CHAPTER 11 Practice Questions


Question 5 Sammy plc has authorised capital of €800,000 divided into 600,000 Ordinary Shares at €1 each and 200,000 12% Preference Shares at €1 each. The following Trial Balance was extracted from its books on 31/12/2012:


€


Fixed Asset Investment Buildings at Cost


Buildings – Accumulated Dep. on 01/01/2012 Debtors and Creditors Stock at 01/01/2012 Patent on 01/01/2012 Distribution Costs


Administration Expenses Purchases and Sales Rental Income


8% Debentures 2015/2016 Profit on Sale of Land Bank VAT


Dividends Paid P & L on 01/01/2012


Issued Capital Ordinary Shares Preference Shares


Provision for Bad Debts Debenture Interest Paid


9,000 1,679,000 1,679,000


The following information is relevant: (i) Stock on 31/12/2012 is €35,000. (ii) During the year, land adjacent to the company’s premises which had cost €60,000 was sold for €85,000. At the end of the year, the company revalued its buildings at €680,000. The company wishes to incorporate this value into this year’s accounts.


(iii) Depreciation is to be provided for on buildings at the rate of 3%. There was no purchase or sale of buildings during the year.


(iv) The patents are being amortised over 9 years in equal installments. The writing off commenced in 2009. (v) The fixed asset investments are in listed companies. The market value of these investments on 31/12/2012 was €280,000. There was no purchase or sales of investment during the year.


(vi) Provide for debenture interest due, auditor’s fees €22,000, director’s fees €56,000 and corporation tax €37,000.


(vii) On 20/12/2012, the company received a letter from a former employee who was dismissed on 01/09/2012. The employee is claiming unfair dismissal. The company’s legal advisor believes that the company is likely to be liable. The maximum liability for legal costs is estimated at €46,000.


You are required to: Prepare the published Profit and Loss Accounts for the year 31/12/2012, in accordance with the Companies Acts and appropriate accounting standards, showing the following notes: 1 Accounting policy note for Tangible Fixed Assets and Stock 2 Financial Fixed Asset 3 Interest Payable 4 Dividends 5 Contingent Liability


11


180,000 500,000


50,000


200,000 120,000 100,000 60,000 90,000


110,000


300,000 650,000 65,000


150,000 25,000


100,000 30,000


30,000 80,000


400,000 100,000 9,000


€


Contingent Liability is likely, so include in Administration Expenses, and in the balance as a provision for liabilities and charges. Write also a note to the accounts.


159


TIP


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