal DL1 Dec 31 Balance c/d
27,000 36,000 63,000
63,000 (b) 2016 Dec 31
2017 Sept 1 Dec 31
Depreciation 3,563 2016 Dec 31 Profit and loss: DL1 25% × 5/12 × £27,000 DL2 25% × 1/12 × £36,000 3,563
Balance c/d
Disposals re: DL1 Balance c/d
7,313 9,750
2,813 750 3,563
2017 Jan 1 Balance b/d Sept 1 Profit and loss: DL1 25% × 8/12 × £27,000 DL2 25% × £36,000
17,063 (c) 2016 July 31 Nov 30 Dec 31
Hire Purchase Company DL1 DL2 Cash: deposit 4,680 2016 Motors Cash: deposit 7,200 July 31 Cash: instalments Nov 30 5 × £1,050 (W1) 5,250 Dec 31 1 × £1,350 1,350 Balance c/d 17,670 27,600 27,600
2017 Jan–Aug 31 Cash: 8 × £1,050 8,400 Sept 20 Cash to settle 10,700 Jan–Dec 31 Cash 12 × £1,350 Balance c/d 19,100 (d) 2017 Sept 1
(W1)
Motor vehicles DL1
DL1
36,150
Cash price 27,000 Cash price Profit and loss: HP interest 5 × £120 600 1 × £150 27,600
16,200 13,200 29,400
2017 Jan 1 Balance b/d 17,670 Sept 20 Profit and loss: HP interest 1,430 Dec 31 12 × £150 19,100
Assets Disposal 27,000 2017 Sept 1 Depreciation Sept 20 Cash Dec 31 Profit and loss: Loss on disposal 27,000
27,000 + 2,880 − 4,680 = 1,050 24
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3,563 4,500 9,000 17,063
DL2 36,000
150 36,150 27,600 1,800 29,400
7,313 18,750 937 27,000
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Answer to Question 2.8A BA 2 Object Ltd Income Statement for the year ending 31 August 2016 Hire purchase sales Cash sales
540,000 71,000 611,000
Less Cost of goods sold Opening inventory Purchases Inventory repossessed
15,000 342,000 2,500 359,500 12,000
Less Closing inventory (see W1) Add Profit on repossessed goods (see W2) Less Provision for unrealised profit (see W3) Gross profit Less Administration and shop expenses Depreciation Net profit for the year
130,000 15,000
Statement of Financial Position as at 31 August 2016 Non-current assets Premises and equipment at cost Less Depreciation to date Current assets Inventory Accounts receivable (see W4) 223,560 Less Provision for unrealised profit (W3) 99,360 Bank and cash
100,000 60,000
347,500 263,500 700 264,200 99,792 164,408 145,000 19,408
40,000
12,000 124,200 6,208
Current liabilities Trade accounts payable Net current assets
142,408 182,408 80,000 102,408
Equity Called-up share capital Retained profits
75,500 27,408 102,408
Workings: (W1) Opening inventory Purchases Cash sales Less Repossessed Accordingly: Cost of sales 67,500 × 100/150 HP sales: Cost £540,000 × 100/180 Closing inventory
15,000 342,000 71,000 3,500
67,500 45,000 300,000
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357,000
345,000 12,000
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
(W2) HP Accounts receivable Profit to trading a/c
(W3) Repossessions £3,240 × 80/180 Balance c/d £223,560 × 80/180
Repossessions 3,240 Provision for unrealised profit 700 Purchases 3,940
1,440 2,500 3,940
Provision for Unrealised Profit 1,440 Balance b/d 99,360 Trading account 100,800
1,008 99,792 100,800
HP Accounts receivable 2,268 Cash 540,000 Repossessions Balance c/d 542,268
315,468 3,240 223,560 542,268
(W4) Balance b/d HP sales
Answer to Question 2.9A BA 2 (a) First assumption F Ltd Hire Purchase Income Statement (extract) Hire purchase sales Cost of sales Provision for unrealised profit Loss on repossessed goods Gross profit
1,815 1,210 229 53
1,492 323
Statement of Financial Position (extract) Hire purchase accounts receivable 687 Less Provision for unrealised profit 229 458 Workings: Cost Jan 10 Mar 8 May 12 July 6 Sept 20 Oct 15 Nov 21
£ 150 350 90 200 70 190 160 1,210
HP sales price £ 225 525 135 300 105 285 240 1,815
Cash collected £ 180 420 81 247 42 57 48 1,075
Balance £ 45 105 54 – 63 228 192 687
Balance of profit Earned (W1) Unearned % £ % £ 80 60 20 15 80 140 20 35 60 27 40 18 100 47 – – 40 14 60 21 20 19 80 76 20 16 64 323 229
Cost £ 30 70 36 – 42 152 128 458
W1: 180/225 = 80%; 420/525 = 80%; 81/535 = 60%; etc. (b) Second assumption F Ltd Hire Purchase Income Statement (extract) Hire purchase sales Cost of sales Provision for unrealised profit Loss on repossessed goods Gross profit
1,815 1,210 405 53
Statement of Financial Position (extract) Hire purchase accounts receivable 687 Less Provision for unrealised profit 405 282
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1,668 147
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Workings: Cost Jan 10 Mar 8 May 12 July 6 Sept 20 Oct 15 Nov 21
150 350 90 200 70 190 160 1,210
HP sales price 225 525 135 300 105 285 240 1,815
Cash collected 180 420 81 247 42 57 48 1,075
Balance 45 105 54 – 63 228 192 687
Balance of profit Earned Unearned 30 45 70 105 – 45 47 – – 35 – 95 – 80 147 405
Cost – – 9 – 28 133 112 282
Answer to Question 2.10A BA 2 (a) (i) 1.1.12
Machinery 20,000
HP Loan
(ii) 31.12.13
Balance c/d
31.12.14
Balance c/d
(iii) 1.1.12 31.12
31.12.13
Provision for Depreciation: Machinery 31.12.12 Profit and loss 8,000 31.12.13 Profit and loss 8,000 1.1.14 31.12.14
12,000 12,000
Bank Bank Balance c/d
Hire Purchase Loan 6,000 1.1.12 5,828 31.12 9,852 21,680
Bank Balance c/d
5,828 5,206
1.1.13 31.12.13
4,000 4,000 8,000
Balance b/d Profit and loss
8,000 4,000 12,000
Machinery Profit and loss (12% × 14,000)
20,000 1,680 21,680
Balance b/d Profit and loss (12% × 9,852)
9,852 1,182 11,034
11,034 31.12.14
Bank
5,831
1.1.14 31.12.14
Balance b/d Profit and loss (12% × 5,206)
5,206 625 5,831
5,831 (b)
(Extracts) Statement of Financial Position as at 31 December 2016
Non-current assets Machinery at cost Less Depreciation to date
20,000 4,000 16,000
Non-current liabilities Owing under hire purchase Current liabilities Owing under hire purchase
2017
2018
20,000 8,000 12,000
20,000 12,000 8,000
5,206 4,646
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5,206
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Answer to Question 3.3A BA 2 Cantilever Ltd – Contract Account 9,411 Architect’s certificates (64,170 × 10/9 ) 71,300 28,070 Inventory of materials 2,164 6,149 Plant (12,180/60 months = 203 × 50 months) 10,150 2,146 18,493 12,180 366 49 76,864 Profit and loss (6,750 × 2/3) 4,500 Reserve (part of apparent profit not recognised as being earned yet) 2,250 83,614 83,614
Materials issued Materials bought Direct expenses Administration charge Wages Plant bought Accrued wages c/d Accrued expenses c/d
Answer to Question 3.4A BA 2 Plant Materials Wages Sundry expenses Head office charges
Contract Account – Year ended 31 December 2017 30,000 Sale of materials (at cost) 124,000 Unused materials c/d 95,000 Plant c/d 5,000 Cost of contract to date c/d 9,000 263,000
Cost of contract b/d Unused materials b/d Plant b/d Profit and loss account Profit taken to date
8,000 10,000 20,000 225,000 263,000
225,000 10,000 20,000 43,000
Workings: Cash received to date Value of work certificated (100/75 thereof) Work completed but not yet certified Total value of work executed to date Further costs to be incurred: Wages Materials 74,400 + 10,000 Sundry expenses Plant 25,000 + 20,000 Plant residual value Head office charges (6/9 × 9,000) + 10% Contingency provision
Value 195,000 260,000 30,000 290,000
Cost
Profit
225,000
65,000
520,000
209,000 434,000
86,000
64,000 84,400 9,000 45,000 (15,000) 6,600 15,000 209,000
Work certified to date 260,000: Profit to be taken now 260/520 × 86,000 =
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43,000
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Answer to Question 3.5A BA 2 (All in £000) (a) Workings: (i) Profits/(losses) Contract price Less Costs to date 664 Estd further costs to completion 106 Estd post-completion costs 30 Estd total profits/(losses) Profit/loss recognised Profit: Cost of sales to date Total cost: Contract 1 580/800 × 300 Contract 2 470/620 × 330 Overall losses
1 1,100
800 300
Contracts 3 1,400
2 950
5 1,200
535
810
640
1,070
75
680
800
165
10
620 330
45
1,535 ( 135)
20
1,460 ( 160)
5 (
1,240 40)
218 250 (135)
(ii) Payments on account Turnover to 31.10.2017 Progress payments: Received Awaited Retained Yet to recover Excess paid Transferred to long-term (W1) Payments on account (net)
4 1,300
680 40 80 800
Contracts 3 646 615 25 60 700
(80) 65 (15)
(54) 29 (25)
1 798 615 60 75
750 48
(160)
2 720
(40) 4 525
385 200 65
650
5 900 722 34 84
840 60
(125) (125)
(W1) Costs not changed to cost of sales – foreseeable losses (iii)
Data for Income Statement for the year ending 31 October 2017 Contracts 1 2 3 4 5 Cost of sales to 31.10.2017 580 470 646 525 900 Profit to 31.10.2017 218 250 Turnover to 31.10.2017 798 720 Cost of sales to 31.10.2016 560 340 517 400 610 Turnover for year 238 380 129 125 290 Cost of sales to 31.10.2017 Loss to 31.10.2016
580
470
646 135 781
525 160 685
900 40 940
Cost of sales to 31.10.2016 Cost of sales for year
460 120
245 225
517 264
470 215
610 330
Profit/(loss) (proof) to 31.10.2017 to 31.10.2016 Profit/(loss) for year
218 100 118
250 95 155
(135)
(160) ( 70) ( 90)
664 580 84
535 470 65
84
65 –
810 646 164 135 29 29 –
Costs to 31.10.2017 To cost of sales Costs not yet changed to C of S Less Losses foreseeable Transfers from payments on a/c Long-term contract balances
(135)
Provision for losses
15
40)
(
40)
640 525 115 160 ( 45)
1,070 900 170 40 130
–
130
( 45)
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Profit or Loss
1,162
1,154
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Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
(b) Statement of Financial Position extracts at 31 October 2017 Current assets Inventory Long-term contracts (84 + 130) Accounts receivable Recoverable on long-term contracts (48 + 60) Creditors Payments on account (15 + 125 + 25) Provisions for liabilities and charges Foreseeable losses provision Note attached to Statement of Financial Position: Long-term contract balances (84 + 65 + 29 + 130) Less Payments on account (29 + 65)
214 108 165 45 308 94 214
Answer to Question 5.4A BA 2 (Dates omitted) (a) Forfeited shares (5,000 × £1) Balance c/d
Ordinary Share Capital 5,000 Balance b/d Application and allotment 595,000 First and final call 600,000 Balance b/d Amber
Balance c/d
600,000 600,000
(b)
Share Premium Application and allotment 52,500 Forfeited shares 52,500
Balance c/d
(c) Bank refunds (75,000 × 65p) Bank refunds re: 3 for 4 allotment (25,000 × 65p) Ordinary share capital Share premium
Application and Allotment 48,750 Bank (200,000 × 65p) Bank (100,000 × 55p) 16,250 70,000 50,000 185,000
(d) Ordinary share capital (100,000 × 30p)
First and Final Call Bank (95,000 × 30p) 30,000 Forfeited shares (5,000 × 30p) 30,000
(e) First and final call Amber Ltd Share premium
Forfeited Shares 1,500 Ordinary share capital 1,000 2,500 5,000
(f ) Ordinary share capital
Amber Ltd 5,000 Bank (5,000 × 80p) Forfeited shares* 5,000
* Discount on reissue
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500,000 70,000 30,000 600,000 595,000 5,000 600,000
50,000 2,500 52,500
130,000 55,000
185,000
28,500 1,500 30,000
5,000 5,000
4,000 1,000 5,000
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Answer to Question 5.6A BA 2
Cash: Return of unsuccessful application monies 8,000 × 0.75 Share capital: Due on application and allotment 150,000 × 0.80 Share premium 150,000 × 0.15
Grobigg Ltd Application and Allotment Cash: 180,000 × 0.75 6,000 Cash: Balance due on allotment 120,000 22,500 148,500 Call
Share capital 150,000 × 0.20
30,000
Cash: 149,600 × 0.20 Forfeited shares
Forfeited Shares 80 Share capital 400 Cash: 400 × 0.90 280 760
Forfeited shares Balance c/d
13,500 148,500
29,920 80 30,000
30,000 Call Share capital Share premium
135,000
400 360 760
Share Premium Application and allotment Forfeited shares
22,500 280
Share Capital 400 Application and allotment 150,000 Forfeited shares Call 150,400
120,000 400 30,000 150,400
Answer to Question 6.2A BA 2 (a) (A1)
Dr 7,000
Bank (A2) Preference share applicants Cash received from applicants
Cr 7,000
(B1)
Preference share applicants (B2) Preference share capital Preference shares allotted
7,000
(C1)
Retained profits (C2) Capital redemption reserve Part of purchase price of shares not covered by new issue, to comply with Companies Acts
3,000
(D1) Ordinary share capital (D2) Ordinary share purchase Shares being purchased
10,000
(E1)
10,000
7,000
3,000
10,000
Ordinary share purchase (E2) Bank Payment made for share purchase
10,000
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Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Net assets (except bank) Bank Preference share capital Preference share applicants Ordinary share capital Ordinary share purchase Capital redemption reserve Share premium Retained profits
Balances before 31,000 16,000 47,000
Effect Dr
Cr
(A1)
7,000
(B1) (D1) (E1)
7,000 10,000 10,000
(C1)
3,000
8,000 20,000 4,000 32,000 15,000 47,000
(E2)
10,000
(B2) (A2)
7,000 7,000
(D2) (C2)
10,000 3,000
(b) (A1)
Dr 12,000
Ordinary share capital (A2) Ordinary share purchase Shares being purchased Retained profits (B2) Ordinary share purchase Premium on purchase of shares not previously issued at premium
2,400
(C1)
Retained profits (C2) Capital redemption reserve Transfer because shares purchased out of distributable profits
12,000
(D1) Ordinary share capital (D2) Bank Payment of redemption
14,400
Preference share capital Ordinary share capital Ordinary share purchase Capital redemption reserve Share premium Retained profits
15,000 – 10,000 – 3,000 4,000 32,000 12,000 44,000 Cr 12,000
(B1)
Net assets (except bank) Bank
Balances after 31,000 13,000 44,000
2,400
12,000
14,400 Balances before 31,000 16,000 47,000 8,000 20,000
Effect Dr (D2)
(A1) (D1)
12,000 14,400
4,000 32,000 15,000 47,000
(C1) (B1)
12,000 2,400
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Cr 14,400
Balances after 31,000 1,600 32,600 8,000 8,000
(A2) (B2) (C2)
12,000 2,400 12,000
12,000 4,000 32,000 600 32,600
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
(c) (A1)
Dr 8,000
Preference share capital (A2) Preference share purchase Shares to be purchased
8,000
(B1)
Preference share purchase (B2) Bank Cash paid on purchase
8,000
(C1)
8,000
8,000
Retained profits (C2) Capital redemption reserve Transfer per Companies Acts
Net assets (except bank) Bank Preference share capital Preference share purchase Ordinary share capital Capital redemption reserve Share premium Retained profits
8,000 Balances before 31,000 16,000 47,000 8,000
Effect Dr
(A1) (B1)
Cr
8,000 8,000
(B2)
8,000
(A2)
8,000
(C2)
8,000
20,000 4,000 32,000 15,000 47,000
(C1)
8,000
(d) (A1)
Dr 12,000
Bank (A2) Preference share applicants Cash received from applicants Preference share applicants (B2) Preference share applicants Preference shares allotted
12,000
(C1)
Ordinary share capital (C2) Ordinary share purchase Shares to be purchased
12,000
(D1) Ordinary share purchase (D2) Bank Payment made to purchase shares
12,000
Preference share capital Preference share applicants Ordinary share capital Ordinary share purchase Share premium Retained profits
Balances after 31,000 8,000 39,000 – – 20,000 8,000 4,000 32,000 7,000 39,000 Cr 12,000
(B1)
Net assets (except bank) Bank
Cr
12,000
12,000
12,000 Balances before 31,000 16,000 47,000 8,000 – 20,000 – 4,000 32,000 15,000 47,000
Effect Dr (A1)
12,000
(B1) (C1) (D1)
12,000 12,000 12,000
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Cr (D2)
12,000
(B2) (A2)
12,000 12,000
(C2)
12,000
Balances after 31,000 16,000 47,000 20,000 – 8,000 – 4,000 32,000 15,000 47,000
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
(e) (A1)
Dr 10,000
Bank (A2) Preference share applicants Cash received from applicants
Cr 10,000
(B1)
Preference share applicants (B2) Preference share capital Preference shares allotted
10,000
(C1)
Ordinary share capital (C2) Ordinary share purchase Shares being purchased
6,000
(D1) Share premium account (D2) Ordinary share purchase Amount of share premium account used for redemption
1,200
(E1)
Retained profits (E2) Ordinary share purchase Excess of premium payable over amount of share premium account usable for the purpose
1,800
(F1)
9,000
10,000
6,000
1,200
1,800
Ordinary share purchase (F2) Bank Amount payable on purchase
9,000 Balances before 31,000 16,000 47,000
Net assets (except bank) Bank Preference share capital Preference share applicants Ordinary share capital Ordinary share purchase
8,000 – 20,000 –
Share premium account
4,000 32,000 15,000 47,000
Retained profits
Effect Dr
Cr
(A1)
10,000
(B1) (C1) (F1)
10,000 6,000 9,000
(D1)
1,200
(E1)
1,800
(F2)
9,000
(B2) (A2)
10,000 10,000
(C2) (D2) (E2)
6,000 1,200 1,800
Balances after 31,000 17,000 48,000 18,000 – 14,000 – 2,800 34,800 13,200 48,000
Answer to Question 6.4A BA 2 (a)
2018 Dec 31 Balance c/d
2019 Dec 31 Balance c/d
Loan Note Redemption Reserve 2017 Dec 31 Retained profits* 2018 Dec 31 Bank: Interest 22,601.15 Dec 31 Retained profits 22,601.15 2019 Jan 1 Balance b/d Dec 31 Bank: Interest Dec 31 Retained profits
34,928.65 34,928.65
2020 Jan 1 Balance b/d Dec 31 Bank: Interest Dec 31 Retained profits (10,971.43 + 4.2**)
2020 Dec 31 Retained profits: Loan notes now redeemed 48,000.00 48,000.00 * 0.22857142 × 48,000 = 10,971.43 **Balancing figure
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10,971.43 658.29 10,971.43 22,601.15 22,601.15 1356.07 10,971.43 34,928.65 34,928.65 2,095.72 10,975.63 48,000.00
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
(b) 2017 Dec 31 2018 Dec 31 2019 Dec 31 2020 Dec 31
Loan Note Sinking Fund Investment Bank
10,971.43
Bank
11,629.72
Bank
12,327.50
Bank
13,071.35 48,000.00
(c) 2020 Dec 31 Bank (redemption) (d) 2017 2018 2019 2020
2020 Dec 31 Bank
Loan Notes 2017 48,000.00 Jan 1
Bank
Retained Profits (extracts) for the years ended 31 December Loan note Redemption Reserve Loan note Redemption Reserve Loan note Redemption Reserve Loan note Redemption Reserve
48,000.00 48,000.00
48,000.00 10,971.43 10,971.43 10,971.43 10,975.63
Answer to Question 6.6A BA 2 (Dates omitted) Dr (a) Bank 1,320,000 Application and allotment Application monies received (b) Application and allotment 1,032,000 Bank Oversubscriptions refunded (c) Application and allotment 340,000 Ordinary share capital Share premium (treated as paid in full on application – see Section 5.4) Amount due on allotment ordinary shares (d) Bank (see workings W1) 51,975 Application and allotment (e) Call 60,000 Ordinary share capital First and final call made (f ) Bank 59,910 Call Amount paid on call (g) Ordinary share capital 300 Forfeited shares Shares forfeited (h) Forfeited shares 115 Application and allotment Call Amounts not received cancelled (i) Forfeited shares 300 Ordinary share capital Forfeited shares now reissued (j) Bank 500 Forfeited shares Cash received on reissue (k) Forfeited shares 385 Share premium Profit on reissue transferred (l) Bank 800,000 Application and allotment – redeemable shares Monies received on issue
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Cr 1,320,000 1,032,000 140,000 200,000 51,975 60,000 59,910 300 25 90 300 500 385 800,000
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Dr 800,000
(m) Application and allotment – redeemable shares Share premium Redeemable shares Redeemable shares allotted (n) (Old) redeemable preference shares Share premium Redemption of shares Shares to be redeemed at premium 40p (o) Redemption of shares Bank Monies paid on redemption (p) Investments Ordinary share capital 400,000 March Hares shares of 25p purchased, payment being 200,000 50p ordinary shares (q) 8% Loan notes Share premium Loan note redemption Amount due on loan notes to be redeemed (r) Loan note redemption Bank Redeemed loan notes paid for (s) Bank Share premium 7% Loan notes Issue of 7% loan notes at 5% discount Workings (W1): Due on application and allotment Received on application Less Returned
Cr 300,000 500,000
500,000 200,000 700,000 700,000 700,000 100,000 100,000 400,000 40,000 440,000 440,000 440,000 475,000 25,000 500,000
340,000 1,320,000 1,032,000
Less Unpaid 100 × 25p
288,000 52,000 25 51,975
Answer to Question 6.8A BA 2 (All in £000) (a)
Balance c/d
(b) and (c) Bank (10,000 × 3) Ordinary share capital Share premium
(d) Balance c/d
(e) Ordinary share capital
Ordinary Share Capital Balance b/d Ordinary share application Ordinary share allotment Ordinary share first call 1,000 Ordinary share final call 1,000 Ordinary Share Application and Allotment 30 Bank (85,000 × 3) 300 Bank (50,000 × 8) − 75,000 250 580 Share Premium Ordinary share allotment 305 Investments (own shares) 305 Ordinary Share: First Call 100 Bank
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500 150 150 100 100 1,000
255 325 580
250 55 305
100
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
(f ) Ordinary share capital
Ordinary Share: Final Call 100 Bank Investments (own shares) 100
(g) Ordinary share capital: Final call Share premium
Investments: Own Shares 10 Bank 55 65
90 10 100
65 65
Answer to Question 7.4A BA 2 (a) Cash Freehold premises Gain on sale of non-current asset Sale of freehold premises
Hubble Ltd: Journal
Dr 75,000
Cr 55,000 20,000
Freehold premises Revaluation reserve Surplus on revaluation of premises (400,000 − (375,000 − 55,000))
80,000
Freehold premises Plant and machinery Inventory Vendor: A Bubble Assets taken over as per purchase agreement
100,000 10,000 55,000
Vendor: A Bubble Ordinary share capital Share premium Cash Discharge of purchase consideration by issue of 120,000 ordinary shares £1 each and a cash payment of £25,000
165,000
80,000
165,000
120,000 20,000 25,000
(b) Hubble Ltd: Statement of Financial Position as at 31 May 2017 Non-current assets Freehold premises at cost or valuation Plant and machinery at cost 160,000 Less Depreciation 48,765 Motor vehicles at cost 8,470 Less Depreciation 1,695 Current assets Inventory Accounts receivable Bank Cash Current liabilities Trade accounts payable Financed by: Share capital Authorised: 650,000 ordinary shares
157,550 96,340 11,825 105
500,000 111,235 6,775 618,010
265,820 883,830 63,200 820,630 650,000
Issued: 520,000 ordinary shares Reserves Share premium Revaluations reserve Retained profits
520,000 20,000 80,000 200,630
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300,630 820,630
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Workings Freehold premises Plant and machinery Bank Retained profits
375,000 + 100,000 + 80,000 − 55,000 = 500,000 101,235 + 10,000 = 111,235 75,000 − 38,175 − 25,000 = 11,825 180,630 + 20,000 = 200,630
Answer to Question 7.5A BA 2 VU Limited Pre-incorporation 1.4.2016 to 30.6.2016 Revenue Less Cost of sales
30,000 20,779 9,221
(A)
Less Depreciation Directors’ fees Administration expenses Sales commission Interest on purchase consideration Distribution costs: Variable Fixed Loan note interest
(B)
555
(B) (C) (B)
2,210 1,050 1,400
(C) (B)
900 625
Postincorporation 1.7.2016 to 31.3.2017 95,000 59,221 35,779 1,665 500 6,630 3,325 467 2,850 1,875 1,600
6,740 2,481
Net profit for the periods Less Goodwill impaired written-off Preliminary expenses written-off Dividend paid
(D) (D)
1,000 1,481
18,912 16,867 169 7,560
2,481
7,729 9,138
Retained profit carried forward
Notes: (A) See workings below. (B) Time basis. (C) Pro rata to sales. (D) The goodwill impaired is written-off against the pre-incorporation profit of £2,481, as are preliminary expenses (so far as possible). The split of cost of sales is rather tricky. The answer will be demonstrated in an arithmetical, rather than algebraic, fashion: Sales are: Pre-incorporation Post-incorporation
30,000 = 24% 95,000 = 76%
As post-incorporation cost of sales fell by 10% then the relationship between pre- and post-incorporation cost of sales is: Pre-incorporation 24 Post-incorporation 76% − (1/10 76%) 68.4 92.4 ∴ Pre-incorporation costs are 80,000 × 100/924 × 24/100 = 20,779 Note: The proposed dividend is not relevant as it is an appropriation of profit and is not part of the calculation of profit.
Answer to Question 7.6A BA 2 Rowlock Ltd Income Statement for the year ending 31 May 2016 Revenue Cost of goods sold: Opening inventory Add Purchases
52,185 5,261 38,829 44,090 4,946
Less Closing inventory Gross profit © Pearson Education Limited 2016
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39,144 13,041
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Postincorporation 9,936
Pre-incorporation Gross profit (allocated per workings on basis of sales 5:16) 3,105 Variable expenses: Wrapping 840 Postage 441 Packing 1,890 (5:16) 3,171 755 Fixed expenses Office 627 Warehouse rent, etc. 921 (4:8) 1,548 516 Expenses attributable to company: Director’s salary Loan note interest 1,271 1,834 Formation expenses 218 Net profit 1,616
2,416
1,032 1,000 525 4,973 4,963 – 4,963
Statement of Financial Position as at 31 May 2016 Non-current assets Goodwill Sundry
4,434 25,000 29,434
Current assets Inventory Sundry Total assets
4,946 9,745
Current liabilities Non-current liabilities 7% Loan notes Net assets
4,162 15,000
14,691 44,125
19,162 24,963
Equity Ordinary share capital
20,000 4,963 24,963
Workings: Gross profit allocated per volume sales in each period: Oct 2
Nov 2
Dec 2
Jan 2
Feb 2
Mar 2
Apr 2
May 2
Jun 1
16 Drawings Purchase consideration: Ordinary shares Debentures
July 1
Aug 1
Sept 2
5 Purchase of Business Account 500 Balance Rowlock’s capital account at 1.6.2016 = net assets 20,000 Pre-incorporation profits 15,000 Goodwill (difference) 35,500
29,450 1,616 4,434 35,500
Answer to Question 8.2A BA 2 (a) 2017 Jan 31 Bank Jul 10 Bank
Ordinary Dividends 2017 48,000 Dec 31 Profit and loss 40,000 88,000 © Pearson Education Limited 2016
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88,000 88,000
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
2017 Oct 1 Bank Dec 31 Accrued c/d
2017 Dec 31 Balance c/d
2017 Jan 30 Bank Dec 31 Loan note Int. receivable Dec 31 Balance c/d
2017 Dec 31 Bank Dec 31 Income tax
2017 Dec 31 Profit and loss
Corporation Tax 2017 145,000 Jan 1 Balance b/d 160,000 Dec 31 Profit and loss 305,000
145,000 160,000 305,000
Deferred Taxation 2017 28,000 Jan 1 Balance b/d Dec 31 Profit and loss 28,000 (30,000 × 40%)
16,000 12,000 28,000
Income Tax 2017 3,500 Jan 1 Balance b/d 2,100 Dec 31 Loan note Interest payable 1,400 7,000 Loan note Interest Payable 2017 14,000 Dec 31 Profit and loss 3,500 17,500
7,000
17,500 17,500
Loan note Interest Receivable 2017 10,500 Dec 31 Bank
8,400
Dec 31 Income tax (8,400 × /80) 20
2017 Dec 31 Profit and loss
3,500 3,500
2,100
10,500
10,500
Investment Income 2017 4,200 Sep 30 Bank
4,200
(b) Income Statement (extract) for the year ending 31 December 2017 Net trading profit Add Loan note interest received 14,000 Investment income 4,200 Less Loan note interest payable Profit before taxation Taxation: Corporation tax Deferred tax Profit for the year
160,000 12,000
Statement of Financial Position (extract) as at 31 December 2017 Current liabilities Corporation tax 160,000 Non-current liabilities Deferred taxation 28,000
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540,000 18,200 558,200 17,500 540,700 172,000 368,700
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Answer to Question 8.4A BA 2 Joytan Ltd Income Statement for the year ending 31 December 2017 Trading profit Income from other non-current asset investments Other interest receivable and similar income
500,000 13,500 8,000
Interest payable and similar charges Profit before taxation Tax on profit on ordinary activities Profit for the year
21,500 521,500 30,000 491,500 210,000 281,500
Answer to Question 8.7A BA 2 (a) Tax on profit on ordinary activities (£000): Corporation tax at 35% (740 + 104) (W1) Deferred taxation Corporation tax overprovided in previous years (W2) Workings (W1) £740,000 plus tax relief £104,000 (W2) Balance due at 31 March 2017 Less: CT paid to Revenue and Customs
844 20 864 ( 80) 784 600,000 (520,000) 80,000
(b) Corporation tax liability: Estimated CT charged on profits for year ended 31 March 2018 Less Tax credit on investment income (12 × 20/80) Total tax liability (c) Deferred taxation: Balance at 31 March 2017 Transfer from profit and loss
740,000 3,000 737,000
300 20 320
No provision has been made in respect of timing differences totalling £400,000.
Answer to Question 10.4A BA 2 (a) Goodwill Non-current assets Inventory Work in progress Accounts receivable Bank Formation expenses
Retained profits Loss on realisation Rags Ltd: Shares
Realisation 50,000 Rags Ltd (see b(i) below) 190,000 Loss on realisation 21,000 3,000 25,000 18,000 3,000 310,000 Sundry Shareholders 80,000 Ordinary share capital 70,400 Preference share capital 149,600 300,000
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239,600 70,400
310,000
200,000 100,000 300,000
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
(b) (i) To Loan note holders: Cash + 6% Loan notes To Creditors: Cash Shares To Preference shareholders: Dividend arrears Shares: 9 for every 10 To Ordinary shareholders: 50,000 shares (1 for 4) Total purchase consideration
30,000 30,000
60,000
18,000 12,000
30,000
9,600 90,000
99,600 50,000 239,600
(ii) Agreed value of assets Inventory Work in progress Accounts receivable Bank Non-current assets (balance) (c)
15,000 3,000 25,000 18,000 178,600 239,600
Rags Ltd Statement of Financial Position as at 1 January 2016
Non-current assets Current assets Inventory Work in progress Accounts receivable Bank Total assets Non-current liability Loan notes
178,600 15,000 3,000 25,000 58,400
101,400 280,000 30,000
Equity Issued share capital
250,000 250,000 Bank
Balance b/d Shares issued (250,000 − 161,600)
18,000
Loan note holders Accounts payable Balance c/d
88,400 106,400
30,000 18,000 58,400 106,400
Answer to Question 10.5A BA 2 Workings Development expenditure Debit balance of the retained profits Plant (balance)
Timely Ltd Capital Reduction 198,000 Preference share capital 217,800 Ordinary shares 439,200 855,000 Journal
Capital reduction Development expenditure Retained profits
180,000 675,000 855,000 Dr 415,800
Cr 198,000 217,800
Preference share capital Ordinary shares Capital reduction
180,000 675,000
Capital reduction Plant
439,200
855,000 439,200 © Pearson Education Limited 2016
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Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Statement of Financial Position as at 31 March 2018 Non-current assets Freehold premises Plant
162,000 100,800 262,800
Current assets Inventory Accounts receivable Cash at bank Total assets
147,600 172,800 19,800
Current liabilities Accounts payable Net assets
340,200 603,000 108,000 495,000
Equity Issued capital: Ordinary shares 900,000 of 25p each Preference shares 450,000 8% of 60p each
225,000 270,000 495,000
Answer to Question 11.3A BA 2 (a) (i)
Turnover should not include VAT on taxable outputs. It would be permissible to show gross turnover only where VAT is deducted to clearly describe turnover net of VAT. (ii) Where there is irrecoverable VAT in respect of non-current assets, or other items needing disclosure, these should all be shown inclusive of VAT. (b) (i) IAS 33 requires that earnings per share should be shown with the income statement for the current and preceding year. (ii) Where the basic EPS differs materially from the diluted EPS, this should also be shown. (c) IAS 16 and IAS 36 require that the following are disclosed: 1 Methods of depreciation used. 2 Useful lives or the depreciation rates in use. 3 Total depreciation charged for the period. 4 Where material, the financial effect of a change in either useful lives or estimates of residual values. 5 The cost or revalued amount at both the start and end of the accounting period. 6 The cumulative amount of provisions for depreciation or impairment at the beginning and end of the financial period. 7 A reconciliation of the movements, separately disclosing additions, disposals, revaluations, transfers, depreciation, impairment losses and reversals of past impairment losses written back in the period. 8 The net carrying amount at the beginning and end of the financial period. (i) depreciation methods in use; (ii) useful lives, or alternatively the depreciation rates; (iii) total depreciation for the period; (iv) gross amounts of these assets and accumulated depreciation. (d) IAS 38 – expenditure for research and development concerned with research to be written off immediately. (e) IAS 20 – such grants are to be: credited to profit and loss over expected useful life of the asset, by treating it as a deferred credit, where a proportion of it is transferred annually to profit and loss; Grants are not to be shown as part of shareholders’ funds. (f ) IFRS 3 (Chapter 25) states that goodwill should be capitalised and shown on the face of the balance sheet. It should be reviewed annually for impairment. It should not be amortised. (g) IAS 8 and the Framework for the preparation and presentation of financial statements deal with this. Financial statements should be drawn up on the accrual basis and on the assumption that the entity is a going concern. See Chapter 13 Section 13.9 for a fuller answer. (h) The parent company should prepare consolidated accounts covering both of them. Uniform accounting policies should be used and, if possible, the same accounting date.
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Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Answer to Question 11.4A BA 2 (a) (i)
Leasehold land and buildings (IAS 16 and IAS 17) The total cost of £375,000 can be amortised over a period longer than the lease where there are sufficient reasons for believing that the lease will be renewed for a further period. A more permanent state would appear to be indicated by the fact that £300,000 was spent on buildings; such a period would be permissible, given sufficient reasons regarding lease extensions. (ii) Freehold land and buildings (IAS 16) Cost of building should be separated from that of land. Land (normally) is not to be depreciated. Buildings are to be depreciated over normal expected useful life. Increase in value due to inflation could result in a revaluation which in turn would mean increased charge for depreciation. Costs of maintenance do not mean that depreciation should not be charged. (iii) Plant and machinery (IAS 16) Depreciation rate to be fixed by reference to expected useful life. The degree of obsolescence and the full physical life will have to be taken into consideration. Straight line 25% would take only 4 years to write cost down to nil. On the other hand, 15% reducing balance would take over three times that period. Some compromise between these figures must be the obvious choice. If repairs and maintenance are likely to be light in early years and heavy in later years, it may make sense to use a fairly high rate using the reducing balance method. (iv) Research and development (IAS 38) The £250,000 spent on grass-cutting characteristics is purely research and should be completely written off. It will depend on whether the £100,000 spent has resulted in an asset with a future which is economically viable. If it has, then this sum can be written off over an appropriate period. The £75,000 for market research has not produced an identifiable product and consequently should be written off. (v) Inventory (IAS 2) Included in the Statement of Financial Position valuation should be all costs attributable to bringing the inventory to its existing location and condition. Sales prices are only used in certain cases, e.g. in retailing where the usual gross profit percentage is used to find cost price which will then be used for the valuation.
(b) (Figures in £000) Profit per draft accounts Add Amortisation of leaseholds added back (125 − 7.5) Less: Depreciation of freeholds (assuming land is 200 and buildings 150) over 50 years Plant and machinery (assume 25% reducing balance) Research and development – write off Drive system treated as viable – to be written off over 4 years Market research Already charged Revised figure of profit
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370.0 117.5 487.5 3 131 250 25 75 350 50
300
434.0 53.5
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Answer to Question 12.4A BA 2 (i) (Internal use) Sales Less Returns inwards Less Cost of sales: Inventory 1.4.2016 Add Purchases Less Returns outwards
Breaker plc Income Statement for the year ending 31 March 2017 1,450,000 29,000
1,421,000
208,000 700,000 22,000
Less Inventory 31.3.2017 Gross profit Distribution costs: Wages and salaries Motor expenses Hire of motors General distribution expenses Depreciation: Plant and machinery Administrative expenses: Wages and salaries Motor expenses Hire of motors General administrative expenses Discounts allowed Directors’ remuneration Auditor’s remuneration Depreciation: Plant and machinery Less Discounts received
678,000 886,000 230,000
177,000 8,800 14,000 26,000 17,500
243,300
98,000 2,200 5,000 19,000 7,000 41,000 8,000 8,750 188,950 6,000
182,950
Licence fees receivable Operating profit Bank interest receivable Profit before taxation Taxation Profit for the year Retained profit brought forward from last year Transfer to general reserve Ordinary dividend paid Retained profit carried forward to next year
25,000 80,000
656,000 765,000
426,250 338,750 13,000 351,750 3,000 354,750 143,000 211,750 88,000 299,750 105,000 194,750
(ii) (Published) Breaker plc Income Statement for the year ending 31 March 2017 Revenue Cost of sales
1,421,000 656,000 765,000
Distribution costs Administrative expenses
243,300 182,950
Licence fees receivable Operating profit Bank interest receivable Profit before taxation Taxation Profit for the year
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426,250 338,750 13,000 351,750 3,000 354,750 143,000 211,750
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Answer to Question 12.5A BA 2 (i) (Internal use)
Mitchell plc Income Statement for the year ending 31 July 2016
Sales Less Returns inwards Less Cost of sales: Inventory 1.8.2015 Add Purchases Less Returns outwards Carriage inwards
1,790,000 29,000
1,761,000
317,000 1,310,000 57,000
Less Inventory 31.7.2016 Cost of goods sold Wages Hire of plant and machinery Gross profit Distribution costs: Salaries and wages Motor expenses Rent and business rates General distribution expenses Advertising Depreciation: Motors Plant and machinery Administrative expenses: Salaries and wages Motor expenses Rent and business rates General administrative expenses Bad debts Discounts allowed Auditor’s remuneration Directors’ remuneration Hire of plant and machinery Depreciation: Motors Less Discounts received Operating profit Income from shares in group entities Income from shares in associates and joint ventures
1,253,000 10,000 1,580,000 303,000 1,277,000 109,000 12,000
41,000 26,000 12,750 7,000 19,000 15,000 1,300
122,050
62,000 8,000 4,250 6,000 3,000 11,000 15,000 35,000 2,000 6,000 152,250 15,000
137,250
1,398,000 363,000
259,300 103,700
8,000 5,000
Loan note interest Profit before taxation Taxation Profit after taxation Profit on disposal of investments Tax on profit from disposal of investments Profit for the year Retained profit brought forward from last year
14,000 3,000
Transfer to general reserve Preference dividend paid Ordinary dividend paid Retained profits
50,000 20,000 110,000
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13,000 116,700 7,000 109,700 29,000 80,700 11,000 91,700 141,000 232,700 180,000 52,700
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
(ii) (Published) Mitchell plc Income Statement for the year ending 31 July 2016 Revenue Cost of sales
1,761,000 1,398,000 363,000
Distribution costs Administrative expenses Operating profit Profit on disposal of investments
122,050 137,250
259,300 103,700
14,000
Income from shares in group entities Income from shares in associates and joint ventures
8,000 5,000
Interest payable and similar charges Profit before taxation Taxation Profit for the year
27,000 130,700 7,000 123,700 32,000 91,700
Answer to Question 12.6A BA 2 (All in £000) Bunker plc Income Statement for the year ending 31 March 2017 Revenue (note 1) Cost of sales (5,000 + 24,000 − 6,000 + 500 + 1,000 + 400) Distribution costs (1,200 + 40 + 700) Administrative expenses (30 + 3 + 800 + 100 + 300) Operating profit (note 2) Income from non-current asset investment (note 3) Loss on disposal of discontinued operations (note 4) Profit before taxation Taxation (note 5) Profit for the year Earnings per share (1,057/1,000) (note 6) Notes 1 Revenue is net of value added tax. 2 Operating profit is found after charging: Depreciation (500 + 40 + 3) Auditors’ remuneration Directors’ emoluments Staff costs (700 + 400 + 100) 3 Income from listed companies 4 Closure of overseas operations 5 Taxation UK corporation tax at 35% Previous year’s overprovision Deferred taxation – transfer Tax relief on overseas operations closure costs
35,000 24,900 10,100 1,940 1,233
3,173 6,927 1,600 8,527 350 8,177 7,120 1,057 105.7p
543 30 300 1,200 1,600 350 7,200 ( 200) 150 ( 30)
7,120 6 Earnings per share: Based on 1 million ordinary shares of £1 each and ordinary profit after taxation of £1,057,000. 7 Dividends: Ordinary interim 100 Ordinary final 200 300
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Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Answer to Question 13.4A BA 2 (a) (For internal use) Sales Less Returns inwards Less Cost of sales: Inventory 1 April 2015 Add Purchases Add Carriage inwards
Jeremina plc Income Statement for the year ending 31 March 2016 1,320,000 34,000 184,000 620,000 6,000 810,000 163,000 647,000 104,000 25,200
Less Inventory 31 March 2016 Wages Depreciation: Plant and machinery Gross profit Distribution costs: Warehouse wages Wages and salaries: Sales staff Motor expenses General distribution expenses Depreciation: Plant and machinery Motor vehicles Administrative expenses: Wages and salaries Motor expenses General administrative expenses Directors’ remuneration Bad debts Discounts allowed Depreciation: Plant and machinery Motor vehicles Less Discounts received
40,000 67,000 23,200 17,000 7,200 19,200
173,600
59,000 5,800 12,000 84,000 10,000 14,000 3,600 4,800 193,200 11,000
182,200
Other operating income: Royalties receivable Loan note interest Profit before taxation Taxation Profit on ordinary activities after taxation Retained profits from last year Preference dividend Ordinary dividend Retained profits carried forward to next year
12,000 40,000
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1,286,000
776,200 509,800
355,800 154,000 5,000 159,000 2,000 157,000 38,000 119,000 21,000 140,000 52,000 88,000
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
(b) (For publication) Jeremina plc Income Statement for the year ending 31 March 2016 Revenue Cost of sales Gross profit Distribution costs Administrative expenses
1,286,000 776,200 509,800 173,600 182,200
Other operating income Operating profit Interest payable and similar charges Profit before taxation Taxation Profit for the year Statement of Financial Position as at 31 March 2016 Non-current assets Intangible assets Development costs 24,000 Goodwill 200,000 Tangible assets Plant and machinery 132,000 Motor vehicles 48,000 Current assets Inventory: Finished goods and goods for resale Trade accounts receivable Total assets Current liabilities Bank loans and overdrafts 7,000 Trade accounts payable 45,000 Bills of exchange payable 7,000 Corporation tax payable 38,000 Non-current liabilities Loan notes
224,000 180,000 163,000 188,000
404,000
351,000 755,000
97,000 30,000
Equity Called-up share capital Reserves: General reserve Exchange reserve Retained profits (21,000 + 119,000 − 12,000 − 40,000)
355,800 154,000 5,000 159,000 2,000 157,000 38,000 119,000
127,000 628,000 500,000
25,000 15,000 88,000 128,000 628,000
Note: It is assumed that both the ordinary dividend and the preference dividend were paid during the year. Notes 1 The called-up capital consists of: 400,000 Preference shares of 50p each 300,000 Ordinary shares of £1 each
200,000 300,000 500,000
2 Plant and machinery: Cost Depreciation to 31 March 2015 Depreciation for the year to 31 March 2016
72,000 36,000
3 Motor vehicles at cost: Less Depreciation to 31 March 2015 Less Depreciation for the year ended 31 March 2016
48,000 24,000
240,000
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108,000 132,000 120,000 72,000 48,000
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Answer to Question 13.5A BA 2 (All in £000) Plott plc Statement of Financial Position as at 31 March 2018 Non-current assets Tangible assets Investments
2,400 100 2,500
Current assets Inventory Trade and other accounts receivable Total assets
400 5,500
Current liabilities Trade and other accounts payable Bank overdraft Current tax
Notes (1) (2)
5,900 8,400
2,300 500 900 3,700
Non-current liabilities Deferred tax Net assets Equity Called-up share capital Reserves
80
Notes to the Statement of Financial Position (1) Tangible assets: Cost at 1.4.2017 Additions Disposals At 31.3.2018 Depreciation at 1.4.2017 Additions Disposals At 31.3.2018 Net book value: at 31.3.2018 at 31.3.2017
(5)
3,780 4,620
(6)
2,100 2,520 4,620
(7) (8)
3,400 600 ( 200) 3,800 1,200 500 ( 300) 1,400 2,400 2,200
(2) Investments: Cost at 1.4.2017 and 31.3.2018 No purchase or sales of non-current asset investments took place during the year. Market value of investments at 31.3.2018 was £110,000.
100
(3) Inventory: Finished goods No significant difference between replacement cost and value shown on balance sheet.
400
(4) Accounts receivable: Trade 5,300 + Other 200 (5) Trade and other accounts payable Trade accounts payable Other accounts payable
5,500 2,000 300 2,300
(6) Provisions for liabilities and charges: Deferred taxation
80
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(3) (4)
Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
(7) Called-up share capital Ordinary shares £1 each (8) Reserves
Authorised 2,500 Share Retained premium profits 315 1,200 1,005 315 2,205
At 1 April 2017 Profit for the year (585 + 420) At 31 March 2017 (9) The proposed dividend will be shown as a note
Issued 2,100 Total 1,515 1,005 2,520
Answer to Question 13.6A BA 2 (All in £000) Quire plc Income Statement for the year ending 30 September 2018 Revenue Cost of sales (500 + 12,000 + 720 − 400) Gross profit Distribution costs (2,800 + 360 − 50) Administrative expenses (3,000 + 130 + 120) Operating loss Income from non-current asset investments 40 + (1/4 × 40)
19,000 12,820 6,180 3,110 3,250
Interest payable Loss before taxation Taxation (80 + 10 − 60) Loss for the period ⎛ 560 ⎞ Loss per share ⎜ ⎟ ⎝4,000 ⎠ Note: The proposed dividend should not be accrued. Statement of Financial Position as at 30 September 2018 Non-current assets Tangible assets (3,500 − 1,100 − 1,200) Investments Current assets Inventory Trade and other account receivables (5,320 + 160 + 50) Total assets Current liabilities Trade and other accounts payable (100 + 180 + 130) Bank overdraft Current tax Non-current liabilities Deferred tax (200 − 60) Total liabilities Net assets Equity Called-up share capital Retained profits (820 − 560 − 60)
6,360 (180) 50 (130) (400) (530) ( 30) (560) (14.0p)
1,200 100 400 5,530
1,300 5,930 7,230
410 2,400 80 2,890 140 3,030 4,200 4,000 200 4,200
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Sangster, Frank Wood’s Business Accounting 2, 13th Edition, Solutions Manual
Workings: 1 Depreciation: Fixed assets at cost Less Depreciation to 1 October 2017
3,500 1,100 2,400
× 50% Apportioned: Cost of sales (60%) Distribution (30%) Administration (10%)
1,200 720 360 120 1,200
Answer to Question 13.7A BA 2 (All in £000) Patt plc Income Statement for the year ending 31 March 2017 Revenue Cost of sales (130 + 3,700 − 170 + 42 + 2,230) Gross profit Distribution costs (100 − 15 + 12) Administrative expenses (200 + 6 + 290 + 20) + [5% × (2,290 − 290)] Profit before taxation Taxation Profit for the year Earnings per share (195 ÷ 1,440) Note: Dividends proposed of 10p per ordinary share = £144,000 Statement of Financial Position as at 31 March 2017 Non-current assets Tangible assets Current assets Inventory Trade and other accounts receivable Total assets Current liabilities Trade and other accounts payable Bank overdraft Current tax Net assets
Notes 7,000 (1) 5,932 1,068 97 616
170 1,965
2,135 2,255
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(4)
(6)
(7) 420 1,835 1,440 395 1,835
© Pearson Education Limited 2016
(2) (3)
Notes 120 (5)
235 25 160
Equity Called-up share capital Retained profits
713 355 160 195 13.54p
(8) (9)