Acca f3 Financial Accounting (int) Study Text

Part F  Preparing basic financial statements

  21:  Preparation of basic financial statements for companies

377

Question

USB

USB, a limited liability company, has the following trial balance at 31 December 20X9. 

Debit

Credit

$'000

$'000

Cash at bank 100 

Inventory at 1 January 20X9

2,400

Administrative expenses

2,206

Distribution costs

650

Non-current assets at cost:

   Buildings

10,000

   Plant and equipment

1,400

   Motor vehicles

320

Suspense

1,500

Accumulated depreciation 

   Buildings 

4,000

   Plant and equipment 

480

   Motor vehicles 

120

Retained earnings 

560

Trade receivables 

876

Purchases 4,200 

Dividend paid 

200

Sales revenue 

11,752

Sales tax payable 

1,390

Trade payables 

1,050

Share premium 

500

$1 ordinary shares 

  1,000

22,352

22,352

The following additional information is relevant. 

(a) 

Inventory at 31 December 20X9 was valued at $1,600,000. While doing the inventory count, errors 

in the previous year's inventory count were discovered. The inventory brought forward at the 

beginning of the year should have been $2.2m, not $2.4m as above. 

(b) 

Depreciation is to be provided as follows: 

(i) 

Buildings at 5% straight line, charged to administrative expenses. 

(ii) 

Plant and equipment at 20% on the reducing balance basis, charged to cost of sales. 

(iii) 

Motor vehicles at 25% on the reducing balance basis, charged to distribution costs. 

(c) 

No final dividend is being proposed. 

(d) 

A customer has gone bankrupt owing $76,000. This debt is not expected to be recovered and an 

adjustment should be made. An allowance for receivables of 5% is to be set up. 

(e) 

1 million new ordinary shares were issued at $1.50 on 1 December 20X9. The proceeds have been 

left in a suspense account. 

Required

Prepare  the income statement for the year to 31 December 20X9, a statement of changes in equity and a 

statement of financial position at that date in accordance with the requirements of International Financial 

Reporting Standards. Ignore taxation.

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378

21: Preparation of financial statements for companies   Part F  Preparing basic financial statements 

Answer

USB

INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 20X9 

$'000

Revenue

11,752

Cost of sales (W2)

  4,984

Gross profit

6,768

Administrative expenses (W3)

2,822

Distribution costs (650 + 50 (W1))

   700

Profit for the year

3,246

USB

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20X9 

Share

capital

Share

premium

Retained

earnings

Total

 $’000 

$’000

$’000

$’000

Balance at 1 January 20X9 

1,000 

500 

560 

2,060 

Prior period adjustment 

       - 

      - 

  (200) 

  (200)

Restated balance 

1,000 

500 

360 

1,860 

Total comprehensive income for the year 

- 

- 

3,246 

3,246 

Dividends paid 

       - 

       - 

  (200) 

  (200) 

Share issue 

1,000 

   500 

        - 1,500

Balance at 31 December 20X9 

2,000 1,000 3,406 6,406

USB

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20X9 

$'000

$'000

Non-current assets

Property, plant and equipment (W5)

6,386

Current assets

Inventory

1,600

Trade receivables (876 – 76 – 40)

760

Cash

  100

2,460

Total assets

8,846

Equity and liabilities

Equity

Share capital

2,000

Share premium

1,000

Retained earnings (W6)

3,406

Current liabilities

Sales tax payable

1,390

Trade payables

1,050

2,440

Total equity and liabilities

8,846

Workings

1

Depreciation

$'000

Buildings (10,000   5%)

500

Plant (1,400 – 480)   20%

184

Motor vehicles (320 – 120)   25%

50

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Part F  Preparing basic financial statements

  21:  Preparation of basic financial statements for companies

379

2

Cost of sales

$'000

Opening inventory 

2,200

Purchases

4,200

Depreciation (W1)

184

Closing inventory

(1,600)

 4,984

3

Administrative expenses

$'000

Per T/B 

2,206

Depreciation (W1)

500

Irrecoverable debt

76

Receivables allowance ((876 – 76)   5%)

    40

2,822

4

Property, plant and equipment

Cost

Acc Dep

Dep chg

NBV

$'000

$'000

$'000

$'000

Buildings

10,000

4,000

500

5,500

Plant

1,400

480

184

736

Motor vehicles

    320

   120

  50

   150

11,720

4,600

734

6,386

5

Retained earnings

$'000

B/f per T/B 

560

Prior period adjustment (inventory)

(200)

Profit for period

3,246

Dividend paid

 (200)

3,406

One of the competences you require to fulfil performance criteria 10 of the PER is the ability to compile 

financial statements and accounts in line with appropriate standards and guidelines. You can apply the 

knowledge you obtain from this section of the text to help demonstrate this competence. 

Chapter Roundup 

 

IAS 1 lists the required contents of a company's income statement and statement of financial position. It 

also gives guidance on how items should be presented in the financial statements. 

 

You must be able to account for these items in particular when preparing the accounts of limited liability 

companies.

 – Taxation 

 

– 

Ordinary and preferred shares 

 

– 

Shareholders' equity (share premium, revaluation surplus, reserves and retained earnings) 

 

You should be aware of the issues surrounding the current/non-current distinction as well as the 

disclosure requirements laid down in IAS 1. 

 

IAS 18 Revenue is concerned with the recognition of revenues arising from fairly common transactions: 

 

– 

The sale of goods 

 

– 

The rendering of services 

 

– 

The use of others of assets of the entity yielding interest, royalties and dividends. 

 

Generally revenue is recognised when the entity has transferred to the buyer the significant risks and 

rewards of ownership and when the revenue can be measured reliably.

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