370
21: Preparation of financial statements for companies Part F Preparing basic financial statements
$'000
Wages and salaries
254
Light and heat
31
Sundry expenses
113
Suspense account
135
Trade accounts receivable
179
Trade accounts payable
195
Cash
126
Notes
(a)
Sundry expenses include $9,000 paid in respect of insurance for the year ending 1 September
20X8. Light and heat does not include an invoice of $3,000 for electricity for the three months
ending 2 January 20X8, which was paid in February 20X8. Light and heat also includes $20,000
relating to salesmen's commission.
(b)
The suspense account is in respect of the following items.
$'000
Proceeds from the issue of 100,000 ordinary shares
120
Proceeds from the sale of plant
300
420
Less consideration for the acquisition of Mary & Co
285
135
(c)
The net assets of Mary & Co were purchased on 3 March 20X7. Assets were valued as follows.
$'000
Investments
231
Inventory
34
265
All the inventory acquired was sold during 20X7. The investments were still held by Zabit at
31.12.X7.
(d)
The property was acquired some years ago. The buildings element
of the cost was estimated at
$100,000 and the estimated useful life of the assets was fifty years at the time of purchase. As at
31 December 20X7 the property is to be revalued at $800,000.
(e)
The plant which was sold had cost $350,000 and had a net book value of $274,000 as on 1.1.X7.
$36,000 depreciation is to be charged on plant and machinery for 20X7.
(f)
The loan stock has been in issue for some years. The 50c ordinary shares all rank for dividends at
the end of the year.
(g)
The management wish to provide for:
(i)
loan stock interest due
(ii)
a transfer to general reserve of $16,000
(iii)
audit fees of $4,000
(h)
Inventory as at 31 December 20X7 was valued at $220,000 (cost).
(i)
Taxation is to be ignored.
Required
Prepare the financial statements of Zabit Co as at 31 December 20X7 including the statement of changes
in equity. No other notes are required.
Part F Preparing basic financial statements
21: Preparation of basic financial statements for companies
371
Answer
(a)
Normal adjustments are needed for accruals and prepayments (insurance, light and heat, loan
interest and audit fees). The loan interest accrued is calculated as follows.
$'000
Charge needed in income statement (10% × $200,000)
20
Amount paid so far, as shown in list of account balances
10
Accrual: presumably six months' interest now payable
10
The accrued expenses shown in the statement of financial position comprise:
$'000
Loan interest
10
Light and heat
3
Audit fee
4
17
(b)
The misposting of $20,000 to light
and heat is also adjusted, by reducing the light and heat
expense, but charging $20,000 to salesmen's commission.
(c)
Depreciation on the building is calculated as
50
$100,000
= $2,000.
The NBV of the property is then $430,000 – $20,000 – $2,000 = $408,000 at the end of the year.
When the property is revalued a reserve of $800,000 – $408,000 = $392,000 is then created.
(d)
The profit on disposal of plant is calculated as proceeds $300,000 (per suspense account) less
NBV $274,000, ie $26,000. The cost of the remaining plant is calculated at $830,000 $350,000 =
$480,000. The depreciation allowance at the year end is:
$'000
Balance 1.1.X7
222
Charge for 20X7
36
Less depreciation on disposals (350 274)
(76)
182
(e)
Goodwill arising on the purchase of Mary & Co is:
$'000
Consideration (per suspense account)
285
Assets at valuation
265
Goodwill
20
This is shown as an asset on the statement of financial position. The investments, being owned by
Zabit at the year end, are also shown on the statement of financial position, whereas Mary's
inventory, acquired and then sold, is added to the purchases figure for the year.
(f)
The other item in the suspense account is dealt with as follows.
$'000
Proceeds of issue of 100,000 ordinary shares
120
Less nominal value 100,000 50c
50
Excess of consideration over par value (= share premium)
70
(g)
The transfer to general reserve increases it to $171,000 + $16,000 = $187,000.
372
21: Preparation of financial statements for companies Part F Preparing basic financial statements
We can now prepare the financial statements.
ZABIT CO
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 20X7
$'000
$'000
$'000
Sales
2,695
Less
cost of sales
Opening inventory
190
Purchases
2,186
2,376
Less closing inventory
220
2,156
Gross profit
539
Profit on disposal of plant
26
565
Expenses
Wages, salaries and commission
274
Sundry expenses
107
Light and heat
14
Depreciation: buildings
2
plant
36
Audit fees
4
Loan interest
20
457
Profit for the year
108
Other comprehensive income:
Revaluation of non-current assets
392
Total comprehensive income for the year
500
ZABIT CO
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20X7
Share
capital
Share
premium
Revaluation
surplus
General
reserve
Retained
earnings
Total
$'000
$'000
$'000
$'000
$'000
$'000
Balance at 1.1.X7
450
-
-
171
242
863
Total comprehensive income
for the year
-
-
392
-
108
500
Issue of shares
50
70
-
-
-
120
Dividends paid
-
-
-
-
(15)
(15)
Transfer to general reserve
-
-
-
16
(16)
-
Balance at 1.12.X7
500
70
392
187
329
1,468